AstraZeneca followed Pfizer on Friday by announcing an exclusive distribution system for its medicines in the UK, a move that - while not unexpected - is likely to further anger wholesalers already enraged by the US company’s sole agency deal.
Under AstraZeneca’s new supply system, Celesio’s British distribution unit AAH Pharmaceuticals and Alliance Boots’ wholesale unit UniChem will deliver the company’s prescription medicines to doctors, pharmacies and hospitals across the UK. The deal will come into effect during the third quarter of 2007.
“Pharmacists will be relieved that this is not another single channel scheme like that implemented by Pfizer,” Steve Dunn, managing director for AAH said in a statement. The choice of more than one agency partner “will ensure that flexibility and choice is maintained for the customer and result in minimal disruption,” he added.
But wholesalers may be less happy with the arrangement. While the British Association of Pharmaceutical Wholesalers has yet to make an official statement on the latest deal, the new supply system is likely to further erode competition within the wholesaling sector.
Last month AAH was among a group of eight wholesalers who tried, and failed, to secure a High Court injunction to block the Pfizer distribution deal on the grounds that it was anticompetitive.
Following more than 500 complaints about the deal from wholesalers, doctors and pharmacists, the Office of Fair Trading launched a ‘market study’ into the distribution of medicines in the UK in order to determine “how recent and proposed changes to distribution arrangements may affect competition, the NHS and patients." AAH has now sought to distance itself from the OFT inquiry by stating that the OFT review was a general market study and that it was AstraZeneca’s decision to move ahead with the new deal.
Independent wholesalers claim that exclusive distribution deals stifle competition and may undermine the efficient ordering and delivery of drugs within the UK’s National Health Service. Nonetheless, the deal has been described as a clever move by some industry commentators, as AstraZeneca’s appointment of two wholesalers will avoid regulatory criticism and combat generic competition. An OFT spokesperson has said the new agreement will be incorporated into the existing inquiry when it is published towards the end of the year.
Alliance Boots at the centre of a bidding war
In the meantime, a bidding battle is being waged for Alliance Boots as two rival companies, Terra Firma Capital Partners and Kohlberg Kravis Roberts make rival approaches for the company.
On April 20, Guy Hands’ Terra Firma Partners raised its bid for Alliance Boots to £10.9 billion ($21.8 billion), just three hours after the board of the UK’s largest pharmacy chain agreed to a revised offer of £10.6 billion ($21.2 billion) from a consortium comprising Kohlberg Roberts & Co and Italian billionaire Stefano Pessina, Alliance Boots’ deputy chairman and biggest shareholder.
Alliance Boots stock rose 75.5 pence, or 7.2% to a record 1,125 pence on the news. Whichever of these two private-equity groups takes over Alliance Boots will gain control of 3,100 shops and a wholesale company that supplies drugs to more than 125,000 pharmacies and hospitals. A takeover would be Europe’s largest leveraged buyout.