Tuesday, November 06, 2007

Behind the Scenes of Pfizer UK

I’m blogging to you from the 2007 PharmaLink conference in Las Vegas. I’ll be speaking on Tuesday about the future of manufacturer-wholesaler relationships.

Today, I heard a fascinating presentation from Steve Poulton, Director of Commercial Operations for Pfizer UK. He explained how Pfizer shifted from selling through wholesalers to selling directly to dispensers using a single wholesaler as a logistics partner (Alliance Unichem).

I’ve been covering Pfizer’s strategy in previous posts (See Pfizer's UK Deal: Change is Here! and Pfizer wins again). Briefly, Pfizer now pays a per-package logistics fee to one wholesaler to distribute its products to pharmacies, hospitals, and dispensing physicians in the UK. Customers are purchasing from Pfizer, even though Alliance Unichem handles ordering and fulfillment.

Steve provided a lot more detail on the mechanics and costs behind Pfizer's strategy shift. A few interesting things that I learned:
  • Pfizer spent a lot of time and money setting up this program. There were many (10?) internal teams plus a steering committee. Total time from conception to "go live" was more than 3 years.
  • Over 22 million packs have been delivered since the program began.
  • Service levels to customers—defined as “on time, in full” deliveries—are now running at 99.4%, which is higher than when Pfizer used to sell through wholesalers. Hence, there have been very few actual customer complaints.
  • Pfizer did not intend to use only one wholesaler. However, AAH was told by its parent company (Celesio) to withdraw from contract negotiations. Phoenix, the third large UK wholesaler, apparently did not submit a proper response to the original RFP. Ironically, both AAH and Phoenix are now working with other manufacturers on logistics deals.
Clearly, the title of my most recent post on the UK situation was not accurate in stating Pfizer's UK Plan in Trouble. In particular, Steve claims that the use of a single wholesaler is not a problem because the government is only concerned that (a) costs to the National Health Service don’t go up, and (b) patients can still access Pfizer drugs.

Despite these positives, I’m still skeptical that Pfizer’s plan will stop counterfeits. UK pharmacies can still choose to be naughty and purchase parallel import or gray market products. Pfizer can guarantee the security of its own supply chain but can not force pharmacies to buy through the legitimate channel. Once again, pharmacies are the weak link in guarding the supply chain against counterfeits—a demand-side security problem that just won’t go away. (Sorry, pedigree fans.)

I also want to add that a Pfizer-type arrangement would be much, much more difficult here. There are only 15,000 points of dispensing over there compared to 150,000+ in the US. I saw a few US executives stop taking notes once Steve talked about the organizational and financial realities of direct distribution.

All in all, this was a great behind-the-scenes peek at an apparently successful channel redesign. Wish you were here!

5 comments:

  1. The direct dispensing of medicines by Pfizer,UK may be an appropriate strategy through tight control on supply chain management. But the strategy assumes that pharmacy stores would stick only to legal channels.

    Further, how effective would be for a large country like USA is debatable. As an anti-counterfeit measure, it is not a good solution.

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  2. Adam,
    I agree with you that pharmacies are the weak link in guarding the supply chain, but I don't get why you think a demand-side security problem is a blow against pedigrees. It simply demonstrates that pharmacies must not be excluded from any successful pedigree program. Drugs sold/purchased by pharmacies outside of that program would have to be considered illegitimate and therefore illegal and subject to penalties. Isn't that enough to stop most of that kind of activity?

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  3. myYachoo,

    Complete security would require all pharmacy buyers to authenticate pedigree documents (electronic or paper). I think that's an unrealistic operational expectation for many pharmacies, so it might encourage unsafe sourcing from vendors that are “easy to do business with” (in the UK, parallel importers).

    Pfizer has made it obvious in the UK that there is a "good" channel and a "bad" channel. But Steve did not present--and may not have--hard data on how many pharmacies continue to purchase outside of the good channel.

    IMO, the burden of pedigree/serialization requirements are falling onto manufacturers and wholesalers. I don't see Boards of Pharmacy adding burdensome rules for pharmacists. Most boards also lack resources to enforce at the pharmacy level.

    Just my $0.02 and a minority opinion right now.

    A

    P.S. My comments about pedigree don't apply to chains in the US b/c most states will let them receive pedigree at the warehouse level and then do an inter-company transfer.

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  4. Obviously I only know what you published in this post, but I can see a solution to 3 major issues which are faced by all brand pharmaceutical manufacturers in Europe:

    1.) Drug diversion/counterfeiting (obviously).

    2.) Shrinking margins in a socialist system. I assume the revenue model of the distribution contract is based upon a per unit admin fee (in lieu of a traditional revenue minus cost of goods model ) to handle the ordering an fulfillment processes. If Pfizer put some forethought into the contract, which it sounds like they did, the agreement should boost Pfizer’s margins considerably by capturing revenue which would normally be realized by the wholesaler.

    3.) Parallel trade. I am starting to sound like a conspiracy theorist, but would this not be the perfect strategy to put a severe damper on parallel trade within Europe under the guise of something more noble?
    Did you get an indication that there is more to the distribution model plan than they let on in the presentation?

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  5. PBMguru,

    I think you are correct that Pfizer's strategy will limit parallel importing. After all, one of the largest parallel importers is now their logistics partner! Perhaps pharmacists will feel guiltier, too.

    However, I doubt Pfizer will profit by capturing the wholesaler margin since they are incurring substantial additional costs for customer service, bad debt, etc.

    Adam

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