Changes to the supply arrangements of UK pharmaceutical companies have come under scrutiny in two separate, but related, developments.

On March 5, 2007, the High Court rejected an application by wholesalers to challenge Pfizer Limited’s decision to change its distribution channels in the UK. In September 2006, Pfizer announced a new arrangement with the wholesaler Unichem pursuant to which Pfizer would sell its prescription drugs solely through Unichem; the arrangement took effect in March 2007. Pfizer submitted details of its proposed arrangement to the UK Office of Fair Trading (OFT) in October 2006.

A number of wholesalers complained to the OFT that the end of Pfizer’s distribution arrangement with them amounted to a breach of UK and EC competition law, and asked the OFT to take interim action. On February 27, 2007, the OFT wrote to the wholesalers explaining that it was unclear what effect Pfizer’s new arrangement would have on competition and that it would not take interim action against Pfizer as there was insufficient proof of irreversible harm. The wholesalers then applied to the High Court for an interim injunction to prevent Pfizer from ceasing supplies to them, based on competition law grounds.

The High Court heard the application on March 5, 2007 and issued its decision denying the application on the same day. The High Court noted (a) the delay in the wholesalers bringing their complex application; (b) the lack of time for the defendants to put forth their case; and (c) the lack of time for the court to fully analyze the complex factual and legal issues. The court did not view the decision to delay an application to the High Court until the OFT reached a decision as “appropriate.” This result suggests that, in the future, parties may wish to consider making concurrent applications to the OFT and High Court to increase any chances of obtaining an interim injunction.

These developments likely have contributed to the announcement on April 4, 2007, of the OFT’s decision to initiate a market study into the distribution of medicines, and in particular to consider recent and expected changes to the distribution of medicines by leading UK medicine suppliers. Historically, medicines in the UK have typically been distributed by pharmaceutical companies via a number of competing wholesalers. Other medicine suppliers are expected to follow Pfizer’s lead in changing its supply arrangement, with major changes to their own distribution/supply arrangements. The OFT notes that it has “received complaints regarding the change to the workings of the sector which has prompted concern among pharmacists, dispensing doctors and competing wholesalers.” Industry participants are invited to submit views to the OFT, particularly where changes to distribution arrangements are being contemplated.

Initially the OFT proposes to focus on the following: 

  • The motivation for pharmaceutical companies moving to a “direct to pharmacy model” and the resulting impact on wholesaling competition and choice;
  • The motivation for pharmaceutical companies entering into exclusive arrangements and any long term effects on competition;
  • Incentives arising out of sector specific regulations; and
  • Potential effects of differing distribution models on (a) discounts secured by the National Health Service and pharmacies, and (b) the quality of services provided to patients.

The OFT has announced its intention to conduct a “short” study with the publication of its findings by year end. The deadline for comments is June 1, 2007.