www.capdm.ca

Pharmaceutical

Distribution in Canada

GIRP Annual General

Meeting - 2013

2

About CAPDM

The Canadian Association for Pharmacy Distribution Management

(CAPDM), founded in 1964, is identified as the authoritative voice of

the pharmacy supply chain

Represents participants in one of the world’s most advanced

pharmaceutical supply chain - serving as both a resource for

Members, and an advocate for the industry

Members are distributors of pharmaceuticals and other health-

related products, and self-distributing pharmacy chains

Associate Members include brand, generic and OTC

pharmaceutical manufacturers, and a variety of companies that

supply goods and services to the pharmacy distribution business

3

CAPDM Distributor Members in Canada

AmerisourceBergen Canada

Kohl & Frisch Limited

McKesson Canada

uniPHARM Wholesale Drugs Ltd

28 Distribution Centres

Compliant with CAPDM bylaws for fully consolidated wholesalers

Over 5,000 employees across Canada

Additional thousands employed in Canada through supporting

service providers; i.e. transportation companies

4

CAPDM Self-Distributor Members in Canada

• Shoppers Drug Mart

• London Drugs

• Lawtons / Sobeys

• Jean Coutu

• Familiprix

• McMahon

5

Canada

6

Canada by the Numbers

9.9 million sq kms - roughly equal to Europe

9,306 kms east-west

4,634 kms north-south

Population 34 million - vs 700 million in Europe

59% English, 23% French, 18% Other

7

Large area – small population

8

Pharmaceutical Distributors are the preferred

channel for pharmaceutical purchases

Share of Brand Pharmaceutical

Shipments to Retail in January

2013 MAT (IMS Brogan)

Share of Generic Pharmaceutical

Shipments to Retail in January

2013 MAT (IMS Brogan)

9

Pharmaceutical Distributors bring cost-saving

efficiencies to Canada’s healthcare system

A 2007 study by the Booz

Allen Group concluded that

without a vibrant Canadian

pharmaceutical wholesaler

industry, it would cost the

healthcare system an

additional $928 M to replicate

the current service levels in

safety and efficiency under

daily deliveries

Pharmaceutical Distribution

Costs in Canada in $ M, With

Wholesalers vs. Without (Booz

Allen Hamilton, 2007)

10

The pharmaceutical distributor system is the system of

choice for government, manufacturers and pharmacies

Greater than 95% of pharmaceutical products in Canada pass through

the pharmaceutical distributors to 100% of the retail pharmacies,

hospitals and other dispensing points

15K SKUs of prescription & OTC product

Closed system – not an example of a counterfeit or compromised product

going through the distributor system

Same day delivery to 80% of locations, 99% for next day delivery

No additional costs for rural, remote or frequent deliveries

No minimum order size

Most brand manufacturers no longer have the capacity to distribute

The large generic manufacturers (ie TEVA, Apotex) still able to distribute

but smaller manufacturers do not have capacity

11

Pharmaceutical Distributor Reimbursement

Branded Pharmaceuticals: Wholesalers work within

the provincial reimbursement framework and apply an

upcharge based on a percentage of the products’ list

price – average net of 2%

Generic Pharmaceuticals: Wholesalers receive a fee

for service from the manufacturer for their services

based on a percentage of the products’ price, resulting

in no markup being charged to pharmacies – average

FFS of 5%

12

But margins are being squeezed

Similar to other markets …

• Generic market share growing

• Generic prices have declined by greater than

50% across all provincial jurisdictions

• Costs rising

• Increased regulations and reporting

• Provincial healthcare budgets at 3% growth until

2015

13

Pharmaceutical distributors are the “bank” of

the pharmacy supply chain

• Average credit extension per pharmacy - $150K

• Industry credit risk of $1.2 billion

• Credit extension is an integral part of the

business model of pharmacy

14

Other Sources of Revenue for Distributors

Inventory Management Agreements (IMAs)

Manufacturers occasionally seek additional services from distributors outside of

traditional pick/pack/ship distribution or not included within the scope of existing

generic FFD agreements

Customized reporting

Rental of warehousing space

Policing against cross-provincial & cross-border arbitrage

Other business services (e.g., advertising services, patient programs, etc.)

These manufacturer-initiated requests are for customized services that would

normally not be made available to all manufacturers

Distributors do not have IMAs with all manufacturers and some manufacturers do

not have an IMA with any distributor

To compensate for these additional requests, distributors are paid a fee for the

service rendered, which varies depending on the number and type of value-added

services requested, as well as the province(s) to which the IMA applies

15

There is growing activity across Canada to

leverage distributors for public health distribution

• Within the Council of Federation Health Care

Innovation Working Group:

• Pan-Canadian initiative to leverage pharmaceutical

distributors to replace government/public health and

establish pilot studies in fall of 2013 for;

• Vaccine distribution

• Anti-viral distribution

• Critical medicine stockpiling

• Pandemic distribution

16

Pharmaceutical distributors expanding

specialty distribution

• Increase in biologics and other specialized

products with sophisticated distribution

requirements

• Increase in direct to patient distribution at both

clinics and home

• Brand manufacturers and distributors discussing

the future of distribution and the required

adaptations

17

Returns remain a costly issue for

pharmaceutical distributors

• Pharmacies have unrestricted return options for ambient temperature products. Distributors cannot return product to manufacturer until expired

• Health Canada making it increasingly difficult for distributors to restock returned ambient temperature products

• Distributor “morgue” of products waiting for return is growing

• Pharmacies cannot return refrigerated, liquid or injectable products until expired

• More restrictive return policy may be implemented but difficult when so many other elements are impacting all business sectors - not a priority for manufacturers, resisted by pharmacy – distributors in the middle

18

Pharmaceutical Distribution in Canada

Summary

• Safe, secure and efficient system that

stakeholders identify as system of choice

• Changing business conditions (generic price

reductions, increased regulations, increased

costs) are squeezing the distributors

• Business model for distributors will need to

evolve

19

Pharmaceutical Distribution in Canada

Summary

But …. There are Opportunities

• As a major distributor deceases operations the gap must be filled

• Governments are recognizing they have altered the business model and are considering compensatory action

• Pan-Canadian recognition that vaccines can be more comprehensively and efficiently distributed at lower costs through the pharmaceutical distributors

• Discussions with both brand and generics on future products and the new requirements for the pharmacy and patient supply chain