The impact of Off Patents on the Supply Chain
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Transcript of The impact of Off Patents on the Supply Chain
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The impact of Off Patents on the Supply Chain
Mark JamesMark JamesUKMANAGING DIRECTORUKMANAGING DIRECTOR
Introduction
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CELESIO GROUP (UK)CELESIO GROUP (UK)
Four customer focused channels operating across the Pharmaceutical supply chain
Retail Pharmacy Wholesaling & Distribution Solutions
Public Sector & Healthcare Services Pharmaco
We directly employ over 20,000 employees
We have revenues over £4billion pa
We dispense over 150 million items a year
We operate 19 distribution warehouses
We deliver over 600 million packs of medicine in a safe, efficient & cost effective manner
We focus on all dispensing points including hospitals, community pharmacies, dispensing practices, prisons, and Mental Health Trusts
The basic facts about the Off-Patent Cliff!
Between 2009 and 2014 The UK market will lose ~46% of current protected brand value
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2010 2011 2012 2013 2014
COZAAR
CLEXANE
SYMBICORT
ARICEPT
AMIAS
ZYPREXA
SERETIDE
LIPITOR
VIAGRA
£272m
£611m
£1,353m
£383m
£136m
£2.7BN lost sales to branded manufacturers & a huge windfall for Healthcare budgets
2003 x50
2010 x500
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The Polarisation of PricingThe Polarisation of Pricing
Price Range of Rx Products10% 10%
Leading to a polarisation of product types:
Mass Market Specialist
LowPrice
HighPrice
Branded Manufacturers – An evolving business model
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Previous Blockbusters losing Patent Protection and Sales Value
Off-patents can see sales value drop by up to 90% within days of launch
Many manufacturers have reorganised around mature product ranges to maximise residual value
Commercial success can depend on therapeutic equivalence
Research Pipelines not producing replacement blockbusters
New Product types
New modes of Healthcare delivery
Increasing emphasis on proving beneficial outcomes
Focus on reducing supply chain leakageFocus on cost reduction per product
Generics – A business model under threat!
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UK market damaged by global supply planning
Oversupply & deregulation lead to prices below cost
Different reimbursement models developing at country & regional level
Focus on price not total supply chain cost
Product range can be split into “exclusives” &“me toos”
Exclusives provide profit and me toos provide market share
Cross subsidies across a range to make the basket worthwhile
Fluctuating demand leads to poor service levels
Current Distribution Models
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Primary Care Distribution
Primary care has utilised shared user distribution (wholesale) to improve efficiency of delivery and administration• +600 manufacturers on one delivery• Multiple deliveries at very low cost • Profit per delivery more important than profit per product• Reduced stock holding & stable demand planning
Secondary Care Distribution
Secondary care has experienced a mixed model• Direct relationships with multiple suppliers• Multiple delivery mechanisms
Reduced wholesale & DTP provides cost and supply chain control but also fragmentation
Appears to lack joined-up approach to Pharmaceutical distribution• Internal logistics costs• Administration costs• Working Capital Costs• Price • VAT
Result of off-patents, current systems, and incentives
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Fragmentation of supply and increased economic costs
Lack of a co-ordinated supply chain
Out of Stocks on basic lines
Low cost medicines but potentially higher cost healthcare
The true focus for the supply chain
A move from Product to Patient
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Key areas of focus:
Patient Data Economic Value
Focus on Patient• Standardise treatment for patients with
same illness to provide clear understanding of outcomes
– Defined care pathways should not be subject to nationalor regional differences
– Design broader methodsof delivery to the patient
• Understand the broader“final mile” options
• Integration of appropriateproduct and support service
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Focus on Data• Primary aim to manage healthcare costs
must be reduced hospital admissions and disease prevention
– Joined up data between primary & secondary care
– Outcomes measurement
– Patient management
• True transparency of total patient cost would highlight the right pharmaceutical intervention and point resources into consistency & quality
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Focus on Economic Value• What provides the greatest economic
value from a pharmaceutical intervention • Mass market requires shared user
distribution & maybe shared manufacturing– Minimised transaction costs
across the supply chain– Eg: Nestle & Mars
• Specialist requires mostclinically effective distributionmethod– Distribution to Pharmacy– Direct to patient
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Key Messages
Off patents have continued the process of pricing polarisation across the supply chain
Distribution models have traditionally provided one size fits all solutions based on bundled product portfolios
New commercial pressures on costs & supply chain control are fragmenting distribution, increasing economic costs, & introducing fragility
Fragmentation forces a focus onto product profitability and leads to unsustainable supply
If supply chain focus moved from product to patient then more sustainable solutions could reduce healthcare costs
Branded & Generic manufacturers both face significant challenges to their business models
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Summary
Polarisation leads to two core product distribution demands:
Mass market = Minimise total transaction costs
Specialist = Focus on Patient Outcome and the right final mile solution
Serving Patients
Best
Integrate Primary & Secondary Care Move from Product to Patient