The Pharmacy Guild has recently (this week) sent out a survey to pharmacies to gain further information on problems with Pfizer's direct distribution.
The issue at the political level is the requirement under the PBS listing requirements that ALL PBS products are available and can be sourced readily by patients. It is OK for the big turnover products like Lipitor because there is no problem keeping up good stock levels. However, there are items in their big product range that you only get occasional scripts for and will keep only one or two on the shelf, or it may be a rare and/or expensive item and you choose always to order it in.
Currently it is always next day delivery if the order is in before the cutoff time but if I get a script late in the day for one of the rarer items and am out of stock it will be a two day wait. If the script is handed in on Thursday evening it works out that I won't get it till Monday. If I have already sent an order in earlier in the week I can be charged a delivery fee for a second order (for which I may only need a few items), so there goes any margin on that script (or can I charge a procurement fee....No).
We know the motives behind Pfizer's move - so they can lock in pharmacies to generic (e.g. Lipitor)deals when the patent expires. Pfizer's own generic will no doubt have an exclusivity period when they can be the sole supplier and corner a critically important market share. Their deals will obviously overlap the introduction of other generic brands and include discount incentives across a broader range of important prodcts. Above all they do not want pharmacies to be able to source the Pfizer generic in small quantities and run down their stock prior to the influx of other deals on generic brands.
The Guild and Wholesaler Association are certainly lobbying hard to point out any problems with Pfizer's direct distribution system so we may see some changes down the line.
The distribution system for PBS products has evolved over 60 years and I have been in practice for 40 of those. From time to time over the years many manufactures have tried direct distribution models (some even having depots in each State) However, eventually they have closed down and gone back to the full line wholesalers because they cannot be as cost effective.
At the moment I guess DHL (who Pfizer use as distributor) are probably operating for minimal return so the crunch may eventually come from them if they want to get out of the deal. I know DHL are keen to get into the pharmacy distribution business in Australia and of course they have the grunt to make a good fist of it but after the failure of their Glaxo arrangement and the inability to gain a share of CSO money they will want to make sure they are operating the Pfizer supply deal profitably. If the Government require them to increase deliveries (e.g. Saturday deliveries talked about) then the costs to Pfizer will have to increase and make things less viable.
Full line pharmaceutical wholesaling will continue to be a sound "cash cows" business with large (multi billion dollar) turnovers and small margins. If the company direct model ultimately proves successful there WILL have to be some rationalisation and we may yet get another attempt at an API/Sigma merger.
API Price at posting:
29.5¢ Sentiment: LT Buy Disclosure: Held
