Contents:

CHAPTER 1 EXECUTIVE SUMMARY 4 Scope of the report 4 Key findings 4 CHAPTER 2 SUPPLY CHAIN OVERVIEW 9 Why worry about the drug supply chain? 9 The US Supply Chain 10 Manufacturers wield most power in setting drug price in the US 10 Wholesalers are the primary buyers for manufacturers 11 Pharmacies are at the interface of the supply chain and patient 12 Pharmacy Benefits Managers - a crucial link in the US supply chain 13 The UK Supply Chain 14 Drug list price is regulated by the PPRS 15 Wholesalers compete to acquire pharmacist contracts 15 The government reimburses pharmacists at list price 16 Differences in drug distribution between the US and EU 17 CHAPTER 3 DRUG DIVERSION 18 The grey market in the US 19 The illegal importation of drugs into the US 20 Parallel trade in Europe 21 Counterfeits enter UK via parallel trade channels 21 EU focus on parallel trade and counterfeit drug link 22 Strategies to tackle diversion 23 Greater regulation of the pharmaceutical supply chain 23 e-pedigree roll out in 2009 in California 24 Drug supply restrictions are effective but can lead to domestic shortfalls 25 Dual pricing initiatives 26 Tighter supply chains - direct to pharmacy distribution is gaining traction 28 GSK sets the ball rolling in the UK 29 Pfizer goes further by introducing exclusive distribution 29 Sanofi-Aventis and AstraZeneca introduce DTP in the UK 32 Implications of the DTP scheme for the UK 32 CHAPTER 4 THE SUPPLY CHAIN GOING FORWARD 38 Market expansion 39 Intellectual property and European Union expansion 39 Drug registration 40 Parallel trade in the European Union 41 Parallel trade implications beyond the EU 41 Manufacture outsourcing 42 More complex drugs with more complex distribution needs 43 The trend towards consolidation 45 Wholesale industry under increasing pressure 46 Infiltration of the PBM business 47 Innovators fail to make PBM acquisitions a success 47 CVS and Caremark merger 48 Wal-Marts foray into pharmacy benefit management 48 Growth in private label brands 49 Relaxation in pharmacy outlet laws 49 Differences between US versus EU distribution 50 US retailers leave wholesalers with little net margin 51 US manufacturers subsidize distribution 51 European retailers have less power 52 CHAPTER 5 BIBLIOGRAPHY 53 Publications and online articles 53 Datamonitor resources 60 APPENDIX 61 Abbreviations 61 Exchange rates 62 List of Tables Table 1: Exchange rates, 2007 62 List of Figures Figure 1: Drug and monetary flow in the US supply chain 10 Figure 2: The UK pharmaceutical supply chain 14 Figure 3: UK retail pharmacies, 2006 16 Figure 4: US pharmaceutical grey market 19 Figure 5: Drivers and strategies to tackle, drug diversion 23 Figure 6: UK pharmaceutical distribution channels 28 Figure 7: Expansion of wholesaler services 34 Figure 8: Factors impacting on the future drug supply chain 38 Figure 9: Consolidation within the supply chain 45

Companies Mentioned

Alliance Boots Plc AstraZeneca PLC Cardinal Health, Inc. Eli Lilly and Company GlaxoSmithKline Plc Graham Packaging Holdings Company Medco Health Solutions Inc Merck & Co., Inc. Novartis AG Pfizer Inc Walgreen Co. Wal-Mart Stores, Inc.