Publication Date 01/04/2011         Volume. 3 No. 3   
Information to Pharmacists


From the desk of the editor

Welcome to the April home page edition of i2P. A lot certainly happens over a month in pharmacy and health-related activities.
When we first started publishing our primary concern was to cover pharmacy issues within Australia, delivered monthly. Eleven years on we now cover global pharmacy and associated health issues on a daily basis, but delivered weekly.
New areas embracing climate change, food growing and processing and information technology are all increasing areas of health concern. Their impacts translate into systems that affect health negatively or positively and for all such contemporary issues, pharmacists need to have a working knowledge and understanding that translates into an effective pharmacy service
This month we are introducing a new column called Pipeline, and you will find it near the top of the centre column of the i2P home page.

read more
open full screen

Recent Comments

Click here to read...

Analysis: The Pharmacy Alliance & API Dispute

Neil Johnston

articles by this author...

Neil Johnston is a pharmacist who trained as a management consultant. He was the first consultant to service the pharmacy profession and commenced practice as a full time consultant in 1972, specialising in community pharmacy management, pharmacy systems, preventive medicine and the marketing of professional services. He has owned, or part-owned a total of six pharmacies during his career, and for a decade spent time both as a clinical pharmacist and Chief Pharmacist in the public hospital system. He has been editor of i2P since 2000.

I have been following the recent relationship breakdown between the Pharmacy Alliance Group and national wholesaler, API Ltd.
The breakdown is seen by i2P as having been inevitable and is really a side-effect of the Pfizer initiative of taking back the supply chain in respect of its own products.
The triad of manufacturer (represented by Pfizer), the wholesaler (represented by API) and the pharmacy (represented by the Pharmacy Alliance Group) is a contemporary model, illustrating the general state of the tension between the respective parties, and is reflective of the entire Pharmaceutical Industry.

open this article full screen

This tension traditionally existed in the past, but each party had learned to live with, and accommodate, the expectations of one to the other.
That traditional model is now totally disrupted and new boundaries have to be formed up, with the activities conducted within those boundaries altered, upgraded or eliminated, but definitely re-defined to reflect pharmacy in the twenty-first century.
The issues that have been building up between pharmacy owners and non-pharmacy owners also need to be addressed.
It is possible that this new industry-driven disruption will create momentum that will generate a life of its own that may compel each side to have a fresh look at each other, and generate the opportunity to develop new pharmacy designs and services.

From their website, the Pharmacy Alliance Group is “a member-based network with 424 member pharmacies providing independent pharmacies the retail tools and expertise to improve their profitability and streamline their in-store operations.”
In 2008 the Pharmacy Alliance Group initiated a generic tender system, believed to be the first in pharmacy. The tender was done by molecule on volumes of $80 million p.a. and currently has 350 molecules on the best available discount.

Pharmacy Alliance appears to have provided an excellent service for its members having in 2009 strengthened its offering by amalgamating with the NSW pharmacy group (IPAG) to provide an efficient bulk buying service.
So when the next step was taken to strengthen purchasing power and reduce prices by floating a tender for wholesalers to quote on, the management of Pharmacy Alliance was simply doing its job.
Building on a tendering process that had started with generic drugs, was simply a logical next step.

However, API was not in the mood to see, in its view, 16 percent of a market moving out of its control, having already lost 20 percent of a market in directly diverted Pfizer product sales.
As can be readily seen, control of the supply chain means control of sell-in prices and their margins.
Pfizer seriously understood this when it went with direct supply to squeeze every dollar that was available within the supply chain, to offset losses about to be endured through loss of patent protection on some of its original molecules e.g. Lipitor.

Predictably, API erupted and developed a separate offer for each member of the Pharmacy Alliance Group as a strategy to immobilise their control.
API was simply doing its job as well, but was too heavy-handed, leaving itself in a situation with little negotiating advantage.
However, the Pfizer experience had reinforced the feeling of unity that is understood by all pharmacists, irrespective of their existing liaisons.
API only recruited a small percentage of Pharmacy Alliance members who capitulated to a process that was deemed to be “bullying” by Pharmacy Alliance.
Threats have been thrown up by both sides but this is seen as mostly hot air.
Neither side appears to have breached the Trade Practices Act even though tempers have frayed.

That API took such a stance is understandable, given its Pfizer losses documented above.
That forced a complete change within the API business model with the upshot that the loss of gross profit, occasioned by the Pfizer experience, was adjusted on the price of all other products.
This immediately disadvantaged two of the players –pharmacists, who had to pay higher prices for all their wholesaler products with no offset, and manufacturers (other than Pfizer) whose sell-in prices were now comparatively higher across the board, creating a market disadvantage.
It is now inevitable that other manufacturers will follow suit and supply on an independent basis, utilising the Pfizer model.

It is also an imperative that pharmacists must come out fighting, king-hitting any opposition that impedes the goal of supply chain protection and decent profit margins.
Noticable also is that the Pharmacy Guild of Australia (PGA) is almost invisible at a time that is critical to the survival of its members.
PGA members must be wondering who their executive really represents given their passive response to Pfizer, API activity and the so-called "reforms" of the PBS that are stripping the economic life out of pharmacy in rigid out-of-step actions, incompatible with these free enterprise movements.

Wholesalers have always been the traditional power brokers within the Pharmaceutical Industry, but this role is now being taken from them by the manufacturers, and to a lesser extent, pharmacies.

Pharmacies will need to fight to maintain their share of power by utilising a number of strategies:

* Use their professional power to break up the generic market away from Pfizer.

* Make the PGA executive fight on their behalf.

* Develop their own logistics system to control the flow of goods into store. This will need to extend to a nationally networked system of regional bulk-buying groups.

* Extend that logistics system to control the flow of goods and services from the pharmacy to the home and to back a “pharmacy-in-the-home” service.

A pharmacy-in-the-home service represents a value-adding to the drugs supplied by a pharmacy.
It can mean a number of things (Dose Administration Aid systems, Information Systems, Patient Drug Analysis Systems or primary health care services of all descriptions).
Manufacturers will value any supply chain system that beats a direct pathway to a patient, particularly one that can demonstrate an increase in compliance.
This will most likely become the interface boundary where manufacturers will support pharmacy endeavours to give advantage to their specific products.

Manufacturers will tend to buy their way in.
Pfizer is reported to be currently withholding about 5 percent of each pharmacy account to be returned in rebates on their future product sales.
In particular, it will be applied to Lipitor when it comes off patent.

So just analyse that for a moment.
You have immediately paid (up front) a higher price for Pfizer products through their new direct business model. That also represents a considerable cost and a loss of market power by pharmacists.
The virtual 5 percent discount, when applied back to products like Lipitor, will be a temptation for cash-strapped pharmacists. US financial analysts have already predicted that Lipitor will remain in Pfizer’s Top Five Products over the next 5 years because they are betting that pharmacists will  break ranks and not recommend alternate Lipitor generics, to simply regain money that was theirs in the first place.
Pfizer gets to keep its original margins and a higher than anticipated market share for Lipitor (and other products), still maintaining market share and control.
To me, this is an unconscionable action that represents abuse of market power that inflates drug prices and disadvantages the ultimate consumers. It is something that should involve the ACCC.

This type of market control continually beats pharmacists over the head, causing financial damage over time, and may even translate into manufacturers owning their own chains of pharmacies as the ultimate control of the supply chain.
And you thought Coles and Woolworths (and possibly some wholesalers) were the demons in pharmacy ownership!

i2P predictions regarding inevitable supply chain battles were documented over 12 months ago. They seemed improbable then, just as manufacturer owned pharmacies may seem now. You be the judge.

Twelve months ago we also predicted that wholesalers would begin to move in on their client pharmacy traditional service business.
Where else can they go?
Financially they need to recover to become a competitive force and pharmacy services will be a logical process.
Don’t let them achieve this goal!

Mechanisms exist now for pharmacies to become larger scale corporate structures, also to exist as multiple chains. This will only work if the professional side of pharmacy can be kept to a smaller personal scale i.e. an arms-length clinical pharmacy practice that is a contracted entity within that corporate structure.
This is a potential model that could universally satisfy most pharmacist aspirations (including pharmacist prescribing).

Pharmacy Alliance also has another initiative within some of its member pharmacies and that is the nurse practitioner clinic. It only needs to add the pharmacist practitioner clinic to be complete.
Pharmacy Alliance should be supported and congratulated for its efforts in demonstrating leadership in pharmacy and i2P wishes them well in the coming industry battles – and there will be quite a few!

Return to home

Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

More information about formatting options

This question is for testing whether you are a genuine visitor, to prevent automated spam submissions.
Incorrect please try again
Enter the words above: Enter the numbers you hear:

Clinical Newsfeed

health news headlines provided courtesy of Medical News Today.

Click here to

If any difficulty is found in subscribing, please use the "Contact Us" panel found in the navigation bar with the message "subscribe" and your email address.

Subscribe to our mailing list

Email Format


  • Copyright (C) 2000-2015 Computachem Services, All Rights Reserved.

Website by Ablecode