Wednesday, April 04, 2007

Will US logistics deals be illegal?

Yesterday, the UK’s Office of Fair Trading (OFT) announced its intention to study the pharmaceutical wholesaling market in light of Pfizer’s new distribution arrangement with Alliance Unichem. (See OFT's statement on Distribution of medicines in the UK.)

However, you probably don't realize that a similar arrangement in the U.S. between a manufacturer and a wholesaler would probably be illegal if the proposed importation bill (S.242) before the U.S. Senate becomes law. Trade relations and commercial relations executives should pay attention because importation legislation explicitly limits the way a manufacturer can structure its U.S. distribution agreements. (CYA Notice: I'm not a lawyer. Read the disclaimer at the bottom of this page!)

I have been following international drug channels for some time, most recently in A New Era for Distribution. OFT's statement explaining the rationale behind the study states:

“The pharmaceutical wholesaling sector is undergoing significant change, the competition implications of which are unclear. As of 5 March 2007 Unichem Limited has become the sole logistics service provider to Pfizer Limited. This represents a fundamental change to the workings of this sector and has prompted widespread concern among pharmacists, dispensing doctors and competing wholesalers. Other pharmaceutical manufacturers are also considering similar changes to their distribution arrangements.”

In my opinion, Pfizer has at least two legitimate objectives for their deal with Unichem:

  1. Lower the risk of counterfeit products entering the supply chain
  2. Recapture lost revenue from parallel importing
Given these reasons, I believe that the proposed importation legislation would make it illegal for Pfizer to set up a sole logistics provider relationship in the U.S.

In particular, the actions listed as “Unfair and Discriminatory Acts and Practices” in S.242 are clearly modeled upon manufacturers' strategies for managing parallel trade in the EU. (See the section beginning on line 13 of page 74 of S.242 Pharmaceutical Market Access and Drug Safety Act of 2007.) IOW, manufacturers will also have little choice about whether to do business with known US importers or non-US exporters.

Keep in mind that the importation bill is co-sponsored by all three Presidential candidates from the Senate – McCain, Clinton, and Obama. Iraq and the Medicare “direct negotiations” movement will keep the Senate busy this term, but look for action on importation in late 2007 and 2008.

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