Direct-to-Pharmacy: Look Before You Leap!



Pharma IQ
02/02/2011

There are some distinct advantages with the DTP model. First, it can make the supply chain more efficient. It is far easier to ship products to one wholesaler than to multiple ones. It is also easier to track and control the drugs thus making it more difficult for counterfeit drugs to enter into the supply chain.

When a supplier has one wholesaler under contract, they benefit by knowing exactly what profits they will be experiencing and may even be assured that the wholesaler will accept those drugs currently in research and development as soon as they become approved for human use. This may lead to companies being more involved in research thereby bringing more and better products to the consumer over time than would have otherwise occurred.

The wholesaler benefits by no longer needing to spend time competing with other wholesalers to get product. Once a contract is awarded, there are no more surprises for either the supplier or the wholesaler.

The DTP model is not without problems however. Studies are being conducted to determine if this distribution model could actually lead to higher costs to healthcare systems and consumers. Competition is an important part of driving prices down as wholesalers bid with one another to get product. While there would be competition to be awarded a sole wholesaler contract with a supplier, the ongoing competition is no longer occurring.

While one may believe higher prices are a good thing for suppliers and also wholesalers, if the drug prices rise too much and thus cannot be afforded, the long-term affect of lessened demand will eventually erode profit potential. While a higher price can be set on those drugs that are necessary and without comparable options, too many do not fall into this category making this problematic for both the supplier and the wholesaler.

Another problem is that there is already a relatively high turnover of wholesalers and this may be amplified by the DTP model. Those unlucky wholesalers that do not become the sole wholesaler for any supplier will be forced out of business, where under current models they can expect to successfully bid on some supplies against other wholesalers even if they are smaller in buying power. This is not always a bad thing for the consumer however as those strong wholesalers that have economies of scale will generally require less in profit percentage than the lesser wholesalers which equates to a lower price overall on drugs. This possibility may or may not be sufficient to overcome the lack of competition working to drive up prices, or it may even the whole thing out making the DTP model have little net effect on prices at all.

Whether a pharmaceutical supplier or a wholesaler, it is clear that there will be challenges to be faced as the DTP model gains popularity. It is important to carefully forecast how this will affect the supply chain and overall costs before adopting this model. Whichever side of the equation one is on, the process of entering into a contract must be done carefully, with extreme scrutiny to all components of the deal. Choosing the correct company with which to conduct business is far more important when it is just one company versus dealing with a multitude of companies. If that company fails to live up to its obligations and contractual agreements, it can be crippling and difficult to rectify quickly. There may be other implications involved as well, so the more insight you obtain into the DTP model, the better.

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