The Pharmaceutical Wholesale and Distribution Industry Outlook & Analysis 2008

Table of Contents

Chapter 1 Executive Summary

• 1.1 Continual Low Profit Margins is the Major Problem for the W&D Industry
• 1.2 Parallel Trade Will Not Go Away
• 1.3 Canada and US Drug Reimportation Will Not Develop Further
• 1.4 Direct-to-Pharmacy Distribution Will Cut Out the ' Middle Man'
• 1.5 Drug Counterfeiting is a Problem for Western Markets but can be Controlled
• 1.6 Internet drugs (Mail Order and On-line Pharmacies) will Show Increasing Growth
• 1.7 The Increasing Genericisation of all Drug Markets Remains a Threat to the W&D Industry
• 1.8 Aims, Scope and Format of the Report

Chapter 2 Introduction

• 2.1 The Wholesale and Distribution Industry - Overview
  • 2.1.1 Drug Wholesalers - More Than Just a Middleman
  • 2.1.2 Roles and Functions of the W&D Companies
  • 2.1.3 Distinctive Features and Difficulties Facing the Pharmaceutical UK Wholesale Market
• 2.2 There are Four Different Types of Wholesaler
  • 2.2.1 Full-line wholesalers
  • 2.2.2 Short-line wholesalers
  • 2.2.3 Pre-wholesaling is Predominantly a European Experience
  • 2.2.4 Secondary Wholesaler' s and their Effect on the Pharmaceutical Industry
• 2.3 The Supply Chain: The Importance of an Efficient Supply Chain for Competitive Operations Within the Pharmaceutical Industry
  • 2.3.1 The Internet is Rapidly Becoming an Integral Part of the W&D Supply Chain
• 2.4 The Big Three Dominates the US W&D Industry
• 2.5 The Top Ten Countries in the Pharmaceutical Industry - Retail & Hospital Sector Breakdown

Chapter 3 Forces Affecting the Pharmaceutical Wholesale-Distribution Industry

• 3.1 SWOT analysis
  • 3.1.1 Market Drivers
  • 3.1.2 Market Restraints
• 3.2 High Demand for Pharmaceutical Products Will Drive the Wholesale-Distribution Industry
• 3.3 The Efficiency of W&D Operations Helps to Keep Drug Prices Low
• 3.4 Fee-For-Service is Becoming Predominant in the US But Will Not Affect European W&D
• 3.5 Globalisation Will Provide an Opportunity to Expand the Wholesale-Distribution Industry - However it Could Increase More Parallel Trading and Drug Counterfeits
• 3.6 Continual Low Profit Margins is the Major Problem for the W&D Industry
  • 3.6.1 The Increasing Genericisation of all Drug Markets Remains a Threat to the W&D Industry Profit Margin
• 3.7 The European W&D Industry is Hampered by Strict Drug Price Controls
• 3.8 Drug Counterfeiting is a Problem for Western Markets but Can be Controlled
• 3.9 Would Market Harmonisation in the EU Eliminate the Practice of Parallel Trade?
  • 3.9.1 The Exhaustion of IPR Allows for the Importation of Drugs
• 3.10 Direct-to-consumer distribution channels will diminish the role of wholesalers
• 3.11 Structural Changes Within the European Pharmaceutical Markets Affecting the Wholesale & Distribution Industry
• 3.12 W&D and Price Regulation in India
• 3.13 Antimicrobial Drug Supply and Distribution in the Developing Countries

Chapter 4 Parallel Trade in the W&D Industry

• 4.1 What is Parallel Trade and Why Does it Exist?
• 4.2 Pricing in the Pharmaceutical Industry
  • 4.2.1 Factors that Influence Pricing
  • 4.2.2 Price Differentials
  • 4.2.3 Pricing is Not the Only Factor in Determining the Parallel Trade Potential for a Drug
  • 4.2.4 The Repackaging of Pharmaceuticals is an Important Aspect of Parallel Trade
• 4.3 Exhaustion of Rights
  • 4.3.1 National Exhaustion
  • 4.3.2 Regional Exhaustion
  • 4.3.3 International Exhaustion
  • 4.3.4 Intellectual Property Rights
• 4.4 Parallel Trade is Predominantly a European Activity
• 4.5 The UK is the Largest Importer of Parallel Traded Drugs
  • 4.5.1 The Method of Parallel Trade Importing into the UK
  • 4.5.2 The Regulation of UK Parallel Trade
• 4.6 The Arguments For and Against Parallel Trade
• 4.6.1 The Drug Company' s Arguments Against Parallel Trade are Weak
• 4.7 EU Drug Price Harmonisation is Unlikely

Chapter 5 Drug Counterfeits - A Major Problem in the W&D Industry

• 5.1 The Legal Definitions of a Counterfeit Drug
  • 5.1.1 Grouping Counterfeits
• 5.2 Prevalence of Counterfeiting
• 5.3 The Economic and Healthcare Cost of Drug Counterfeiting
  • 5.3.1 The Economic Cost of Drug Counterfeiting
  • 5.3.2 The Health Cost of Drug Counterfeiting
  • 5.3.3 The Most Commonly Counterfeited Drugs by Country Region
  • 5.3.4 Counterfeit Drugs Thrive Through Lack of Adequate and Enforceable Legislation
• 5.4 Counterfeit Drugs is Not Just a Developing World Problem
• 5.5 Counterfeit Lipitor Dispersed Through the UK Supply Chain
• 5.6 Global Reports of Counterfeit Medicines
• 5.7 Moving Counterfeit Drugs into the Supply Chain
  • 5.7.1 The Distribution Network as the Place of Entry for Counterfeit Drugs
• 5.8 The Detrimental Effects of Counterfeit Drugs on Business Development
  • 5.8.1 The Effect of Counterfeit Drugs on Consumers
  • 5.8.2 The Effect of Counterfeit Drugs on Drug Manufacturers
  • 5.8.3 The Effect of Counterfeit Drugs on Health Care Providers
  • 5.8.4 The Effect of Counterfeit Drugs on Governments
• 5.9 The Four Types of Counterfeit Drugs
• 5.10 The Complexity of Wholesale and Distribution Routes Aids the Counterfeiter
• 5.11 The Regulatory Strategies in Combating Drug Counterfeiting
• 5.12 The Technical Strategies in Combating Counterfeit Drugs
  • 5.12.1 Holograms as Anti-Counterfeiting Devices
  • 5.12.2 Security Inks as Anti-Counterfeit Devices
  • 5.12.3 Micro Tags as Anti-Counterfeit Devices
  • 5.12.4 Radio Frequency Identification Tags (RFID) as Anti-Counterfeit Devices

Chapter 6 Fee-For-Service Pricing Model in the Pharmaceutical Wholesaling Industry

• 6.1 What is the Fee-For-Service Pricing Model?
  • 6.1.1 Why Switch to This Pricing Model?
• 6.2 Advantages and Disadvantages for the Fee-For-Service Pricing Strategy
• 6.3 Drug Manufacturers Will Want an Incentive to Shift to Fee-For-Service
• 6.4 Fee-For-Service is a Risk for the W&D Industry
• 6.5 The US Big Three W&D Companies Have Prepared for Fee-For-Service
• 6.6 Inventory Management Agreements (IMAs) are the Fee-For-Service Agreements
  • 6.6.1 The Experience of Fee-For-Service/IMAs is Limited
• 6.7 Fee-For-Service in the US and Europe Compared
• 6.8 US Based Cardinal Health Signs Fee-For-Service Deal with Eli Lilly
• 6.9 AmerisourceBergen and McKesson Say Fee-For-Service Negotiations are on Track
• 6.10 Fee-For-Service is the Future of the W&D Industry

Chapter 7 Canada and US Drug Reimportation

• 7.1 Pricing Differential Has Led to Drug Reimportation
• 7.2 Drugs are Not Always Cheaper in Canada Compared With the US
• 7.3 Generic Drugs Cheaper in the US and not Canada
• 7.4 It is Legal for the US to Import Drugs from Canada but only if the Drugs are Proven Safe
  • 7.4.1 The US Drug Regulators Cannot Guarantee Imported Drug Safety
• 7.5 The US States Currently Active in US/Canada Drug Reimportation
• 7.6 Why are Pharmaceutical Prices Lower in Canada?
• 7.7 Reimportation is a Form of Price Control That May have Poor Financial Consequences for the Pharmaceutical Industry
• 7.8 The Response of the Major Drug Companies on Drug Reimportation from Canada
• 7.9 The Response of the Canadian Pharmacies to Drug Reimportation
• 7.10 The Overall Savings from Drug Reimportation for the Consumer and the US Government is Small
• 7.11 Drug Reimportation Will Never Work on a Large Scale

Chapter 8 The Big Three US Wholesalers

• 8.1 The Big Three - Overview
• 8.2 McKesson - the Leading Wholesaler in the US
  • 8.2.1 Pharmaceutical Solutions
  • 8.2.2 Medical-Surgical Solutions
  • 8.2.3 Information Solutions
  • 8.2.4 Business Switch to Fee-For-Service Model
• 8.3 Cardinal Health had Revenues of $81bn for the 2007 Financial Year
  • 8.3.1 Pharmaceutical Distribution and Provider Services
  • 8.3.2 Fee-For-Service Move
  • 8.3.3 Cardinal Health and CMS Sign Primary Distribution Agreement for RFID-enabled Sponge Counting, Detection System
• 8.4 AmerisourceBergen Will Remain as the Third Largest US Wholesaler
  • 8.4.1 AmerisourceBergen Losses Important VA Contract
  • 8.4.2 ABC Announces $250 Million Accelerated Share Repurchase Transaction
  • 8.4.3 ABC Buys Bellco Health for $190 Million
• 8.5 Competition Between the Big Three Remains High

Chapter 9 Direct to Pharmacy Distribution in the W&D Industry

• 9.1 What is Direct to Pharmacy Distribution (DTP)?
• 9.2 What are the Benefits of This Distribution Model?
• 9.3 The Concerns of DTP
  • 9.3.1 The Concerns of DTP from the Perspective of Wholesalers
  • 9.3.2 The Concerns of DTP from the Perspective of Pharmacists
  • 9.3.3 The DTP model from the Perspective of the Pharmaceutical Manufacturers
  • 9.3.4 The Implications of DTP
  • 9.3.5 DTP Adoption Will Affect Competition in the W&D Industry
• 9.4 DTP Model Will Not Stop Counterfeit Drugs Entering the Pharmaceutical Supply Chain, Experts Say
• 9.5 AstraZeneca UK - The Latest Manufacturer to Introduce DTP Distribution
• 9.6 DTP is Predominately Adopted in the UK Only - Will This Spread Across the Major Markets?

Chapter 10 Internet Drugs: Mail Order and On-Line Pharmacies

• 10.1 The Internet - A Relatively New Method of Selling Drugs to the Consumer
• 10.2 Use of the Internet Usage has Seen High Growth in Both the Developing and Developed Countries/Regions
• 10.3 The US has the Highest Numbers of Internet Users
• 10.4 Online Pharmacies Offer a Diverse Number of Services
• 10.5 US Mail Order/On-line Drugs has High Growth
• 10.6 Online Pharmacies May Need to Diversify their Business Base
• 10.7 Most US Online Drug Sales are from Women
• 10.8 Online Drugs and Services May Pose a Significant Health Risk
• 10.9 Consumers Satisfied with Mail Order
• 10.10 On-line Prescriptions Facts
• 10.11 European Online Drug Sales are Low and Limited to OTC
• 10.12 Online Pharmacy Sites are A Potential Haven for Counterfeiters
• 10.13 The Verified Internet Pharmacy Practice Site (VIPPS)

Chapter 11 Conclusions - The Pharmaceutical W&D Sector is Undergoing Significant Change

• 11.1 High Demand for Pharmaceutical Products Will Drive the W&D Industry
  • 11.1.1 Factors That Will Drive the W&D Industry
  • 11.1.2 Factors That Will Restrain the W&D Industry
• 11.2 Wholesale Distribution in the European Market Region
• 11.3 Wholesale Distribution in the US Market Region
• 11.4 Advantages and Disadvantages for the Fee-For-Service Pricing Strategy
• 11.5 Despite the Development of Fee-for-Service Both the US and European W&D Industries will see Continually Low Profit Margins
• 11.6 Direct-to-Consumer Distribution Channels will Diminish the Role of Wholesalers
• 11.7 The Complexity of Wholesale and Distribution Routes Aids the Counterfeiter

List of Tables

• Table 2.1 Types of Wholesalers Described, 2008
• Table 2.2 Pharmaceutical retail & hospital breakdown ($bn) in the top ten countries, 2006
• Table 2.3 Pharmaceutical retail & hospital breakdown (%) in the top ten countries, 2006
• Table 3.1 SWOT Analysis of the W&D Industry
• Table 4.1 Comparative Drug Prices in Selected Developed Countries
• Table 4.2 All Factors that Influence Drug Prices
• Table 4.3 Pricing Differentials for Leading Drugs (30 day supply)
• Table 5.1 Top Ranked Countries where Counterfeits were Seized/Discovered
• Table 7.1 Comparison of Drug Prices Between the US and Canada, 2008
• Table 7.2 Comparison of Generic Drug Prices Between the US and Canada, 2008
• Table 8.1 Segment breakdown of McKesson' s Revenue, 2007
• Table 8.2 McKesson Revenue Forecast ($bn), 2008-2013
• Table 8.3 Cardinal Health' s Revenue ($bn) and Operating Margin (%), 2004-2007
• Table 8.4 Cardinal Health Revenue Forecast ($bn), 2008-2013
• Table 8.5 AmerisourceBergen Revenue Forecast ($bn), 2008-2013
• Table 8.6 ABC' s Operating Income and Revenue ($m), 2005-2007
• Table 10.1 World Internet Usage and Population Statistics, 2007
• Table 10.2 Top Ten Countries with Highest Number of Internet Users, 2007
• Table 10.3 Countries with the Highest Internet Penetration Rate, 2007
• Table 10.4 US Prescription Sales ($bn) by Distribution Sector, 2007
• Table 10.5 Market Share (%) of US Mail Order Revenue of all Prescription Sales ($bn), 2003-2007

List of Figures

• Figure 2.1 Pharmaceutical retail & hospital breakdown ($bn) in the top ten countries, 2006
• Figure 5.1 Flow diagram of how drug counterfeits enter the US supply chain
• Figure 8.1 Revenues of the big three US wholesalers ($bn), 2007
• Figure 8.2 ABC' s Business Segment Breakdown (%), 2007
• Figure 8.3 Revenue Forecasts' of the Big Three US Wholesalers ($m), 2008-2013
• Figure 10.1 US Prescription Sales by Distribution Sector, Market Share (%), 2007
• Figure 10.2 Market Share (%) of US Mail Order Revenue of all Prescription Sales ($bn), 2003-2007

Companies Listed

• AAH Pharmaceuticals
• Alliance UniChem
• American Bank Note Holographics
• (ABNH)
• AmerisourceBergen Corp. (ABC)
• AstraZeneca
• British Association of Pharmaceutical
• Wholesalers (BAPW)
• Cardinal Health (CAH)
• Caremark Rx
• Celesio
• ClearCount Medical Solutions (CMS)
• Department of Health (DH)
• DIGEMID
• Eli Lilly
• EMEA
• Express Scripts
• FDA
• FSHSS
• GSK
• Health and Human Services (HHS)
• Health Maintenance Organisations
• (HMOs)
• IMS
• International Pharmaceutical
• Manufacturers Group (IPMG)
• IWS
• McKesson (MCK)
• Medco Health Solutions
• Medicines and Healthcare Products
• Regulatory Agency (MHRA)
• MINSA
• National Association of Boards of
• Pharmacy (NABP)
• National Health Service (NHS)
• Nielsen
• OFT
• Patented Medicine Prices Review
• Board (PMPRB)
• Pembroke Consulting
• Pfizer
• Pharmaceutical Care Management
• Association (PCMA)
• Sanofi-Aventis
• UniChem Limited
• UnitedHealth Group
• World Health Organisation (WHO)