Wednesday, January 16, 2008

AstraZeneca's Direct-to-Pharmacy Model

Following in Pfizer’s footsteps, AstraZeneca UK formally announced that its direct-to-pharmacy distribution arrangement will begin on February 2, 2008.

Click here to read the letter notifying pharmacists of the switch and explaining the new discount structure. As you can see on page 3 of the letter, discounts are determined by AZ based on brand product instead of being set by competition between wholesalers. The Office of Fair Trading (OFT) report on Medicines Distribution worries about the competitive effects of manufacturer-controlled discounts with DTP models, writing:

"Under DTP schemes, manufacturers set the prices paid by pharmacies and pay wholesalers a fee for delivering their medicines according to their required service standards. There is no convention covering the level of discounts to pharmacies in these circumstances."

I wonder if DTP will be sustainable as more manufacturers adopt the model. At some point, it will simply be more efficient for a pharmacy to buy from a traditional, full-line wholesaler. A UK pharmacist lamented the practical realities of DTP after Pfizer's announcement, writing:

"Oh, and spare a thought for us poor overworked pharmacists. At present I only have to deal with one wholesaler, a regional independent wholesaler which is part of the company I work for. If anything is out of stock at the warehouse it is automatically ordered from Unichem or AAH by head office. My life is very simple at present. If Astra Zeneca use AAH as their delivery agent, and Sanofi choose Phoneix, Lilly someone else and Novartis yet another company, then ordering will be made so much more complicated and time consuming. And it's not like I don't have enough things to do as it is."

The Pharmaceutical Services Negotiating Committee (PSNC), a trade group of UK retail pharmacies, has a useful list of recent UK distribution changes by manufacturers. The UK DTP experiment will give us some useful insight into U.S. prospects as more manufacturers launch programs.


  1. Adam,

    Do you know how these discounts compare to what pharmacists were getting from the wholesalers? Did the wholesalers offer different discounts for different products?

    Thank you!

  2. This is really interesting Adam. Here in Canada certainly back in the 1980's to mid 1990's , many of the brand name companies thrived on direct to pharmacy distribution. The representatives calling on both physicians and pharmacy would take orders from the pharmacy and drop ship as required. Often, they had trade stock to give immediately to the pharmacies. Most often though that stock was of product that faced generic competition. The rapport the representatives had with pharmacy was very good. But in the mid 1990's with governments changed regulations regarding these free goods left at pharmacy and the companies moved to the wholesaler distribution method. Some large pharmacies continued to oder direct but the shipment requirements were eventually increased so high that it was no longer available to most and they could get better deals from the wholesalers. In the years since, the relationship between the pharmacies and the brand representatives has declined greatly. I believe the rapport with the generics has however increased. So , it is very interesting that the Brands are moving in this direction in the UK... Especially now that the Brand companies are investing heavily in Generics.
    Ed up North