7 min readIn the Best Interests of the Common Man
Distribution of pharmaceutical products from the manufacturers to the end-users is as important as the quality of the products themselves. For decades, this distribution has followed a traditional model until recently, where Direct-to-Pharmacy (DTP) distribution threatens to replace the traditional model. Distribution of pharmaceutical products from the manufacturers to the end-users is as important as the quality of the products themselves. For decades, this distribution has followed a traditional model until recently, where Direct-to-Pharmacy (DTP) distribution threatens to replace the traditional model.
The wholesaler’s community have been the first to raise concerns over the direct-to-pharmacy distribution model. The DTP model effectively converts the wholesalers into fee-for-service providers, who were originally being paid for through gross margins and discounts. The issue that raises concerns amongst the wholesaler’s community is not the functioning of the model, rather it is the controversial strategy adopted by huge pharmaceutical companies to distribute their products.
Pfizer, a pharmaceutical giant, has recently agreed to distribute its products directly to the pharmacists through a single wholesaler (Unichem). This model prevents other wholesalers from distributing Pfizer’s products to their customer base, the retailers. To add salt to the wholesaler’s wounds, other pharma giants are beginning to follow Pfizer’s path. So, why are the wholesaler’s frustrated and why are the pharma giants interested in adopting the much criticised DTP model?
From the wholesalers’ point of view, if all pharma companies continue to follow Pfizer’s model of distribution through selected wholesalers’, the less prominent wholesalers would be losing business or worse shutting down operations. Decades ago, the wholesaler community was fragmented with too many distributors. After several years of consolidation in this industry, these numbers have reduced and now there are the huge ones and the rest of them. A pharma giant would not be interested in handing over the responsibility of distributing its entire portfolio of products to anybody other than the major companies. This effectively puts the less significant companies out of business and the future years could witness disappearance of quite a few of these ‘other’ companies. Their operations would be taken over by one of the major distribution companies. This leaves the pharma companies with even fewer options while choosing a distribution partner.
There is another major concern, this one from the pharmacists and the retailer community. They are worried that the new system, where there is one or two suppliers for the entire portfolio of patented products from one major company, will restrict their ability to negotiate with the wholesalers for the best possible prices. Traditionally, there were a number of wholesalers selling the same products and each one would offer varying levels of discounts to attract customers. Now, these customers are inevitably forced to buy from one wholesaler and have to agree to the terms of that wholesaler. Thankfully, other major pharma companies have not chosen to distribute through a single wholesaler. AZ, for example has decided to partner with AAH, another major competitor in the pharmaceuticals distribution market, and Unichem. However, this model still takes business away from the regional wholesalers.
Other concerns raised are the changes in cut-off times for ordering medicines and delivery times. Pharmacists are concerned that patients have to wait longer for the arrival of medicines and there is no guarantee that they will arrive on time. In Pfizer’s case, the pharmacists can do nothing but wait for the medicines, since there is no second wholesaler. This is a classic example of what a lack of competition brings to the market environment. In the traditional model, a wholesaler would be concerned if his customer is unhappy with his delivery time, discounts and such. There is room for the wholesaler’s competitors, especially the regional players, to offer better terms to attract business. This doesn’t happen anymore.