On 11 December 2007, the Office of Fair Trading (“OFT”) published its long awaited report into the distribution of medicines in the UK.

Until recently, branded prescription medicines were distributed to retail pharmacies via a number of distributors, all competing to attract pharmacies’ and manufacturers’ business. The manufacturer would supply medicines to the wholesaler typically at a 12.5% discount to the list price and then the wholesaler would supply the pharmacy offering a discount of, on average, 10.5%.

As reported in our August 2007 Life Sciences Newsletter, the OFT’s study was instigated over concerns raised by Pfizer’s decision in March 2007 to start to distribute its prescription drugs exclusively through a single wholesaler, UniChem. A number of manufacturers, including AstraZeneca, Eli Lilly and Novartis have now also indicated that they may implement changes to the way in which they distribute their medicines, including the use of new distribution schemes known as ‘direct to pharmacy’ (“DTP”) schemes.

Under a DTP scheme, the manufacturers set the prices paid by the pharmacies and simply pay the wholesaler a fee for delivering medicines to the pharmacies. The benefit of DTP schemes to manufacturers is the increased ability to control the distribution of their medicines and also the prices paid by pharmacies.

The study investigated the potential impact, principally in terms of competition and choice, of DTP schemes, focusing in particular on the Pfizer/UniChem exclusive DTP arrangement. It also looked at the likely effects of other manufacturers following suit and either introducing DTP schemes or reducing the number of distributors used.

The OFT has found that there is a “significant risk” that such schemes could result in higher costs for the NHS (a claim denied by Pfizer), along with potentially longer waiting times for pharmacies and patients to receive medicines as a result of inefficient distribution. The OFT also warned that the widespread use of exclusive distribution arrangements could lead to longer-term competition concerns, although it did not recommend further immediate action at this stage.

The OFT has however recommended:

i. that the Department of Health makes the necessary changes to the Pharmaceutical Price Regulation Scheme (“PPRS”), which is currently in the process of renegotiation, to ensure that the costs of medicines to the NHS does not rise as a result of these new schemes. The OFT’s proposals in this regard are to either reduce PPRS list prices by an amount equivalent to the average discounts received by pharmacies or for pharmaceutical suppliers to offer a minimum list price discount to pharmacies; and

ii. the adoption of minimum service standards by manufacturers to discourage any drop in the services currently being delivered to pharmacies.

The Government now has 90 days to respond to the recommendations of the OFT.