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Pharmaceutical Supply Chain in Europe - Adoption of Direct to Pharmacy (DTP) Model to Boost Efficiency and Optimize Pricing

Executive Summary

The European Pharmaceutical Supply Chain Branches Out.

Pharmaceutical companies are hiring a little help, and joining with Third Party Logistics (3PL), but are they abandoning too much control over their business, asks a new report by healthcare experts GBI Research.

The new report states that use of 3PL companies is a growing trend in the global pharmaceutical supply chain, as cost cutting measures encourage businesses to use outside companies, who can offer services at competitive prices. However, while Direct to Pharmacy (DTP) and Reduced Wholesaler Agreements (RWA) models play a vital role in the UK, other EU countries are boosting their direct sales, and only time will tell which approach will succeed.

Around 772 full-line wholesalers in Europe supplied pharmaceutical products to pharmacies, hospitals and doctors in 2010, according to the European Association of Pharmaceutical Wholesalers (GIRP). During this year, the overall sales turnover generated within EU-27 countries was valued at $180 billion. The Institute for Pharmaeconomic Research (IPF) concluded that over 703 million transactions took place between pharmaceutical full­line wholesalers, pharmacies and manufacturers every year within France, Germany, Italy, Spain, the Netherlands and the United Kingdom collectively.

However, the number of full-line wholesalers in the UK is decreasing due to a rise in the adoption of alternate distribution systems such as DTP and RWA. The impending absence of full-line wholesalers is expected to increase the number of transactions to 97.9 billion per year, and result in unnecessary transportation and delays for doctors who desperately need medicines.

Logistical help has been prevalent in the pharma industry for several years, as Merck's partnership with United Parcel Service (UPS) in 2003 set the scene for business collaborations. UPS agreed to provide distribution and logistics services in the US, and this was later extended internationally. UPS Inc. now manages the distribution, warehousing and transportation of medicines and vaccines manufactured by Merck in North America, and according to the new deal, the company is set to additionally provide distribution, warehousing and transportation services for Merck in some Asian countries and Latin America, and transportation in Europe. While Merck benefit from a comprehensive delivery service, UPS have secured an enormous contact, and work in the upcoming pharma powerhouses of China and Brazil. However, does this deal signify a loss of control for Merck, as aspects of their business are run by another company?

A study conducted by IPF in 2010 revealed that Spain had the highest involvement of full-line wholesalers in the pharmaceuticals supply chain process, with 96% of total turnover in the country, while the DTP and RWA models had a high market share of 25% in the UK. Whether these two differing approaches lead to disparity between the Europe's quality of healthcare remains to be seen.

Pharmaceutical Supply Chain in Europe - Adoption of Direct to Pharmacy (DTP) Model to Boost Efficiency and Optimize Pricing

This report provides an in-depth analysis on the current scenario of supply chain management. Key participants in the pharmaceutical supply chain in Europe are covered in the report as well as issues such as pricing, labeling, packaging, warehousing, logistics, and distribution.

This report is built using data and information sourced from proprietary databases, primary and secondary research and in-house analysis by GBI Research's team of industry experts.

Abstract

Pharmaceutical Supply Chain in Europe - Adoption of Direct to Pharmacy (DTP) Model to Boost Efficiency and Optimize Pricing

Summary

GBI Research, leading business intelligence provider, has released its latest research report, entitled "Pharmaceutical Supply Chain in Europe - Adoption of Direct to Pharmacy (DTP) Model to Boost Efficiency and Optimize Pricing". The report focuses on the current scenario of supply chain management. Key participants in the pharmaceutical supply chain in Europe are covered in the report as well as issues such as pricing, labeling, packaging, warehousing, logistics, and distribution.

The number of full-line wholesaler in the UK is decreasing due to an increase in the adoption of alternate distribution systems such as DTP and RWA. A study conducted by the Institute for Pharmaeconomic Research (IPF) in 2010 revealed that Spain had the highest involvement of full-line wholesalers in the pharmaceuticals supply chain process, with 96% of total turnover in the country, while direct sales from manufacturers accounted for only 4%. France had the highest share of direct sales from manufacturers. In 2010, the DTP and RWA models had a high market share of 25% in the UK.

European member states have a lot of differentiation in the pricing of pharmaceuticals. As a result of national price controls and regulations, parallel traders get the opportunity to import pharmaceutical products between EU member states. This provides an opportunity to traders to buy pharmaceutical products in low-price member states and re-sell them in high-price areas, resulting in huge profits.

According to the European Federation of Pharmaceutical Industries and Associations (EFPIA) the nature of parallel trade is such that it greatly complicates the traditional route of supply where quality control is effectively checked at all stages. Examples reported by research-based pharmaceutical companies highlight a series of safety and quality problems arising from the handling of pharmaceutical products by parallel traders, in addition to logistic problems and regular product shortages in some countries where medicines simply do not find their way to patients in need. This raises not only serious safety issues in terms of patient consumption, but also acts as an obstacle in case of product recalls.

The total profit made by manufacturing companies, wholesalers and pharmacies has decreased due to several factors related to the respective level of supply chain processes. For manufacturing companies, the primary reasons for low returns are patent expiries, stringent regulations for new product approvals, economic turmoil, changes in demand patterns, and government pressure to reduce drug prices, among others.

Manufacturing companies are increasingly adopting new models of distribution, such as DTP and RWA, to cut out intermediaries and allow wholesalers to strategically becoming a part of new supply chain models. The government is increasingly keeping check on profit percentage margins leading to low profits for wholesalers over the past decade.

As a result, companies are now focusing on international levels with a primary focus on emerging markets to explore new market segments with segment-specific strategies.

Scope

  • Segmentation of pharmaceutical supply industry by its major components such as manufacturers, wholesalers and pharmacies.
  • Key issues and unmet needs of the pharmaceutical supply chain in Europe.
  • Analysis of strategies adopted by pharmaceutical manufacturers and wholesalers to stay competitive in the current scenario
  • Key parameters that are considered for choosing a pharmaceutical supply vendor.
  • Profile of key companies which deal in pharmaceutical supply chain management.
  • Analysis of factors which are considered for outsourcing pharmaceutical supply chains to other companies.

Reasons to buy

  • Decide on the existing market scenario in pharmaceutical supply chain management.
  • Analyze the requirements for regulatory compliance for pharmaceutical supply chain management.
  • Gain knowledge of the key challenges and unmet needs of the pharmaceutical supply chain in Europe.
  • Develop strategies for quality control of pharmaceutical supply materials.
  • Develop risk mitigation strategies to enhance risk management.

TOC

1 Table of Contents

1 Table of Contents 4

  • 1.1 List of Tables 7
  • 1.2 List of Figures 8

2 Pharmaceutical Supply Chain in Europe - Introduction 9

3 Pharmaceutical Supply Chain in Europe - Overview 10

  • 3.1 Introduction 10
  • 3.2 Structure of Supply Chain - Channels of Distribution 10
    • 3.2.1 Manufacturers - Pharmaceutical Companies 11
    • 3.2.2 Wholesalers 11
    • 3.2.3 Pharmacies 11
    • 3.2.4 Parallel Traders 12
  • 3.3 Evolution of Pharmaceutical Supply Chain in Europe 12
    • 3.3.1 The Traditional method 13
    • 3.3.2 Direct-to-Pharmacy (DTP) model 13

4 Pharmaceutical Supply Chain in Europe - Industry Dynamics 14

  • 4.1 Introduction 14
    • 4.1.1 Current Scenario 14
    • 4.1.2 Breakdown of the Retail Price of a Medicine 15
  • 4.2 Pharmaceutical Manufacturers 16
    • 4.2.1 Label Supply Chain 16
    • 4.2.2 Raw Material Supply Chain 17
    • 4.2.3 Third Party Logistics (3PL) 17
    • 4.2.4 Production Supply Chain 17
    • 4.2.5 Distribution Supply Chain 17
    • 4.2.6 Reversed Supply Chain 17
    • 4.2.7 Profit % for Pharmaceutical Manufacturing Company 18
  • 4.3 Wholesale Distributors 19
    • 4.3.1 Current Scenario 19
    • 4.3.2 Split of Turnover of Distribution Channels 20
    • 4.3.3 Time of Delivery and Total Number of Deliveries per Week 21
    • 4.3.4 Distribution Margin 23
    • 4.3.5 Discounts 23
  • 4.4 Pharmacies 24
    • 4.4.1 Horizontal and Vertical Integration 26
  • 4.5 Direct-to-Pharmacy (DTP) Distribution 27
  • 4.6 The Impact of the Distribution Chain on Prices 27
  • 4.7 Policies to Encourage Generic Pharmaceuticals 28

5 Pharmaceutical Supply Chain in Europe - Principles of Pharmaceutical Supply Chain Management 29

  • 5.1 Management Systems 30
    • 5.1.1 Commitment and Accountability 30
    • 5.1.2 Legal and Customer Requirements 30
    • 5.1.3 Risk Management 30
    • 5.1.4 Documentation 30
    • 5.1.5 Training and Competency 30
    • 5.1.6 Continual Improvement 30
  • 5.2 Ethics 31
    • 5.2.1 Business Integrity and Fair Competition 31
    • 5.2.2 Identification of Concerns 31
    • 5.2.3 Animal Welfare 31
    • 5.2.4 Privacy 31
  • 5.3 Labor 31
    • 5.3.1 Freely Chosen Employment 31
    • 5.3.2 Child Labor and Young Workers 31
    • 5.3.3 Non-Discrimination 31
    • 5.3.4 Fair Treatment 31
    • 5.3.5 Wages, Benefits and Working Hours 31
    • 5.3.6 Freedom of Association 31
  • 5.4 Health and Safety 32
    • 5.4.1 Worker Protection 32
    • 5.4.2 Process Safety 32
    • 5.4.3 Emergency Preparedness and Response 32
    • 5.4.4 Hazard Information 32
  • 5.5 Environmental Protection 32
    • 5.5.1 Environmental Authorizations 32
    • 5.5.2 Waste and Emissions 32
    • 5.5.3 Spills and Releases 32

6 Pharmaceutical Supply Chain Industry - Key Issues 33

  • 6.1 Introduction 33
  • 6.2 Parallel Trade 33
    • 6.2.1 Percentage Share of Parallel Imports among EU Countries in Pharmacy Market Sales 33
    • 6.2.2 Supply Quota Systems (SQS) 34
    • 6.2.3 Dual pricing systems 34
  • 6.3 Counterfeits 35
    • 6.3.1 New Directive by EU Commission for Falsified Medicines 36
  • 6.4 Difference in Price Regulation 36
  • 6.5 Packaging Variations 36
  • 6.6 Variation in Applicable VAT Rates 37
  • 6.7 Difference in Registration Procedure 37
    • 6.7.1 GSK- Case Study 37
  • 6.8 Difference in Marketing Authorization 39
    • 6.8.1 GSK- Case Study 39
  • 6.9 Lag in Technological Adoption 40
    • 6.9.1 GSK- Case Study 40
  • 6.10 Specific Market Labeling 41
    • 6.10.1 Repackaging and Relabeling of Products 41
  • 6.11 EU Draft Guidelines on GDP in Europe 42
    • 6.11.1 Introduction 42
    • 6.11.2 Problem 42
  • 6.12 Tendering 44
  • 6.13 Disruption in Supply Chain- Case Study 44
    • 6.13.1 Drug Shortages in Europe - The UK 44

7 Pharmaceutical Supply Chain in Europe - Strategies Shift in the Business Model 45

  • 7.1 Introduction 45
  • 7.2 Factors Leading to Changes in the Business Models of Pharmaceutical Companies in Mature Markets 45
    • 7.2.1 Diminishing Revenues in Mature Markets Due to Patent Expiries of Blockbuster Drugs 45
    • 7.2.2 Rising Competition in Mature Markets and Rapid Growth of Pharmaceutical Sales in Emerging Countries 46
    • 7.2.3 Rising imports 46
    • 7.2.4 Point of Delivery 47
    • 7.2.5 Requirement of New Packaging Practices 47
    • 7.2.6 Pricing Pressures 47
    • 7.2.7 Patient Centric- B2C Supply Chain 47
  • 7.3 Strategies to Evolve Supply Chains 48
    • 7.3.1 Introduction 48
    • 7.3.2 Entering Emerging Markets 48
    • 7.3.3 Free Trade Agreements to Generate Cost Savings 49
    • 7.3.4 Raw Material Procurement Strategies 50
    • 7.3.5 Distribution Cost Reduction 51
    • 7.3.6 Strategic Sourcing Models 52
    • 7.3.7 Supply Chain Agility 54
    • 7.3.8 Centralized Supply Chain and Local Logistics Presence 55
  • 7.4 Examples of Change in Supply Chain Arrangements in the UK 56

8 Pharmaceutical Supply Chain In Europe - Risk Management 58

  • 8.1 Market Risks 58
    • 8.1.1 Economic Risks 58
    • 8.1.2 Regulatory Risks 58
    • 8.1.3 Specific Market Risks 59
  • 8.2 Corporate Strategy Risks 59
  • 8.3 Operating Business Risks 59
    • 8.3.1 Interruption of Operating Business 59
    • 8.3.2 Counterfeit Pharmaceuticals 59
    • 8.3.3 Dispensing Errors 60
    • 8.3.4 Incorrect Handling of Medicines in the Logistics Chain 60
  • 8.4 Financial Risks 60
    • 8.4.1 Currency Risks 60
    • 8.4.2 Risk of Default on Receivables 60
    • 8.4.3 Liquidity and Financing Risks 60
    • 8.4.4 Interest Rate Risks 60
    • 8.4.5 Counterparty Risks from Derivatives 61
    • 8.4.6 Measurement Risks 61
  • 8.5 Information Technology (IT) Risks 61
  • 8.6 Personnel Risks 61
  • 8.7 Legal Risks 61

9 Pharmaceutical Supply Chain In Europe - Drivers and Restraints 62

  • 9.1 Drivers 62
    • 9.1.1 Free Trade Policy 62
    • 9.1.2 DTP Model 62
    • 9.1.3 Universal Health Care 62
    • 9.1.4 New Directive on Counterfeit Medicines 63
  • 9.2 Restraints 63
    • 9.2.1 Parallel Imports 63
    • 9.2.2 Differences in Price Regulation 63
    • 9.2.3 Differences in Packaging Variations 63
    • 9.2.4 Differences in VAT rates 64

10 Pharmaceutical Supply Chain In Europe - Company Profiles of Leading Wholesalers 65

  • 10.1 Celesio Group 65
    • 10.1.1 Pharmacy Solutions 66
    • 10.1.2 Patient and Consumer Solutions 67
    • 10.1.3 Manufacturer Solutions 67
  • 10.2 Alliance UniChem in Europe 69
    • 10.2.1 Pharmaceutical Wholesaling and Distribution 69
  • 10.3 PHOENIX Pharmaceutical Activities in Europe 70
    • 10.3.1 Wholesale Business 70
    • 10.3.2 Retailing 70
    • 10.3.3 Supplier Services 70
    • 10.3.4 Subsidiaries 71

11 Pharmaceutical Supply Chain Industry in Europe - Company Profiles of Leading Logistic Providers 72

  • 11.1 UPS 72
  • 11.2 DHL 73

12 Pharmaceutical Supply Chain in Europe - Appendix 74

  • 12.1 Market Definitions 74
  • 12.2 Abbreviations 74
  • 12.3 Bibliography 74
  • 12.4 Research Methodology 76
    • 12.4.1 Coverage 77
    • 12.4.2 Secondary Research 77
    • 12.4.3 Primary Research 77
    • 12.4.4 Expert Panel Validation 78
  • 12.5 Contact Us 78
  • 12.6 Disclaimer 78

List of Tables

1.1 List of Tables

  • Table 1: Pharmaceutical Supply Chain in Europe, Top Five Countries in Europe, Split of Turnover of Distribution Channels in Respective Countries (%), 2010 20
  • Table 2: Pharmaceutical Supply Chain in Europe, Number of Deliveries per Week and Time Taken for Each Delivery (Hours), 2010 21
  • Table 3: Pharmaceutical Supply Chain in Europe, Discount Rates Offered by Wholesalers (%), 2010-2011 23
  • Table 4: Pharmaceutical Supply Chain in Europe, Total Number of Pharmacies in EU-32, 2011 25
  • Table 5: Pharmaceutical Supply Chain in Europe, Pharmacist Remuneration Systems for Reimbursed Generic Medicines in Europe, 2011 26
  • Table 6: Pharmaceutical Supply Chain in Europe, Overview, Share of Parallel Imports in Pharmacy Market Sales (%) 2009 34
  • Table 7: Pharmaceutical Supply Chain in Europe, VAT Rates for Outpatient Prescription Medicines, 2009 37
  • Table 8: Pharmaceutical Supply Chain in Europe, Import and Export in European Pharmaceutical Industry ($bn), 2009-2011 46
  • Table 9: Pharmaceutical Supply Chain in Europe, The UK, Companies Implementing Distribution Changes in the Supply Chain Model, 2011-2012 56
  • Table 10: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Celesio, Full-Line Wholesaler Brands, 2012 66
  • Table 11: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Celesio, Pharmacy Trademarks, 2012 67
  • Table 12: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Celesio, Business Marketing and Logistics Trademarks, 2012 68

List of Figures

1.2 List of Figures

  • Figure 1: Pharmaceutical Supply Chain in Europe, Overview, Supply Chain Structure, 2012 10
  • Figure 2: Pharmaceutical Supply Chain in Europe, Overview, Customized Supply Chain Structure, 2012 12
  • Figure 3: Pharmaceutical Supply Chain in Europe, Overview, Breakdown of The Retail Price of A Medicine (%), 2010 14
  • Figure 4: Pharmaceutical Supply Chain in Europe, Overview, Breakdown of the Retail Price of A Medicine (%), 2009 15
  • Figure 5: Pharmaceutical Supply Chain in Europe, Manufacturer's Role in the Pharmaceutical Supply Chain, 2011 16
  • Figure 6: Pharmaceutical Supply Chain in Europe, Profit for Pharmaceutical Manufacturing Company, %, 2011 18
  • Figure 7: Pharmaceutical Supply Chain in Europe, Market Share of Full-Line Wholesalers, 2010 19
  • Figure 8: Pharmaceutical Supply Chain in Europe, Top five Countries in Europe, Split of Turnover of Distribution Channels in Respective Countries (%), 2010 20
  • Figure 9: Pharmaceutical Supply Chain in Europe, Number of Deliveries per Week and Time Taken for Each Delivery (Hours), 2010 21
  • Figure 10: Pharmaceutical Supply Chain in Europe, Working Capital Flow Through Supply Chain, 2010 22
  • Figure 11: Pharmaceutical Supply Chain in Europe, Wholesale Distribution Margin, 2009-2010 23
  • Figure 12: Pharmaceutical Supply Chain in Europe, Total Number of Pharmacies in EU-32, 2011 24
  • Figure 13: Pharmaceutical Supply Chain in Europe, PSCI Founding Members, 2012 29
  • Figure 14: Pharmaceutical Supply Chain in Europe, Principles of Pharmaceutical Supply Chain Management, 2007 30
  • Figure 15: Pharmaceutical Supply Chain in Europe, Overview, Share of Parallel Imports in Pharmacy Market Sales (%) 2009 33
  • Figure 16: Pharmaceutical Supply Chain in Europe, Case Study 35
  • Figure 17: Pharmaceutical Supply Chain in Europe, Case Study 37
  • Figure 18: Pharmaceutical Supply Chain in Europe, Case Study 39
  • Figure 19: Pharmaceutical Supply Chain in Europe, Case Study 40
  • Figure 20: Pharmaceutical Supply Chain in Europe, Case Study, 2011 44
  • Figure 21: Pharmaceutical Supply Chain in Europe, Factors Leading to Changes in the Business Models of Pharmaceutical Companies in Mature Markets, 2012 45
  • Figure 22: Pharmaceutical Supply Chain in Europe, Import and Export in European Pharmaceutical Industry ($bn), 2009-2011 46
  • Figure 23: Pharmaceutical Supply Chain in Europe, Global Supply Chain Model, 2012 48
  • Figure 24: Pharmaceutical Supply Chain in Europe, Using Free Trade Agreements to Generate Cost Savings, 2012 49
  • Figure 25: Pharmaceutical Supply Chain in Europe, Raw Material Procurement, 2012 50
  • Figure 26: Pharmaceutical Supply Chain in Europe, Reforming Costs by Optimizing Cash Flow and Working Capital Structure, 2012 51
  • Figure 27: Pharmaceutical Supply Chain in Europe, Strategic Sourcing Model, 2012 52
  • Figure 28: Pharmaceutical Supply Chain in Europe, Case Study, 2011 53
  • Figure 29: Pharmaceutical Supply Chain in Europe, Agile Supply Chain, 2012 54
  • Figure 30: Pharmaceutical Supply Chain in Europe, Centralized Supply Chain and Local Logistics Presence, 2012 55
  • Figure 31: Pharmaceutical Supply Chain in Europe, Risk Management, 2012 58
  • Figure 32: Pharmaceutical Supply Chain in Europe, Drivers and Restraints, 2012 62
  • Figure 33: Pharmaceutical Supply Chain in Europe, Company Profiles of Leading Wholesalers, Celesio, 2012 65
  • Figure 34: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Alliance Healthcare, 2012 69
  • Figure 35: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Phoenix Healthcare, 2012 70
  • Figure 36: Pharmaceutical Supply Chain in Europe, Company Profiles of Leading Logistic Providers, UPS, 2012 72
  • Figure 37: Pharmaceutical Supply Chain in Europe, Company Profiles of Leading Logistic Providers, DHL, 2012 73
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