Background

In September 2006, Pfizer wrote to wholesalers to inform them that with effect from March 2007 it would not longer supply them given its planned new arrangements to use logistics service provider(s) instead.

In October 2006, Pfizer submitted a briefing paper to the OFT outlining its new arrangements and a complaint was made to the OFT by a number of wholesalers the following month.

Although the OFT was considering the complaint, it became clear that the OFT would not be able to take an interim measures decision to prevent the changes to Pfizer's distribution method prior to March 2007 therefore on 26 February 2007 the wholesalers applied for an interim injunction at the High Court.

The application for an interim injunction was refused on the basis that the refusal of an injunction would be likely to involve the least risk of injustice. In reaching this conclusion, the court added that the delay in bringing the case was a significant factor in refusing the injunction. This highlights the importance of ensuring any court actions are raised in good time, regardless of whether a complaint has already been made to the OFT.

With effect from 5 March 2007, UniChem began acting as Pfizer's sole logistics service provider.

Market study

On 4 April 2007, the OFT announced that it had decided to launch a market study into the distribution of medicines following a number of complaints about Pfizer's new arrangements and proposed changes to the distribution methods of other leading UK medicine suppliers.
It will be a short market study intended to provide the OFT with a better understanding of the implications of the introduction of the 'direct to pharmacy' distribution model and the likely impact of exclusive distribution agreements whereby a single UK distributor is appointed.

In particular, the OFT intends to examine:

#  the motivation for the direct to pharmacy model and its impact on competition and choice in wholesaling;

#  the motivation for exclusive arrangements and their long term impact on competition;

#  the incentives created by sector specific regulations; and

#  the potential impact of the different distribution models on:

o the appropriation of the discounts secured by pharmacies and the NHS, and

o service levels provided to patients.

Although complainants had requested a full investigation under the Competition Act 1998, the OFT has instead decided to undertake a wider market study under section 5 of the Enterprise Act 2002 given the wider implications.

As it is a short market study, the OFT will consult a limited group of parties, however, it has stated that it will welcome responses by interested parties (with the deadline for responses being 1 June 2007). The OFT plans to publish the results of the study by the end of 2007.

There are several possible outcomes of the market study, including giving the arrangements a clean bill of health, making a market investigation reference to the Competition Commission, initiating a Competition Act 1998 investigation or making recommendations to Government.