Competition and Pharmaceuticals - Panos Kanavos - 2014 OECD Global Forum on Competition

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This presentation by Panos Kanavos was made at the 2014 Global Forum on Competition (27-28 February) at the session on competition issues in the distribution of pharmaceuticals. Find out more at http://www.oecd.org/competition/globalforum

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Competition and Pharmaceuticals - Panos Kanavos - 2014 OECD Global Forum on Competition

  1. 1. Competition issues in pharmaceutical distribution Panos Kanavos, PhD LSE Health London School of Economics OECD, Paris, 28 February 2014
  2. 2. Outline • Pharmaceutical supply chain: an important stakeholder • Issues in distribution and competition • Market structure • Entry and exit • Remuneration and discounting • Horizontal and vertical integration • Additional services
  3. 3. The pharmaceutical supply chain: actors and channels Manufacturer Direct manufacturer distribution? Primary distribution (Parallel) export* Wholesaling (Parallel) export* Self supply and other options Pharmacy supply Direct pharmacy supply Consumption by medicine users Doctor dispensing? * If allowed; definition of IP rights exhaustion (national, regional, international)
  4. 4. Distribution and parallel trade: How does it work? High price country Manufacturer Wholesaler Pharmacy Parallel trader (wholesaler) obtains PD license Manufacturer Wholesaler Low price country Pharmacy
  5. 5. Impact of Distribution Margins: An example Ex-Factory Price (EFP) Public Price (PP) Retail price = Price that pharmaceutical companies charge directly to the local wholesalers (excl. VAT) = Pharmacy selling price (incl. VAT) Euro Public Prices (EUR), Zyprexa 28 tabl. 10mg 160 220 200 150 140 Δ = - 46% 180 Δ = - 46.5% 130 160 120 140 110 100 120 90 Sweden / Denmark Δ = - 24.7% Similar Ex-Factory prices do not automatically lead to similar Public Prices F B/L P E S GR I FIN CH N DK I E GR P F FIN GB NL N B/L IRL CH DK S Sweden / Denmark Δ = - 1% D 100 80 D Euro Ex-Factory price (EUR), Zyprexa 28 tabl. 10mg
  6. 6. Presentation of branded expensive, mid-priced and low priced exfactory price (EFP), wholesale (WS) margin/markup, pharmacy (Ph) margin/markup
  7. 7. Price build up for a high volume generic molecule across EU countries; prices as of 15 June 2009.
  8. 8. Wholesale and retail markups in Developing countries
  9. 9. Issues related to distribution and likely implications for competition 1. Market structure/Regulation  Competition 2. Market entry and exit  Regulation and Competition 3. Remuneration  Competition 4. Ability to substitute (Ph) 5. Discounting practices and competition 6. Horizontal and vertical integration 7. Additional services
  10. 10. 1. Market structure: National and regional wholesaler presence in select EU member states (2010) Austria Belgium Bulgaria Czech Republic Denmark Es tonia Finland France Germany Greece* Hungary Ireland Italy Luxembourg Netherlands Portugal Romania Slov akia Slov enia Spain Sweden UK 0 20 National Wholesalers 40 60 80 100 120 Regional Wholesaler s • The absolute number of wholesalers in a country varies significantly across the EU. Greece, Italy, Spain, Estonia, Romania and the Czech republic have the largest number of wholesalers, whether regional or national. • By and large, wholesaling in Europe is fragmented, with over half of total market occupied by national wholesaling entities
  11. 11. 20000 A B D Fin Fra Ger Gre Ire Ita Lux Neth Nor P Spa Swe Switz UK 18000 Population (thousands) served 16000 14000 12000 10000 8000 6000 4000 2000 0 Country • Percent in chains: Norway = 86%; the Netherlands = 50%+; UK = 50%+; Belgium = 12%; Italy = 10% • In principle, a fragmented structure
  12. 12. 2. Market entry and exit • Geographical (minimum distances) and demographic (min number of population)criteria apply to the establishment of pharmacies • Pharmacies in urban (overconcentration) vs rural (relative lack) areas • Ownership regulation – Structure of pharmacies (pharmacists or other groups allowed) – Multiple ownership allowed or not – Trade in pharmacy licenses (allowed or not)
  13. 13. Pharmacy – Ownership regulation Country Ownership structure of pharmacies Multiple ownership Pharm acists Other groups allowed Allowe d Specifications No Any individual or legal person bar prescribers in same area Yes No limitation on number of pharmacies in a chain Allowed Netherlands No Any individual or legal person Yes No limitation on number of pharmacies in a chain Not allowed Norway No Any individual or legal person bar prescribers and mfg Yes Limitation on No. of pharmacies in chain (max 40%) - Austria Yes - No No multiple ownership allowed – may run one branch pharmacy Not allowed Finland Yes - No No multiple ownership allowed – may run max 3 branch pharmacies Not allowed Spain Yes - No Ireland Trade in pharmacy licenses Allowed Source: OBIG
  14. 14. 3. Remuneration and terms: Wholesale distribution margin/markups, types, regulations and discounts/r ebates for reimbursable medicines in EU (2010) Regulated Austria Belgium Bulgaria Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK    PM  PR + ph.          Different Margins: Different Drug Classes A   B  n.appl.  n.appl.     C      PR            D E n.appl.       n.appl. F Regressive ≤4 Categories Regressive: 5-9 Categories Regressive: ≥ 10 Categories Linear Markup Average WS Margin† (% PPP)   Private Negotiations, Unregulated  Private Negotiations, Unregulated  + ACC   -        Private Negotiations, Unregulated     Private Negotiations, Unregulated Private Negotiations, Unregulated     6.5 - 13.4%2008 8.45% T, 2007 7-10% T, 2009 na 4.3% T, 2007 6-7% T, 2009 na 3.0% T, 2008 6.2% T, 2007 4-6.1% T, 2007 4% T, 2007 6.04-6.36% T, 2007 Na 6.65% 2009, 1 3%August 2010 3.34%2008 8-9% T, 2005 Na 15% PR, 2009, 1 13-24% T, 2007 9.78%2007 6.87% 2007 10-14% 2007 n.appl. 8-9% T, 2007 3.5% T, 2007 2-3% T, 2009 12.5% 2007   - -              Discounts, Rebates to Health Insurance: Mandatory          H     Discounts, Rebates to Pharmacies: Commercial                                        
  15. 15. 3. Remuneration and terms: Retail distribution margin/markups, types, regulations and discounts or rebates for reimbursable medicines in EU (2010) Regulated Austria Belgium Bulgaria Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK    /  +WS             /         / Different Margins: Different Drug Classes  PR, SF    PR, P      B, G    S    I  PR, P       Points   Off-P  Regressive ≤4 Categories Regressive: 5-9 Categories Regressive: ≥ 10 Categories    +ACC -        -    -   - Linear Mark Up: Flat Rate           Dispensing Fees Other Fees Average Pharmacy Margin† (%PRP) Discount, Rebates: Mandatory Discount, Rebates: Commercial  15%PR  €3.88pp      PROG  €0.42pp €0.53pp    V      €7.28pp    €0.48pp €1.4-2.8pp   €1.52pp  DD  R, INN    AF   H                 OP HC 19.16%2008 na 18-22% T,2007 na na 19.3% 2009 19% T,2009 23.6% 2008 na 24% 2004 na 19.46% 2005 na na 19% 2008 na 46.7-50.2%2007 20% PR na na 18.25%2008 12-24% 2008 21% 2007 €2.10pp na 21.3%2008 na      D        C     C      C  C          na na  na na na       na     
  16. 16. 3. Pharmacy remuneration: discounts received from manufacturers on certain types of medicines • Competition game at pharmacy level is often determined by the level of discount offered by manufacturers to pharmacists esp. in environments where pharmacists are allowed to substitute • Discounting practices may be regulated (e.g. 3 for the price of 2); elsewhere they are disallowed, whereas in some settings they form part of pharmacy income (UK, NL); most often discounts are not visible or transparent • Where they are allowed and form part of pharmacy income, a clawback maybe in operation Simvastatin (2.12.0.0, statin), UK Drug Tariff Price, 2008 Dose Pack size Reimbursed (Drug Tariff) Price (£) Simvastatin tabs 10mg 28 2.12 0.45 78.8% Simvastatin tabs 20mg 28 2.26 0.59 73.9% Simvastatin tabs 40mg 28 4.87 1.95 60% Simvastatin tabs 80mg 28 26.79 13.50 49.6% Kanavos, 2007. Lowest available market price (£) Potential Discount to pharmacy off Drug Tariff price (%)
  17. 17. 4. Horizontal and vertical integration  Horizontal integration  Extensive between 1990 and 2004 in EU-15 led to a significant reduction of full-line wholesalers from around 600 to 141  Further consolidation expected in the new member states  Limitations by EU Competition law  Vertical integration  Limitations by national legislation and regulation on pharmacy ownership  Who are the right/attractive partners
  18. 18. 4. Wholesaling: new business models • Traditional model: F-L wholesaler acts on behalf of a number of manufacturers; bound by public service obligation • New models – DTP or Agency: single wholesaler – manufacturer agreement • • • • for all or part of the latter’s portfolio Wholesaler is a logistics provider Wholesaler does not own the stock Implications for wholesaler payment – RWM: manufacturer contracts with a limited number of wholesalers, usually 2-3 • For all or part of manufacturer’s portfolio • Wholesaler owns stock • Deviation from FL wholesaling
  19. 19. 4. Proportion of Pharmacy market share as source of delivery, including Full Line Wholesalers, Short Line Wholesalers and direct from Manufacturer Pharmacy sales via Full Line WS (%) UK S w ed en S pa in S lo ve ni a S lo va kia R om an ia P or tug al N et her lan ds Lu xem bou rg Ita ly Ire lan d H un ga ry G ree ce G erm an y F ra nce F i nla nd E ston ia D en m a rk R ep ub lic B ul ga ria C zech B el gi um A ustri a 100 90 80 70 60 % 50 40 30 20 10 0 Pharmacy sales via Short Line WS (%) Pharmacy sales via Manufacturer (%) • Whereas the majority of pharmacy sales continue to originate from (full-line) wholesalers, in a number of countries the proportion of pharmacy sales originating directly from the manufacturer can be significant (Denmark, Greece, Ireland, Luxembourg, Netherlands, UK, Czech Republic, France, Italy)
  20. 20. Description of degree of regulation of wholesalers and pharmacies across EU27 countries, 2010 Pharmacist generic substitution allowed Austria Belgium Bulgaria Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK Pharmacist must sell at lowest price Wholesale rebate to Pharmacies Regulation of Wholesale margins Pharmacy chain allowed Pharmacy ownership by nonpharmacist Regulation of establishment of new pharmacies Pharmacy ownership Regulation Internet Pharmacy allowed    /                                          /                                 /                                /  /         /       /           /                       /                                                                 / /      
  21. 21. Dispensing Prescriptions Repeat Dispensing Disposal Waste Medicines Medicine Use Review Emergency Contraception Blood Pressure Measurement Cholesterol Measurement Glucose Measurement Weight Measurement Pregnancy Test Homecare Services Night Services Other Austria Belgium Cyprus Czech Rep. Denmark Finland France Germany Ireland Italy Netherlands Poland Portugal Slovakia Slovenia Spain Sweden UK Smoking Cessation Diabetes Management Asthma Management Hypertension Management Vaccination 5. Additional services: Description of additional services provided by pharmacies across the EU countrie s. Starred (*) services have a charge attached to the service, services with a ‘ S’ are only available at some pharmacies  *   * *  *   *             S  * *S S  S  S   S  S  /       S          *   S   *   *   S S  S        -           *                *S   S  S         S S         S  S        *               S   * *S     S S  S      S  * *S     S S   *     S   * *S     S S   *     S   * *S     S   S *        * *S         *    S   *  S  S  S S   *    *   * S S  S S     -    S   *  S  S S S S   -     S   S    S    S 
  22. 22. Overall remarks on distribution • Highly regulated (Europe) vs not clear rules of the game (LMICs) • Regulated – Remuneration – Entry • Fragmented structures • Variability in horizontal and vertical integration • Variability in regulatory practices (e.g. discounting)
  23. 23. Issues that merit further reflection and/or work • Data and understanding of operating structures and regulatory frameworks in LMICs and, less so, in OECD • Market structure and concentration levels: population coverage and service availability at regional/rural level • Horizontal/vertical integration and likely impact on availability of medicines and sufficient levels of service • Approaches to remuneration to appropriate regulation in LMICs • Safety and quality assurance in the advent of e-pharmacies • Future role of distribution: logistics provider or adherence to specific levels of service • Discount practices: competition-enhancing or competitionreducing

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