Procurement and Distribution Interest Group (PDIG) Autumn Symposium, 5th June 2008, Coventry Review...
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Transcript of Procurement and Distribution Interest Group (PDIG) Autumn Symposium, 5th June 2008, Coventry Review...
Procurement and Distribution Interest Group (PDIG)Autumn Symposium, 5th June 2008, Coventry
Review of theSupply Chain Model
Michael W Thomas
2PDIG, Coventry 2008
Pharmaceuticals – A £11bn + Market
Branded Retail(40%)
DispensingGPs
Parallel Trade(~10%)
ZeroDiscount
Retail Generics18%
Hospital 17%
Homecare
Source: IMS; A. T. Kearney and Industry analysis
Fragmented and subject to different pressures
UK Market Structure By Value (2007, %)
3PDIG, Coventry 2008
Discussion Points
Where Is Healthcare Headed?
What Is Happening To The Supply Chain?
What Will It Look Like In The Future?
Who Are The Winners & Losers?
4PDIG, Coventry 2008
NH
S T
ota
l S
pen
d (
£bn
)
60
70
80
90
100
110
2004
120
20052006
20072008
20092010
20112012
20132014
2015
3.5% p/a growth
4.9% p/a growth
Developed Economies Face Funding CrisisAccelerating Expenditure Growth
Source: OECD Data
400
2000
50
100
150
200
250
300
350
1600
USD Bn
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
USA
Japan
Germany
France
UK
Italy
Analysis of UK Funding Gap
Source: NERA
1.4% p/a spending
gap
The critical issue is affordability
5PDIG, Coventry 2008
Worker : Dependent Ratios Out Of Line
Source: United Nations
1950
2000
2050
2020
USA UK France Germany
Most health systems were designed for this …
… but will have to deal with this reality
= Retiree = Worker
6PDIG, Coventry 2008
There May Be Differences Of Philosophy …
Government
Payers
Citizens Providers
Suppliers
Access, Choice, Safety, Equality,
Sustainability
Government
Payers
Citizens Providers
Suppliers
Access, Choice, Safety, Equality,
Sustainability
• Cash Limits• Rationalization• Rationing• Regulate Drug costs• Shift to community care• User fees and
co-payment
• Cash Limits• Rationalization• Rationing• Regulate Drug costs• Shift to community care• User fees and
co-payment
Cost ContainmentMechanisms
• Decentralizationand autonomy
• Funding Incentives • Competition• Patient choice• Commissioning• Savings Accounts
• Decentralizationand autonomy
• Funding Incentives • Competition• Patient choice• Commissioning• Savings Accounts
MarketStyle
Mechanisms
Government
Payers
Citizens Providers
Suppliers
Access, Choice, Safety, Equality,
Sustainability
7PDIG, Coventry 2008
Increasingbudgetsallocatedto health
Developing Markets
Affordability gap
DevelopedMarkets
Core Service Provision Will Be Redefined
Services considered to be essential for basic health
needs
Services considered to be essential for basic health
needs
Care of the ElderlyAccident & Emergency care
Control of infectious diseasesSanitation, nutrition
Services which reduce overall burden on the health
system and country
Services which reduce overall burden on the health
system and country
Mental health, rehabilitationLong term conditions
Prevention, screening, education Generics
Services whichare not cost effective
Services which are cost effective to improve quality
or length of life
Services whichare not cost effective
Services which are cost effective to improve quality
or length of life Priority conditions
Local epidemiology
8PDIG, Coventry 2008
Hard Choices For Net Incremental Spends
Source: Various; A. T. Kearney Analysis
Creating Life
Preventing ill health
Treating ill health
Prolonging life
Preventing Death
£ £
Reduced infant mortality with rotavirus vaccinationCOST SAVING
Reduced infant mortality with rotavirus vaccinationCOST SAVING
• PET for Alzheimer’s disease
£250,000/QALY
• PET for Alzheimer’s disease
£250,000/QALYBevacizumab for metastatic colorectal cancer
£46-88,000
Bevacizumab for metastatic colorectal cancer
£46-88,000
Effective use of statins~£2,300/QALY
Effective use of statins~£2,300/QALY
Suicide preventionCOST SAVING
Suicide preventionCOST SAVING
GM-CSF in elderly with Leukemia£118,000/QALY
GM-CSF in elderly with Leukemia£118,000/QALY
Breast cancer screening£2,050/QALY
Breast cancer screening£2,050/QALY
Smoking cessation advice in pregnant mothers£424/QALY
Smoking cessation advice in pregnant mothers£424/QALY
Intensive Glucose control of type 1 DiabeticsCOST SAVING
Intensive Glucose control of type 1 DiabeticsCOST SAVING
9PDIG, Coventry 2008
Push Towards Greater Use Of GenericsCost Of Prescribed Medicines Prescription Volumes
… with increasing mass adoption post expiry
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Innovative
Generics
Indexed Total Net Ingredient Costs (1996 = 100) Indexed Volume Growth (1996 = 100)
0.0
50.0
100.0
150.0
200.0
250.0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Innovative
Generics
Source: PPASource: PPA
10PDIG, Coventry 2008
Case Study: Statins
Simvastatin
Zocor
50
100
150
200
250
300
CalQ
tr/3/2002
CalQ
tr/6/2002
CalQ
tr/9/2002
CalQ
tr/12/2002
CalQ
tr/3/2003
CalQ
tr/6/2003
CalQ
tr/9/2003
CalQ
tr/12/2003
CalQ
tr/3/2004
CalQ
tr/6/2004
CalQ
tr/9/2004
CalQ
tr/12/2004
CalQ
tr/3/2005
CalQ
tr/6/2005
CalQ
tr/9/2005
CalQ
tr/12/2005
CalQ
tr/3/2006
CalQ
tr/6/2006
CalQ
tr/9/2006
CalQ
tr/12/2006
Co
un
tin
g U
nit
s P
er Q
uar
ter
(Mill
ion
s)
Source: IMS
11PDIG, Coventry 2008
Discussion Points
Where Is Healthcare Headed?
What Is Happening To The Supply Chain?
What Will It Look Like In The Future?
Who Are The Winners & Losers?
12PDIG, Coventry 2008Source: Lehman Brothers Pharmapipelines, 2005 & 2007
Worldwide Therapeutic Area Growth
- 5%
0%
5%
10%
15%
20%
25%
30%
35%
- 5% 0% 5% 10% 15% 20%
CAGR %2008-2011
CAGR %2004-2007
Secondary Care Drives Portfolio Growth
Hormone Control
Metabolism/Endocrinology
AntiInfectives
Respiratory
CNS
Cardiovascular
More specialistMore biological
More primaryMore chemical
Vaccines
Sexual Dysfunction
Diabetes
Inflammation
Cancer
DermatologyHaematology
Ophthalmic drugs
ImmuneSystem
• Slow growth• Intense generic competition• Primary• Chemical
• High growth• Low volume• High cost• Secondary• Biological
13PDIG, Coventry 2008
There Is A Significant Shift To Cold-Chain
2004 2005 2006 2007
Cold chain
Portfolio Composition By Value(Top 5 Pharma Example)
31% 38% 44% 55%
Ambient 56% 45%69% 62%
14PDIG, Coventry 2008
What Is On The Industry Agenda?
Supply chain integrity / transparency
Customer intimacy
• Services• Commercial terms
Lower total operational costs
• Differential deals to reflect real costs
Wholesale and retail consolidation
Shift in portfolio to higher cost / specialist products
Parallel trade and counterfeit risk
Supply chain excellence focus
Pressure For Change Industry Objectives
15PDIG, Coventry 2008
1987 1993 1998 2003 2008 e
Source: A.T. Kearney Studies 1987 - 2004
12.1%
8.6%
6.4% 6.1% 5.9%
1.3%
2.5%
2.5%
2.5%
1.2%
1.7%
1.8%
3.9%
1.0%
1.0%
1.6%
2.8%
0.8%
0.8%
1.5%
3.1%
0.9%
0.8%
1.1%
3.2%
Administration
Inventory
Warehousing
Transport
Productivity Focus In Other Industries
50% Reduction
Supply Chain Costs As A Percentage Of Sales
16PDIG, Coventry 2008
Increasing Use Of Tiered Distribution TermsD
istr
ibu
tio
n c
ost
(U
SD
/un
it)
Unit ex-Factory Price (USD)
Wholesaler unit cost based on 10%
Fee-for-service based on 5% of ex-factory price
Direct distribution price per pack(10 USD)
10
15
20
25
0
5
50 100 150 200 250 300
W/Sroute for low
price products
Direct distribution for
expensive products
Fee-for-service for mid-price
products
17PDIG, Coventry 2008
Alternative Models Being Explored
Manufacturer sells to wholesaler
Manufacturer sells to pharmacies
All Fully Line Wholesalers GSK
Semi-Exclusive/ Exclusive
Napp
sanofi-aventisPfizer, AZ
TraditionalModel Company /
customer specific
trade terms
Home Delivery Models
OFT: Impact on Competition, NHS, Patients?
18PDIG, Coventry 2008
Headlines From The OFT Report
Cost increases to the NHS
• Safeguard pharmacy discount
Reduced service levels
• Clarify service level being “paid for”
Recognition of potential efficiency benefits of DTP
Manufacturers should be free to choose
No evidence of reduced competition in the sector
To be addressed as part of PPRS discussions
19PDIG, Coventry 2008
Care Will ‘Shift’ Into The Community
From
‘One size fits all’
Reactive care
Hospital setting
To
Community based
Responsive, adaptable,flexible service
20PDIG, Coventry 2008
Specific Shift Ideas Being Tested
Initial Appointment Diagnosis Treatment Follow
-Up
GP/Other Outpatients Simple Tests
Complex Tests
Non-surgical Outpatients Day Case Inpatient Step-down
CareOutpatient Follow-up
Source: “Our health, our care, our say”, DH 2005
Large Some Limited
Key – Potential to provide additional activity in the community setting:
Acute to Community• Primary care follow-up after discharge• Relocating specialist services to other
venues • Direct GP access to hospital based tests
or specialist treatment
Acute to Community• Primary care follow-up after discharge• Relocating specialist services to other
venues • Direct GP access to hospital based tests
or specialist treatment
Community to Self-care• Home visits or hospital-at-home• Automated telemonitoring• Self-management education and
monitoring• Telemedicine consultations
Community to Self-care• Home visits or hospital-at-home• Automated telemonitoring• Self-management education and
monitoring• Telemedicine consultations
21PDIG, Coventry 2008
Initiatives like C-Port illustrate new supply chain management partnering opportunities
Innovative partnership working
Capacity modeling
Optimising network performance
Business case support
22PDIG, Coventry 2008
CostEfficiency
CommunicationChannel
ServiceDelivery
Transparency& Integrity
Extended Supply Chain Vision
2010
Today
Manufacturing Centre
Consumer / Patient
Local Warehouse
Regional Warehouse
Central Warehouse
Wholesalers 3rd Party Logistics
Retail Pharmacy
Home Point of Care
Hospital
Ward
Source: Adapted from “Pharma 2010: The value-creating supply chain”, IBM
23PDIG, Coventry 2008
Discussion Points
Where Is Healthcare Headed?
What Is Happening To The Supply Chain?
What Will It Look Like In The Future?
Who Are The Winners & Losers?
24PDIG, Coventry 2008
Different Growth Rates In Each Channel
Channel Trend
Branded Retail = / -
Retail Generics + +
Branded Hospital + + +
Home / Community Shift + + +
Parallel Trade ~ / -
… as supply chain adjusts to new realities
25PDIG, Coventry 2008
Wholesale Economic Model Under Threat
Un
it V
alu
e
Rate of Sale
+ +
+ +
CrossSubsidy
Tomorrow’sPortfolio
Yesterday’sPortfolio
• Unprecedented generic expiries
• High volume growth• Payor price pressure
• High value, limited patient numbers• Mostly hospital• Increasingly ‘direct’• Manufacturer value chain control
26PDIG, Coventry 2008
Blended Prices Have Dropped
Retail sales in 2003
£7.4£5.5
Pressure in use of Gx
Pressure in use of Gx
DTP
Source: IMS, A. t. Kearney Analysis
Retail sales in 2007, excl. PFZ and AZN
The future?
The future?
0%
10%
20%
30%
40%
50%
60%
70%
0 10 20 30 40 50
% p
acks
of t
hat
pric
e
Product price
£10 £20 £30 £40Product price
% p
acks
(u
nit
s)
NHS retail volumes by product price
£7.4
£6.2
£5.5
£5.0
£5.5
£6.0
£6.5
£7.0
£7.5
£8.0
Average price
Cross-subsidy model no longer sustainable
27PDIG, Coventry 2008
• Decreasing economic attractiveness
• Scale and operational efficiencies
• New market expansion
Supplier Focused
Payor Focused
Specialist Service Provider
Aggregator / Integrator
Choices Will Need To Be Made
Traditional Wholesaling
Pre- Wholesale
PharmacyRetailing
28PDIG, Coventry 2008
Multiple Retailers Dominate
Source: Taylor & Nelson, A.T. Kearney Analysis
Breakdown of number of Retail Dispensing Points in the UK (~14,000)
- 7% growth p/a
Singlepharmacies
31%
Multipleownership
16%
Supermarkets
5%
DispensingDoctors
16%+ 9% growth p/a
Largechains
32%
Boots 30%
Lloyds 25%
Others
Boots
Lloyds
Increasing use of differential commercial terms, reflecting buyer leverage and scale economies
53%
Potentialcross subsidy
effect
29PDIG, Coventry 2008
Shape Of The Future?
71% of respondents would pay for a home delivery service. 30% would pay between €1-3
5% would pay €3-5
Source: European Study, 795 Respondents
30PDIG, Coventry 2008
Supplier Focused
Payor Focused
Specialist Service Provider
Aggregator / Integrator
Homecare
Choices Will Need To Be Made
Traditional Wholesaling
Pre- Wholesale
Payor Supply
Manager
PharmacyRetailing
Supplier Portals
31PDIG, Coventry 2008
Future Will Drive Increasing Specialisation
… being a ‘generalist’ will be unviable
Supplier Focused
Payor Focused
Supplier Focused
Payor Focused
Specialist Service Provider
Aggregator / Integrator
Specialist Service Provider
Aggregator / Integrator
Homecare
Traditional Wholesaling
Pre-Wholesale
Pre-Wholesale
Payor Supply
Manager
Payor Supply
Manager
PharmacyRetailingPharmacyRetailing
Supplier Portals
Supplier Portals
CrossBorder
Arbitrage
Michael W. [email protected]
Principal A.T. Kearney Limited
Lansdowne House
+44 20 7468 8090 Direct Berkeley Square
+44 796 716 8090 Mobile London W1J 6ER