Saturday, March 03, 2007

Pfizer wins again

As expected, the high court in Britain will not stop Pfizer's distribution arrangement with Alliance Unichem.

Since I won't be attending the HDMA business partner exchange meeting that starts next week, I want to offer a few comments on this outcome then and predict what it might mean for the US.

Drug manufacturers have been trying to regain control over their distribution channel in Europe for some time. Glaxo won some notable legal victories last September that paved the way for Pfizer's UK agreement, as I predicted in A Partial Win for Glaxo Means More Change for EU Drug Channels.

Pfizer has been very active over the past few years in asserting its legitimate commercial interests to engage in strategic channel management. Today's high court decision is the second victory against wholesalers in a week for Pfizer. Recall that Pfizer successfully prevented Danish wholesaler Nomeco from selling a generic version of Lipitor.

For now, these attempts are not needed in the US because manufacturers have much more control over the larger wholesalers. US wholesalers still derive a majority of their gross margin from the buy-side via fee-for-service agreements and payment terms.

In contrast, wholesaler sell-side margins are regulated or fixed in most EU countries. Some countries, such as France, even regulate the maximum discounts to these margins that wholesalers can offer to pharmacy customers. As a result, I estimate that manufacturers only control about 25% of the larger wholesalers' gross margin versus 90%+ in the US.

PREDICTION: The likelihood of EU-style channel management efforts in the US will increase if US wholesalers begin to derive a greater proportion of their buy-side margins from activities that are not controlled or compensated by branded manufacturers. (This is the underlying theme of my Generics=Channel Strife? post).

Check back in 12 months and see if my prediction comes true.

P.S. BTW, I received many emails on Thursday's post (Generics=Channel Strife?), most of which asked for clarification or a customized analyses. If you are not one of my advisory consulting clients, I'd prefer that you post your question as a public blog comment. Naturally, you can also feel free to inquire about the services offered by your friendly neighborhood blogger...


  1. If things are getting so bad for the European wholesalers, then why would the US players still look to acquire them? Having said that, I'm not sure that fee-for-service is really expanding in Europe - GSK has operated a FFF model in the UK since the early 90's, and has not yet expanded to mainland europe.

  2. I agree that fee-for-service is not coming to Europe in the same way as the US. As I point out above, manufacturers pay a relatively small percentage of the wholesalers' margin in Europe vs. the US, so why would they step up and start paying fees?

    That said, I believe that most manufacturers would welcome the opportunity to allocate available quantities of their product at either the origin (Spain, Greece) or destination (UK), so the Pfizer deal makes sense to me.

  3. Thank you. So it looks like the Pfizer and GSK moves will mostly impact parallel importers by increasingly rationing supply in Europe.

  4. I didn't say that supply would be rationed. Instead, I suggested that manufacturers will allocate available quantities.

    This is logical from a supply chain perspective. Parallel trade increases supply chain and production costs for manufacturers b/c manufacturers can not allocate production or distribution properly when market data is so inaccurate. Products may also not be available where most needed if the products move around through invisible channels.