Singapore, May 8, 2008:  Drug supply is now becoming more complicated and difficult as it passes through various intermediaries before reaching pharmacy and this is making life difficult for patients, says a new survey by Datamonitor, a London based market analyst.

 

The report said, ieally drug supply should be a simple and transparent chain that connects the manufacturer and patient in as few steps as possible. However, in practice it can be a highly circuitous one that includes several intermediaries before reaching a pharmacy. Notwithstanding the possibility that drug integrity can be compromised in transit, complex supply chains risk counterfeit drug entry. “Driven in great part by the lost revenues such arbitrage brings, manufacturers have implemented several strategies to tighten their grip on the drug supply chain, with direct to pharmacy distribution schemes implemented in the UK being one of the most recent. However, the legitimacy of such action is often unclear, and a recent European Commission recommendation spells bad news for manufacturers seeking greater supply chain control,” the report said.

 

Parallel trade link to counterfeit drugs

Last year's breach of the pharmaceutical supply chain in the UK has put the issue of parallel trade at the top of the agenda for the European Commission. In the first half of 2007, three batches of counterfeit drugs - Lilly's Zyprexa (olanzapine), Sanofi-Aventis's Plavix (clopidogrel), and AstraZeneca's Casodex (bicalutamide) – were discovered in the UK supply chain, having entered the country as part of legitimate consignments from France.

Europe's free trade policy, combined with the often large price differentials across member states, has driven parallel drug trade, a practice in which distributors absorb most of the profits at the expense of manufacturers, says Datamonitor pharmaceutical strategy analyst Pam Narang. "Aside from the lost revenues, manufacturers contend that parallel trade can lead to drug shortages in the export markets and increase the risk of counterfeit drug entry; a claim that now has some weight behind it following developments in the UK."

Restricting distribution to reduce parallel trade

As a result of revenue lost to parallel trade, manufacturers have long sought ways to gain greater supply chain control and have used several tactics to do this, often bringing them into conflict with distributors. The resolution of one such dispute, between Greek wholesalers and GlaxoSmithKline, looks to be an unwelcome one for the manufacturing industry as a whole, with ramifications for its stock management powers.

Drug prices in Greece are low relative to many other European countries, leading wholesalers to export to countries such as Germany and the UK, where prices are much higher. In a bid to eliminate trade of this kind, GSK stopped filling Greek wholesaler orders for three drugs -Imigran (sumatriptan), Lamictal (lamotrigine) and Serevent (salmeterol) - in 2000, distributing directly to pharmacies and hospitals instead. In 2001, the company reinstated restricted wholesaler distribution.

Greek wholesalers accused the company of anticompetitive behavior, and bought the matter to the attention of the Greek Competition Authority (GCA), which referred it on to the European Court of Justice (ECJ). Although an Advocate General recommendation came down in favor of GSK, the ECJ refused to rule, batting the issue back to the GCA. In what has become a long drawn-out battle, the EJC is now expected to issue a ruling some time this year. However, a recent Advocate General recommendation suggests that GSK's actions were not justified, in what may turn out to be a victory for the wholesalers.

Pricing distributors out of the parallel trade market

The ruling may well influence the outcome of other cases relating to pharmaceutical supply restriction, such as dual pricing and direct distribution, Ms Narang says. "Three manufacturers - GSK, Pfizer and Novartis - have, or intend to introduce, dual pricing in Spain, another popular export country due to the low cost of drugs here.

"Under dual pricing, drugs intended for export are sold at a premium compared to those destined for domestic use. While the manufacturers claim the scheme cannot be classed as true dual pricing because it is only one price - the export price - that they set, the European wholesaler association holds that these actions are anticompetitive, and awaits a decision from the ECJ," she says.