Should you use distributors or start with own Legal entity when going international? What are the benefits and what can be mayor pitfalls in each of these scenarios?

1. Time for Business Expansion?

2. Decision is made, your pharma business is going international.
But should you use Distributors or start your own Legal entity?
What are the benefits and what can bee pitfalls of each of these two
models?

3. Retail price
Gross WS price
NET WS price
Investments
ExW/CIP Price
Distributor's
Profit
COGS
After investments in Marketing &Sales, operations and other
expenses
Gross Margin Manufacturers basic profitability
Distributor model
Retail Margin Pharmacy margin
WS Margin Mandatory and non-mandatory WS margins
Distributor fee - difference between ExW/CIP and NET WS Price
and/or marketing expense share
PRO
Significantly lower OPCO
Experienced local teams, Distributors market knowledge and
contacts
Established relations with TA KOLs and KA
CONTRA
Less control over SF activities, portfolio cherry picking
Product focus/seasonality on distributor
Lower Gross margin and profitability
Distributors model is interesting:
Related to companies:
a) Companies interested in international sales,
no capabilities for expansion
b) Medium to large companies focused on
other markets;
c) Companies that look for market/ sales
creation before entrance with own entity;
Related to market type:
a) Small markets does not justify investment in
time, people and money;
b) Emerging markets out of current focus;
c) Regional markets; distributor cover several
markets with centralized communication to
principal (Logistics, marketing, regulatory);

4. When is the time for Own Legal Entity:
Related to companies:
a) Company expanding territories, increasing
recognition, brand value and M&A value;
b) Expansion after acquisition;
c) Market/ sales developed by distributors;
Related to products:
a) Products with established sales via
distributors, transfer to own entity and
portfolio enlargement;
b) Acquisition entrance, distributors agreement
termination;
c) Specific products: Short time to market/
Satisfying target market value/ Added value
products;
Retail price
Gross WS price
Net CIP Price
COGS
Additional profitability after investments in Marketing &Sales,
operations and other expenses
Manufacturers basic profitability
Gross Margin
Own Legal Entity
Retail Margin Pharmacy margin
WS Margin Mandatory and non-mandatory WS margins
PRO:
Full control on portfolio and activities,
Building company Identity, brand equity, recognition
Logistic activities centralized (in compare with scenario of several
distirbutors)
Direct communications with authorities
Higher Gross margin and profitability
CONTRA:
Significantly increased OPCO
HR issues