FRENCH PHARMA SUPPLY CHAIN

   

  
Clic rapide ! Contents Summary Players Supply Chain Pharmacists  Retour Accueil
Manufacturers Generics  Selfmedication  Parapharmacy Following

 

Dossier Numéro 4
Octobre 2000

PHARMACEUTICAL SUPPLY CHAIN IN FRANCE (1)

PRESENT SITUATION, TRENDS, WITH A FOCUS
ON BUSINESS DEVELOPMENT WITH PHARMACIES

CONTENTS

1. Major players of the French health sector, present situation and trends.

1.1. The State, the Social Security, the complementary Insurance and the patient.

"A strictly controlled sector, a network of interdependent and mainly defensive actors, a passive assisted behaviour of the population, developed since 1945"

"An expensive system with poor output, an overwhelming hospital charge, a near-to-full coverage with little personal co-payment"

1.2. Prescribers and other health professionals.

"A limited freedom of practice, an equal number of GP's and specialists, no or little gatekeeper platform, an amalgamation with an unusually important private hospital"

 

2. The supply chain in France, present situation and trends.

2.1. Major types of products and channels of distribution.

"Within high regulation, a complex pattern of flows, a decreasing number of players"

2.2. Wholesalers and distributors.

"A superficially consolidated channel, a key but not everlasting role, a competition in the offer of services"

2.3. Pharmacists and groups of interests. Direct sales.

"A locked, monopolistic, flourishing group with new responsibilities but little dynamism and eroding margins, an increasing penetration of providers of services"

 

3. Manufacturers and products, present situation and trends.

3.1. Global and ethical markets and manufacturers.

"A less and less dynamic market, a controlled pricing and reimbursement with less ambiguous rules, a price convergence to European levels, a sharp decrease of players and of independent firms"

3.2. Generic market and manufacturers.

"A very late take off and today an exploding market, an unstable and diversified set of players, present losses, future uncertain payback"

3.3. Selfmedication market and manufacturers.

"A poorly dynamic market with few players and profits below average"

3.4. Parapharmacy and ethical cosmetics market and manufacturers.

"A niche market, after displacement of volume products to large distribution channels"

EXECUTIVE SUMMARY

France is a highly controlled country with respect to healthcare.

Administrative tradition and conservative professionals have promoted such a policy of tighter and tighter controls.

 

Since the "Juppé" plan and its slowly rolling legal consequences, the State and the payers (CNAM and mainly mutual insurance's), while not definitely deciding to move the system to a "fully public" British type or to a "managed care" Dutch type, have entered into a logic of contracts with all healthcare professionals and notably their Unions.

The consequences of financial incentives and constraints push to more responsible and dynamic actors, to increased competition among often waterproof players in the past, and ultimately lower margins or lower fees growth (in terms of G.D.P. growth), and State savings.

Many of these moves, and the coming ones, have been made possible by computer technology which opens communication, quickens exchange and lower barriers.

A major consequence is that the complexity of flows and interrelations are expected to increase dramatically, as for other health actors, and that any strategy will need to be broadly focused with the concept of full services portfolio, even if the first implementation is narrower.

 

The rules of the game for the pharmaceutical industry do not change substantially, even if constraints are tougher and consolidation increases, unless it decides to diversify vertically.

The rules of the game for the actors of the distribution channels including pharmacists are radically changed, with increased complexity, and, new opportunities and new leaders to emerge.

The rules of the game for the prescribers and the payers, because, though tougher, they are less clear in the short term, may only produce opportunistic, watchful but waiting actors until structural changes, if any.

 

France is the fourth world-wide pharmaceutical market with high volumes and low prices: strong regulations give time to existing major players to seize new opportunities and slow the emergence of brand new players, which must innovate and choose niches to start up.

PLAYERS

1. Major players of the French health sector, present situation and trends.

 

1.1. The State, the Social Security, the complementary Insurance and the patient.

 

The State is strongly controlling the Health sector, in France, gradually more and more since the birth of the Social Security in 1945, with a Bismark type (insurance-driven with the Trade Unions' active but not decisive participation).

This increase in control is driven by:

- recurrent deficits,

- difficult relationships with the Unions which manage the various funds of Social Security (C.N.A.M.T.S. for salaried employees, C.A.N.A.M. for entrepreneurs and liberal professions, M.S.A. for farmers, and various historical micro-funds, altogether shortnamed CNAM) or with those which represent health professionals,

- a global poor output compared to other rich countries (ratios life expectancy, morbidity, mortality, etc, to the level of expenses in terms G.D.P. per head).

 

The tendency to control has dramatically increased with the Juppé Plan (Prime Minister in 1995-97), which is still to-day progressively applied ("décrets d'application"):

- decision on the level of taxes and charges directly taken from the people's salary (C.S.G. and R.D.S.), although the employers' shares have not followed each increase;

- decision on the collective level of expenses (about 630 Billion Francs in 2000) and their split among the various health professionals, with the yearly approval of the Parliament;

- decision on the global health policy, on yearly priorities, on prevention campaigns, following the proposals of a national conference of experts and health professionals;

- decision to authorise a drug on the market (A.M.M.) via a controlled Agency (A.F.S.S.A.P.S.), although more and more new (hitech) drugs go for the centralised E.M.E.A. procedure or for the mutual recognition emerging (and still unstable) procedure;

- decision on the price level of each drug, whether it is new (according to a benefit service ratio named S.M.R., granted by a NICE-like organ named "Commission de transparence") or not (price increases or decreases, according to contracts named "Convention"), and decision on its eventual reimbursement, in accordance to health policies, to unit cost and to S.M.R.;

- decision on the level of unit fee or margin for each health professional service and its yearly evolution (...).

 

Basically, the Health scheme in France, outside the hospital, is:

- a patient visits a Doctor (G.P. or specialist) of his choice, pays a fee to him (115 F for a G.P.) for the diagnosis and buys drugs written on the scrip to the pharmacist;

- he is then (5 days to 2 weeks) reimbursed from one of the CNAM's on the basis of 70% for doctor's fee and of 0%, 35%, 65%, 100% (according to categories of drugs) of the public prices of drugs;

- he finally requests the full coverage of the remaining sums from a complementary fund (mutual, mainly or private insurers) that, most often, he had not to register himself to, as it was chosen collectively by his Company's organisation or by federative groups.

 

For some chronic and serious diseases (e.g., A.I.D.S. or diabetes) or low income or invalid people, i.e. in total for about 10% of total population and 45% of drug consumption, advance payments to doctors and pharmacists are reduced ("tiers payant") or even cancelled ("C.M.U.", etc); then, the health professional is covered for his duties by the concerned CNAM (with a longer time response).

Virtually, with the new "C.M.U.", 100% of the French population is covered to some extent by Social Security funds and at least 88% of people is estimated to be nearly 100% covered:

Social Security funding

Mutual funding

Private insurance funding

Personal charge

75%

6.5%

3.5%

15%

 

The personal charge concerns basically people who do not hold a complementary mutual or insurance coverage, some segments which are poorly reimbursed by CNAM (e.g., dentals, optics, thermals), some "responsibility" accounts (e.g., accommodation fee for hospitals) and the liberal market (selfmedication, doctor's fees outside the convention, etc).

 

The split of medical expenses strongly emphasises the hospital share, public (80%, 1000 units, 320000 beds, 760000 headcount) and private (20%, 2100 units, 180000 beds, 300000 headcount):

Total

Hospital

Healthprof. fees

Transportation

Reimbursed drugs

Prostheses

100%

50%

28% (20%: Drs)

1.5%

18%

2.5%

 

The total funding reaches 750 Billion Francs per year (713 Billion Francs in 1997) or about 11% G.D.P.

Social Security expenses (84% of total funding) yearly overtake its funding, even if deficits have been reduced in recent years due to a stronger growth in the general economy and to tighter controls.

However, general population, in polls, has constantly reported good satisfaction in the system despite its higher cost, relative to other rich countries and its poor output.

Only economists, intellectuals and employers on the one hand, and, international general competitivity and health comparisons, have pushed to reforms. French population is, for those matters, more "Latin", more assisted and less mature than people from Northern countries.

 

Trends are clearly reformist, following the "Juppé" plan, which is to be implemented for at least 3 more years, and which does not tackle the strategic issues of the structure of the social coverage. The present system is clearly close to the German system, which will be the backbone of the European system. Will it evolve towards a "fully public" British type or to a "managed care" (reasoned free market) Dutch type system? The answer is certainly of major importance for the prescribers and for the potentially new payers and new health providers, less so for the pharmaceutical industry or the distributors, which are more, concerned by supranational European issues and by current reforms. The answer surely depends on the time political majorities remain in place with a more social or a more liberal taste.

 

1.2. Prescribers and other health professionals.

 

The Doctors demography in France is characterised by excessive global numbers (180000 in 2000; to decrease from 2002), by their irregular distribution between various regions (the offer is overweighed in the Paris region, in the Mediterranean region), by the overweighed share of hospital doctors (public or private) compared to liberal doctors, by the irregular distribution between G.P.'s and Specialists (90000 for both equally, of which 50% exercise a liberal activity).

 

Those desequilibriums are similarly found among other, low prescribing, health professionals (dentists, 40000; nurses, 300000; kinesitherapists, 50000).

 

Liberal doctors have freedom of place to practice, of prescription (drugs by their branded name); however, freedom of fees has been lost a few years ago, when free access to free-fee practice ("secteur II" in opposition to the state regulated, contracted practice "secteur I conventionné") was strictly restricted to doctors quitting the hospital to go for liberal practice; besides, freedom of prescription has been limited with the constraint of negative guidelines ("R.M.O.") in 1993.

 

Like with other healthcare groups, the State has negotiated with the concerned Unions yearly contracts, mainly providing fee increases (but also sometimes less dramatic decreases than threatened, as with radiologists) against commitments:

- a global envelope of fee expenses (+ 2% or less for 2000 compared to actual 1999), that is split among G.P.'s and various types of specialists; in case of excess expenses, paybacks are scheduled (or for 2000, fees proportionately reduced) but these have never actually been implemented because of the potential social risks;

- a global commitment to electronically transmit details of fees ("F.S.E.") to each patient's CNAM with contrasted results (at the end of 1999, after two years' initiation, only 29% of G.P.'s and 9% of specialists use teletransmission for 5% of scripts in total, whereas all should do so, following the "Juppé" plan, from January 1. 2000);

- a push of the gate-keeper concept, with one of the G.P.'s unions back up: for each doctor, 150F per enrolled head (capitation), with a constraint of prescribing 15% of cheaper drugs including generics; for each enrolling patient, the granting of the "tiers payant" (34.50F for a visit only, or even, gratis, if affiliated to a mutual insurance); again, outcome is disappointing.

 

Much of the conflicts and, as a consequence, of the disappointing outcome stems from the fact that contracts have only been signed with minority Unions (MG France for G.P.'s and surgeons for specialists) and that doctors are rarely (about 17% in total) members of Trade Unions. More generally, in France, doctors face a crisis of identity because of:

- their too large numbers (following a State policy in the early eighties), which induces banalisation (less local power), internal competition and lower income than in the past;

- the development of the patient as an exacting customer;

- their growing dependence to techniques, rather than to art, which pushes to community practice rather than isolated power and which requires I.T. ease.

 

The too large number of doctors and other health professionals means excess of offer. And, the complete freedom given to the population in terms of choice and level of consultation means excess of demand. This results in higher consumption of health services, in higher volumes of prescribed drugs and laboratory analysis (...), in poor selfmedication practice, in comparison to similar countries. This explains the conflicts of health prescribers with the State and CNAM, enhanced by contradictions between liberal attitudes of the former and collective thinking of the latter.

 

Trends are clearly in favour of the regulation bodies, as long as the liberal bases of the prescribers' activity are left untouched. Notably, with younger generations, the technological components of the reform (computer management, electronic transmission of financial and medical data, development of networks with local colleagues, with the nearby hospital, with linked specialists, with groups sharing the same interest, with other health professionals, including those in the pharmaceutical distribution chain) will be more and more accepted.

As a consequence of I.T. emergence, a previously secondary player is currently emerging, with the ambition of expanding into a more global role in the distribution of healthcare, in France. Two groups are involved, Vivendi and Cegedim, but new entries (e.g., Wanadoo/ Liberalis, a subsidiary of France Telecom, wholesalers, big pharma companies) are likely with the consolidation of medical media's, of health software companies, of C.R.O. and other services companies:

- Vivendi is a conglomerate service giant (distribution of water) which owns a large market share of medical newspapers, of communication agencies and other services to the pharmaceutical industry, of software for doctors, pharmacists, networks with hospitals or not, and service and devices companies for health professionals (Vidal, S.E.M.P., Medigest, R.S.S. for teletransmission);

- Cegedim has started as a service company to the pharmaceutical industry with the support of wholesalers, doctors and pharmacists (sales report, market research) and is expanding into the service to them (total turnover: 1.3 Billion Francs in 1999).

SUPPLY CHAIN

2. The supply chain in France, present situation and trends.

 

2.1. Major types of products and channels of distribution.

 

The healthcare chain in France is dealing more with pharmaceuticals than with healthcare products than in the rest of northern Europe. Parapharmaceuticals, cosmetics and other borderline health products are sold more by other channels, as the mass market and specialised shops, often grouped in franchise.

Drugs may be classified in 4 groups: first "ethicals" that must be prescribed and are reimbursed with some particular categories as generics, narcotics, hospital transfers (...); second, "semi-ethicals" that are prescribed and reimbursable, but may be purchased without seeking a reimbursement; third, "OTCs" that are not prescribed and not reimbursable, but may be advised by doctors (rarely) with two categories, "produits conseil" (advised by the pharmacist with some restrictions in terms of communication, etc) and "produits grand public" (directly advertised to the public, e.g. through T.V., without restrictions); fourth, "lifestyle" that are prescribed and not reimbursable by the CNAM but may be reimbursed by complementary insurance on a case by case basis (e.g., Viagra, Xenical, Flu products, etc). Strictly over-the-counter (O.T.C.) products do not exist in France, per se (all drugs are behind the counter), as in the U.K. or the US.

 

Basically, the public price of a reimbursed drug is split (1998) into 66.5% for the pharmaceutical company, 24.3% for the pharmacist, 7.1% to the logistic distribution actor, 2.1% V.A.T. (total taxes on top of V.A.T.: 1.7% levy on exceeding sales ceiling, 1.7% tax on companies promotional expenditures, 1.1% levy on wholesalers).

 

In total, manufacturers sell their pharmaceutical products to wholesalers (75.6% of total sales), to pharmacists (9.1%, as direct sales), and to hospitals (15.3%) (1998 actual).

Detailed flows (estimates): 300 manufacturers sell 40% directly to wholesalers, 2% directly to hospitals and 5% directly to pharmacists (via "groupements" or not) and transfer the remaining (53%) goods to the 28 distributors and the logistic specialists; in turn, the latter deliver 87% to the six wholesalers, 7% to hospitals and 6% to pharmacists; in turn, as a last step of the chain, wholesalers deliver 89% of their flow to pharmacists and 11% to hospitals. The flows of the parapharmaceuticals and other products to the pharmacy or the hospital are not well known quantitatively: they vary a lot according to the type of product and if the manufacturer is selling pharmaceuticals too, or not; however, the channels are the same.

2.2. Wholesalers and distributors.

 

2.2.1. Wholesalers.

The offer of goods by wholesalers to pharmacies (private, mutualist or of hospital) is split (1998) on average into: 86.5% of reimbursable drugs, 6.5% of non-reimbursable drugs, 2.5% devices (from thermometers to muscle inducers, etc), 2% dermo-cosmetics, 1.5% dietetic foods (sportsman, elderly, babies), 1% veterinary drugs mainly for pets.

 

The turnover of wholesalers has been 80 Billion Francs in 1998, which represents the great majority of sales to private pharmacies (except direct sales), with distributors being upstream intermediates, or not.

The average mark up of wholesalers to pharmacist is 9.7% (11 Billion Francs in 1998), i.e. 10.74% of manufacturer's price minus discounts and year-end bonuses.

Wholesalers' financial data (1998) are in % of turnover: gross margin, 9.70%; rebates to pharmacist, 2.35% (theoretically 2.5%, but 6% of pharmacist are not eligible; generics excluded); levy, 1.61%. In Billion Francs, respectively out 76.1: 7.37; 1.79; 1.18. The levy has increased year after year, following the formula decided by the State: 296 Million Francs (1991), 676 Million Francs (1992), 718 Million Francs (1993), 759 Million Francs (1994), 879 Million Francs (1995), 660 Million Francs (1996), 817 Million Francs (1997), 1177 Million Francs (1998).

 

By Law, wholesalers must deliver any drug (any presentation) within 24 hours at any pharmacy in France and hold the complete range of references and at least one month's inventory of all drugs for two thirds of their specialities (over 20000 references).

The wholesale sector is highly consolidated: from the sixty plus independent wholesalers of 1960, only three major groups have emerged today, namely O.C.P., an affiliate of the German family-owned group Gehe (39.6% market share in 1998), Alliance Santé-Unichem, a pan-European group (29.7% market share), and C.E.R.P., a less international group and partly a co-operative of shareholders pharmacists (25.8% market share), plus very few still independent regional wholesalers (e.g., Phoenix, a subsidiary of Merckle, 3.2%, Ouest Répartition, 0.4%), totalling less than 4% M.S.

 

The distribution of goods to pharmacists is routed from local sites: O.C.P. has less than 200 sites and their numbers decreases progressively to reduce costs. Over 80% of the French pharmacies regularly buy to O.C.P. (a little less for the 2 others), although most pharmacists buy to two wholesalers and commonly to three of them (average 2.3). In return, pharmacies are delivered 2 to 5 times per day (not long ago, it could have been 8 times for big accounts) and then their orders are short lined: on average 15 lines, with 3 specialities by line (and 30% of those lines are for a single reference); urgent orders are routinely served within 2 hours.

 

All wholesalers have developed, due to the legal limits of their discounts and bonuses, various lines of services (often softwares) and training programmes to help pharmacists better manage (costs, margins, inventory, working capital, return on investment, etc) their shop and ultimately create a captive market. Although those services have been welcome, pharmacists, as individualistic entrepreneurs, have been reluctant to be tightened into rigid co-operation. All the more that significant alternative players have gained power: distributors, groups of interest and manufacturers themselves, by direct sales. Wholesalers are giants with clay feet, although their lobbying power has shown its efficacy to regulators.

 

Trends for wholesalers consist in enlarging their portfolio of products, of services and in the international expansion of their base by acquiring other wholesalers in Europe and developing pan-European yet-informal alliances, such as I.P.S.O. (1995 from Alliance Santé and Pharma Holding), Tredimed (1988 from O.C.P,. A.A.H., Gehe, Cofares) and O.R.P.H.E. (from co-operative wholesaler, less active). In Europe (E.U.), still 670 wholesale companies are active whereas in the US, the consolidation is extremely advanced and only 5 wholesalers hold 70% of the market. This move is in line with the E.C. rules, but may divert investment power from the French market place, a strategic issue.

 

2.2.2. Distributors.

Distributors are by many ways distinctive from the wholesalers, although they are directly competing for the same market. They can be described as intermediates between the manufacturers and the wholesalers or the pharmacies, and actually they do not own their inventories.

Out of the 28 distributors (with 43 inventory capacity sites), half are subsidiaries of pharma companies; in fact, several are vertical integration of large manufacturers (e.g., Distriphar for H.M.R. and Pharmaservices for R.P.R., both now within Aventis), or diversification alternatives developed by wholesalers (e.g., Dépôts généraux for O.C.P.) or independent entrepreneurs who grasped the opportunity (C.S.P. with 45% of sales to hospitals as a special niche, and Depolabo). Other major distributors: Eoles Diffusion, Evolupharm, Evrard D.P.E., Medipole, Pharmassist and Tailleur.

 

The opportunity comes from the specificity of the distributors: more massive flows ("Réassorts") with much longer delivery intervals (once a week to wholesalers, once a month to pharmacies). Many operate from a single or a twin platform, although Depolabo and Cooper are multisites, like standard wholesalers; most, in terms of drugs, have the same range of offer, except two of them which are overweighed in OTCs: the O.C.P. subsidiary and especially Cooper (historically a co-operative with then captive clients for selfmedication products, owned by pharmacists, subsequently acquired by R.P.R. and presently within Aventis, to be divested). As a result, although inventory ratios are not significantly different after all, logistic costs of that channel can be inferred as 1 to 2% of turnover, whereas they reach 4% for wholesalers. However, reduced costs, scale economies, lower fixed assets investment -and better margins transferred to pharmacists- are by far not the rationale of success for distributors: most promote drugs directly to pharmacists, on behalf of manufacturers, either because of lack of critical size or lack of know-how (OTCs) or because of an available line of "proprietary goods"; besides, many distributors add similar marketing services to pharmacies, as wholesalers and "groupements"; independent distributors (as wholesalers) are in direct trade competition with manufacturers for generics and for parallel import.

 

Future trends are, according to distributors themselves, the externalisation of the logistics and of services, in order to offer a full portfolio of services to clients.

 

Logistics specialists have emerged recently as an offer to reduce costs to manufacturers, but without any package of services: Geodis Logistics, Stockalliance Santé, Pharmalog, Exel, BOMI, Stock Inter, Danzas, Heppner, TNT Pharm, etc. These "logisticiens" are not coming from the healthcare world (like the Mother Company of Gehe in Germany) and bill their services on activity (not on turnover as wholesalers and distributors). Initially, they serve parapharmaceutical companies (e.g., Reckitt & Coleman, Neutrogena), diagnostics (Roche) and devices to hospitals (Baxter), but their present portfolio of clients is much broader.

 

PHARMACISTS

2.3. Pharmacists and groups of interests.

 

2.3.1. Pharmacists.

Pharmacists enjoy the monopoly of distribution of drugs, in France; several constraints, social and technical, go along.

To create a new pharmacy is controlled by Law (numerus clausus): maximum (with derogation) 1 pharmacy for 2500 to 3000 inhabitants, depending on the size of the total population.

Total number of pharmacies is about 22500 (1999 with a long term slight decrease) with important differences of yearly turnover:

Average: 4.5 Million Francs

4 to 6 Million Francs

6 to 8 Million Francs

over 12 Million Francs

over 50 Million Francs

22500

4500

2700

675

2

72 mutualists (non-profit) pharmacies are to be added, with very high turnovers, which belong to mutual insurance.

Localisation of pharmacies (1998): 39% in city centers, 35% in suburban zones, 14% in rural zones, 12% in hypermarkets and large stores (now saturated).

 

The recent contract agreement with the State has changed dramatically the role of the pharmacists, in France, in the distribution channel (1998-99).

A new two-tier system has been created to take place of the past six-tier system, which had the global impact of reducing gross margins of pharmacists from 28.9% in 1991 to 25.3% in 1999. The new system provides a 26.1% gross margin for products with manufacturer's price of up to 150 F and 10% above.

The contract provides with:

- financial incentives such as a 3.50 F fee per prescribed drug (5.50 F for 40 special drugs), a better discount ceiling for substituted generics (10.74% instead of 2.5% for patented or uncopied drugs), a maintained margin in value terms, after substitution and the move of some high priced 100%-reimbursed drugs (antiretrovirals, rare diseases vaccines, anticancer, antiemetics) from hospital-only to private sector named hospital transfers);

- constraints such as for the price of the substituted generic, which must not be 0.50 F per box higher than the prescribed drug (penalty: 100 F per box); and from September and within the next 12 months, pharmacists must reach a level of 35% of substitution in volume terms within the "Répertoire" (failing this constraint, pharmacists will see their fixed fee of 3.50 F reduced proportionately).

 

On the other hand, as for doctors, the CNAM, with the State push, has just contracted a global commitment with Unions of pharmacists (27000, most being members) to electronically transmit details of scripts ("F.S.E.") to each patient's CNAM (with Sesam Vitale) by June 1. 2000, against an additional fee of 30 cents per scrip during 5 years and various safeguards for the pharmacist.

This technical contract, together with the global financial contract signed with the State, gives each pharmacist, a new proactive role in the healthcare system, to the contrary to the previous status of trader only. Existing Unions (F.S.P.F. for about 80% pharmacies and U.N.P.F. for 10%) which signed the agreements, promote the move. However, activist reactions requesting that the level of the financial incentives be warranted in the future, that the tax levy on direct sales be abandoned, that the limit on discounts be abandoned, led to the creation of a new opponent Union, APlus (1400 claimed members of which many from F.S.P.F.).

 

2.3.2. Groups of interests.

Groups of interests are another unit of the chain of distribution. They have significantly appeared in the last 10 years and bear more and more importance (in 1995, 7000 pharmacies or 39% were affiliated; today more than 50%). "Groupements" are promoted by a defensive strategy of pharmacists, which thus develop a network, while remaining independent.

Basically, "groupements" are service companies to pharmacists (which then may be pure customers or shareholders, in co-operative or not), mainly to obtain better buying prices from manufacturers (rebates on bulk orders) and to enter them under reference numbers. However, along time segmentation occurred.

At the beginning, "groupements" were concerned by OTCs, parapharmacy and cosmetic products. However, today, "groupements" deal also with ethicals, generics and non reimbursed ethicals, and with services (management control, finance, I.T. advice, merchandising advice, training...). And 50% of them have their own proprietary brands in OTCs, parapharmacy and cosmetic care, and some threaten to entry the generic market with their own line.

"Groupements" call for 2% better net margins, on average, to their members against annual fees and respect of a reference policy. As part of the diversifying movement, some "groupements" have acquired shares of wholesalers (e.g., Evolupharm and Ouest Répartition) or the reverse (e.g., O.C.P. and Pharmactive, C.E.R.P. and Optipharm).

 

Over 30 "groupements" are registered which may have a national or a local basis (1999, name, declared number of members, average turnover of affiliated pharmacies in Million Francs, key characteristics):

Optipharm

2020

8000 (e)

national, loose partnership, liberal

Giphar

1400

8950

national, full package of services, Logiphar, Gipharmad

Evolupharm

1200

7500

national, buying group oriented

Giropharm

876

6340

national, full package of services, free magazine

Pharmactive

374

2800

national, buying group oriented

Pharma Référence

348

2200

national, strong culture, target: chain, strong in OTC

Pharmalliance

150

900

national, good package of services

Europharmacie

130

n.a.

Paris and around, marketing oriented

IFMO

92

750

Paris and south of France, training, Pharmélia magazine

Forum Santé

70

700

national and Switzerland, large pharmacies

Cofisanté

60

500

national, I.T. and management control

Pharmavenir

60

350

regional, Loire and Paris, convivial, strong in OTC

Ceido

53

900

national, light structure, strong in OTC

Pharmaliberté

51

400

national, light structure, strong in OTC

The other "groupements" are less important and/or more local and/or more specialised: A.E.P.K., A.P.M., Brie-Phar (east of Paris), Copharmec (Nepenthes group), Cristal Vert (strong in OTC, parapharmacy), Opapharm, Pharma-6 (88, local), Pharmasud (35, 230 Million Francs, Languedoc), Pharmelex (40, 248 Million Francs, Paris and around), Plus Pharmacie (strong in OTC), Socopharma (140, Valenciennes), T.O.P. (140), Unipharm (66, 310 Million Francs, Loire), UPP21 (71, 350 Million Francs, Dijon), etc.

 

Another group of interest is the "concentrateurs" which acts as I.T. organisations, intermediate between pharmacies and CNAMs (R.S.S.) plus complementary insurance, to transfer scripts electronically. The largest, Resopharma, grouping 7000 pharmacists since 1991, is owned by the pharmacist Union F.S.P.F. (fee: 65 F to 115 F per month according to in or out services). Other less important, independent or not, "concentrateurs" are available, as services in the full package diversifying strategy towards pharmacists.

 

2.3.3. Direct sales.

Historically, direct sales from manufacturers have been developed as a long term strategy to consider pharmacists as part of the client portfolios, by companies which:

- had a strong participation in the O.T.C. and/or in the generic market, and/or

- anticipated major products to be switched to O.T.C. or delisted, and/or

- wanted to fight against generics or even against wild larger substitutions.

 

Direct sales have culminated in 1997, reaching 8.2 Billion Francs (+17% from 1996) and 10.5% market share. At the end of 1997, the State has decided to impose a levy on direct sales of reimbursable drugs of manufacturers in order to "re-equilibrate the distribution channels" (in favour to the wholesalers, but with a negative impact to distributors). As a consequence, direct sales decreased in 1998 (to around 8% market share) and are expected to have stabilised to around 9% in 1999.

 

However, the emergence of generics (since fall 1999), the current product review process, with 150 pending delistings (mid 2000?), the computerisation of all healthcare professionals are keys for manufacturers to reconsider their strategic approach to pharmacists. The short term outcome may not be a sharp increase in direct sales, but new partnerships to be developed and seeked for, and new services provided to pharmacists who compete with the full package offered by other players of the distribution chain.

MANUFACTURERS

3. Manufacturers and products, present situation and trends.

 

3.1. Global and ethical markets and manufacturers.

 

3.1.1. Global market and generalities.

In 1999, the total pharmaceutical market (ethicals, generics and non reimbursed) reached about 105 Billion Francs (98.7 Billion Francs in 1998, +5.4%), with a value growth of 6.3% (volume, about +4.5%, price, about +1.5%). This encompasses 3750 products in 8300 presentations.

 

The number of pharmaceutical manufacturers has decreased sharply from 400 in the early eighties to 300 today: this concentration is in line with the world consolidation between large firms and, in France, includes the acquisition of large to medium sized French pharmaceutical companies, because of the death or retirement of their owners or because of pipeline shortage (e.g., Upsa, Jouveinal, Theramex in recent years). This trend is expected to increase following the deaths of the two owners of the biggest independent companies (Servier, Fabre) or the State review of old "semiethicals" and the threat of their subsequent delistings (Beaufour, Fournier, Negma, etc).

 

Price of reimbursed drugs is under State control, from price setting to price evolution. Despite the level of price granted to innovative products, similar to European standards, the general level of prices is still below the average computed for European Union (- 3 percentage points), far below Germany (- 23 percentage points). From a common price index of 100 in 1980, reimbursed drugs reach an index of 135 in 1998, health services, an index of 170 and the general cost of living, an index of 213.

 

3.1.2. Ethical market and manufacturers.

The ethical market has gradually moved from a strong yearly growth (low two digits) in the early nineties to a moderate growth (+5% to +8%) in the late nineties.

This stems from:

- a lower dynamism in the growth of diagnosis and prescriptions (following State constraints to doctors with closed global envelopes of expenses and negative guidelines of practice as "R.M.O.");

- the pressure by the State to reduce promotional expenditures (by contract and through a specific non deductible tax).

However, even this moderate growth exceeds targets (yearly growth of about 2%) and special taxes have been enacted since 1995 and, from the year 2000, rebates will be automatically secured from companies which exceed their targeted contracted sales, according to each "convention".

 

A new "convention" has been signed by the S.N.I.P. (equivalent to A.B.P.I.) for a period of 3 years (2000-2002) which includes:

- information on prices, market, volume and sales of each existing drug with a three year plan (similarly, with projected new products);

- commitments on sales level of reimbursable drugs (total and for targeted therapeutic classes) and to pay back a proportion (maximum 50% for total sales and 25% for classes of products) of sales exceeding ceilings according to each company agreement (rebates);

- reduction of promotional expenditures from a ratio to turnover of about 15% today to 10% in 2002;

- incentives to marketing cheaper generics or proactive delistings (which allow to decrease the above percentages of payback);

- additional contracted commitments, in terms of R&D, employment, exports and other citizenship criteria;

- provisions to review the reimbursement status (every 5 years) and to delist drugs with no more appropriate S.M.R., unjustified rise in consumption or spending, too high prices relative to competition or to the disease;

- modulation of prices within a reasonable range.

 

A total of 148 pharma companies has signed contracts with C.E.P.S. ("Comité économique des Produits de Santé") within six months, up to the deadline of end 1999 and two companies who were unable to sign, J&J and Takeda, were reported to finalise afterwards anyway: this represents over 98% of reimbursed sales; failing this would have meant for them a tax on exceeding sales growth (e.g., target: +2.6% for 1999, actual: +6.3%) as a safeguard clause (e.g., 1.3% of reimbursable sales for a difference of 4 percentage points, and a maximum of 3.3% over 5.5 points).

 

Another major structural change regards the re-evaluation of all drugs on the market through an expedited procedure involving mainly the transparency commission and "A.F.S.S.A.P.S.". During the first wave (May-November 1999), cardiovascular, metabolism, C.N.S. and arthritis classes have been reviewed: out of a total of over 1100 drugs, 260 were at odds of which 148 have been assessed with an insufficient "S.M.R." (vein tonics, vasodilators, magnesium products, totalling for 9 million prescriptions or 1% of the total, and up to 40% of total sales of a single pharmaceutical group). Price cuts and/or delistings are expected soon for those, with a strong impact on the market (in terms of mergers, switches, and generics).

 

Market by therapeutic classes (values, hospital excl.) and estimated 5-year growth:

Total market

100%

+5% p.a.

cardiovascular

25%

very high

metabolism

17%

high

CNS

12%

moderate

anti-infectives

11%

moderate

respiratory drugs

8%

low

bones and muscles

4%

low

blood derivatives

6%

moderate

others

17%

 

 

Major therapeutic classes with their market shares: betalactams (5.2%), antiulcers (5.0%), calcium inhibitors (3.5%), hypolipidemics (3.4%), antidepressants (3.4%), analgesics (3.0%). 20 first products account for 16% of total value, 50 products 30%, 100 products 44%.

 

Major ethical manufacturers and their estimated market shares for reimbursable drugs (1999, hospital excl.).

Group

Market share (value)

Growth vs. average
(5 year trend)

Exposure to generics/ delistings

Aventis

14.5%

low

high

Sanofi-Synthelabo

8.5%

moderate

high

Glaxo SmithKline

6.5%

strong

moderate

Servier

4.0%

low

very high

B.M.S.-Upsa

4.0%

strong

moderate

Novartis

3.5%

strong

moderate

M.S.D.

3.5%

strong

moderate

AstraZeneca

3.5%

strong

high

Pfizer Warner

3.5%

strong

moderate

Fabre

3.0%

low

high

Roche

2.5%

strong

moderate

Beaufour

2.2%

negative

very high

Merck Darmstadt

2.2%

moderate

high

Fournier

2.0%

low

high

20 largest groups

66 %

moderate

moderate

50 largest groups

90 %

moderate

high

GENERICS

3.2. Generic market and manufacturers.

 

The history of generics in France starts back in 1979 when Sanofi began marketing from scratch 7 unbranded generics (ES) and faced a complete fiasco due to opposition (embargo) of pharmacists and doctors.

Since then, generics have been of low profile for 5 major reasons:

- low general price level;

- poor attractiveness to French manufacturers, because of their own old portfolio;

- existing market of branded generics, also by French manufacturers, seen as original products by prescribers;

- poor interest of prescribers, used to brand names;

- no attractiveness to pharmacists, with then lower absolute margins and no substitution rights.

However, 45% (1998) of the total "ethicals" and "semithicals" on the market, especially from French manufacturers, are older than 10 years, i.e. presumably close to patent expiry (not taking into account E.U. supplementary certificates) or already off-patent.

 

After a long period of hesitation and ambiguities, the impetus came from the State and other payers, aiming at health professionals (actual Law in 1998, with a pharmacists and State contract signed in May 1999, to be applied on the first of September for its last item).

Contents are:

- first, incentives to ethical firms so that they develop or acquire generic companies, generic product ranges, in exchange of better contracts ("convention") for their ethical line or better prices for their new product; generic advertising campaigns by Merck-Lipha in 1998 and T.V. campaigns by Bayer Classics, last December, or the acquisitions of Dakota Pharm and Biogalénique by Sanofi and R.P.R. are examples of opportunistic agreements with the State;

- second, easing the registration process of generics (including, in December 1999, by authorising the submission of generic registration dossiers before the actual patent withdrawal, known as the "Cahuzac amendment" or a "mini-Bolar");

- third, requesting doctors to add the manuscript uncomfortable mention "not substitutable" before each prescribed medicine, only in the case they deny that right to the pharmacist and with good reasons for it;

- fourth, granting the right to substitute to pharmacists linked to financial incentives and constraints, within a general contract agreement;

- fifth, granting to wholesalers and direct selling generic manufacturers the same margin in value term than the princeps and the same discount ceiling of 10.74%, higher than for protected or uncopied drugs (2.5%);

- sixth, regularly publishing an official list of generics ("Répertoire de l'A.F.S.S.A.P.S."), comprising 90 generic groups (each with a princeps molecule) and 900 products in total (end 1999) and 15 new groups and 160 new products for the last "Répertoire" (February 16, 2000). By July 2000, generic versions of around 25% of all reimbursed drugs are expected to be part of the updated "Répertoire" and by 2002, savings of 600 Million Francs to 1 Billion Francs are aimed together with a more competitive market.

 

Comparative building of price in French Francs for a princeps and a standard generic, according to the new system:

Values (F.)

Princeps

Generic

Difference in Francs

Public Price V.A.T. incl.

146.11

120.33

-25.78

V.A.T. 2.1%

3.00

2.47

-0.53

Public Price V.A.T. excl.

143.11

117.86

-25.25

Max. discount of wholesaler

2.77

7.52

+4.75

Fixed fee

3.50

3.50

0

Std margin of pharmacist

26.10

26.10

0

Std margin of wholesaler

10.74

10.74

0

manufacturer's price

100

70

-30.00

 

Then, the total official gross margin, for the pharmacist, is 32.37 F (32.3% of manufacturer's price) for the princeps and 37.12 F (53%) for the generic, whereas the economic savings for payers are 25.25 F (17.6% of public price).

 

The market as defined by the "Répertoire" (A.F.S.S.A.P.S.) is 8.55 Billion Francs (9.8% of total reimbursed market) and 416 Million units (11.3%).

Value 1999

Billion Francs

Ratio "Répertoire"

Ratio total reimbursed

Total

8.55

100%

9.8%

Princeps

6.98

81.6%

8.0%

Branded

1.03

12.0%

1.2%

Unbranded

0.531

6.2%

0.6%

 

Units (millions)

1997

1998

1999

Evol.%99/97

Ratio 99

Total

426

421

419

-1.7%

100%

Princeps

360

343

315

-12.3%

75.2%

Branded

55

61

67

+22%

16%

Unbranded

9

15

34

+297%

8.1%

 

The generic market is (June 1999) concentrated on few therapeutic classes: about 60% of value sales are stemmed from six classes, expectorants (20%), large spectrum penicillins (mainly Amoxil and Augmentin, 14%), revulsive balms (8%), dermo-corticoids (6%), analgesics (mainly Aspirin, 6%) and tetracyclins (6%); these products have a high frequency of prescription, whereas products for chronic disease (e.g., hypertension) and for old patients were poorly substituted.

 

Since September 1. 1999, the starting date of "compulsory" substitution for pharmacists, the market has been destabilised because pharmacists have quickly begun to move towards the 35% target (irregularly, according to regions). Already in October 1999, 6% of pharmacists substituted over 20% of potential cases and 60%, less than 10% of cases.

As a consequence of the binding target, market shares of the last 6 months are not significant and much more unstable than in the past: months after months, generic manufacturers have bought market share with volume offers at discounted prices, with bonuses, rebates (...), have exchanged some product lines, in addition to an even more dynamic policy of services to their clients (e.g., training programmes, decision-modelling softwares, Internet services site, and others).

 

Today and for the foreseeable future, no profit is derived from the generic activity of any company in France.

 

A lately tendency consists, for generic manufacturers, in making similar special arrangements (captive market) with wholesalers (E.G. with C.E.R.P. and its 13000 shareholders-pharmacists) or with groups of interests (Merck-Lipha with 6 major groups including Giphar and Giropharm) or to allow direct e-commerce by pharmacists (Bayer Classics Web site).

 

Two associations of generic manufacturers have been created about simultaneously: A.F.G. (Association Française des Génériqueurs) for unbranded generics (Bayer Classics, G.N.R. Pharma, Ratiopharm); and as a reaction, Alliance Gé for branded generics (Abbott, Biothérapie, Bouchara, Dexo, Doms-Adrian, Ferring, Fornet, Génévrier, Laphal, Leurquin-Mediolanum, Menarini, Parke-Davis, Pred, Sciencex, Searle, Yamanouchi), often with old "original" copies, renamed with the suffix "Gé".

 

Major generic manufacturers (affiliated to)

Managing director (May, 1999)

Turnover (fix cum. values July 99), 7 months  Million Francs

Turnover (1998/97), 12 months MFF

 Market Share (fix cum. values July 99)

Market Share (moving cum. values July 99)

 Nb of marketed molecules

Biogalénique RPG (Aventis Rhône-Poulenc Rorer)

Yves Harel

105.55

170/136

21.2 %

16.7 %

38, 4 major being branded

Merck Génériques (group Merck-Darmstadt Lipha)

Didier Barret

68.48

60/n.a.

13.7 %

26.1 %

56 (mid-October); 60 (end 1999); 80 (end 2000)

Irex (Sanofi-Synthélabo, with Dakota Pharm, not included: hospital only)

Jean-Marc Ouvrard

67.41

42/29.5

13.5 %

n.a.

33 (most branded); 35 (end 1999); 40 (beg. 2000)

Laboratoires du Dr E. Bouchara (Bouchara, French family independent)

Philippe Bouchara

59.39

 

11.9 %

n.a.

 5 (branded, acquired from GNR-Pharma)

GNR-Pharma, BASF

Henri-Michel Derouin

46.26

63/37

9.3 %

15,2 %

30 (8 to 10 new, per year)

Bayer Classics (Bayer)

Stéphane Joly

44.02

40/4

8.8 %

16,2 %

26, all unbranded (40 in 2000)

Eurogenerics (E.G., Stada, German generic group)

André Lopez

41.44

100/n.a.

8,3 %

n.a.

18 (10 unbranded)

GGam (Hexal, German generic group)

Philippe Besnard

29.01

 

5,8 %

n.a.

15 ,all unbranded

Biogaran (Servier, French independent)

Pascal Brière

17.65

n.a.

3.5 %

5,5 %

28,all unbranded; 60 (end 2000)

Ratiopharm (Merckle)

Alain Bouvard

17.33

20/4.9

3,4 %

6,7 %

27,all unbranded; 50, (2000)

M.S.D. (doctors'oriented)

Nadia Gortzounian

67.71

 

13.6 %

n.a.

few, unbranded (targeted)

SELFMEDICATION

3.3. Selfmedication market and manufacturers.

 

Selfmedication is totally atypical in France (more comparable to other "Latin" countries).

The OTC market is less developed (10.8% of total pharmaceutical market) than the world average (16.5%) or than in comparable rich countries (20% in the U.K., 26% in Switzerland, 30% in the US); on the other hand, the "semiethicals" penetration (21%) is the highest in Europe.

The market value of self medication can then be evaluated around 26 Billion Francs (to 30 Billion Francs): OTCs growth (3 to 4% per year) mainly stems from price increases and switches launch (actually volumes decrease, if delisting are not taken into account); and "semiethicals" globally decline with stagnant or decrease in price.

 

Year

1990

1992

1994

1999 (e)

Million units

781

762

775

800

OTC share

36%

39%

36%

38%

Semi-ethicals share

64%

61%

64%

62%

 

Although non reimbursable drugs (OTCs) are priced freely, several factors and constraints explain their low attractiveness to the population:

- pure OTC drugs are about 25% more expensive (up to 2 to 3 more) than their equivalent reimbursable copies;

- the offer of new product is limited and depends only on attractive switches;

- the communication is limited to the pharmacy for most products;

- the State show conservatism with regards to delistings, delays the possible changes from the status "conseil" to "grand public", treats as illegal the opportunity of having the same brand name for an OTC and for an "ethical" drug (umbrella);

- the doctors are reluctant to recommend OTCs and even lobby against them;

- the pharmacists have little merchandising and selling abilities (although their gross margin on OTCs was, on average, 36.2% against 26.2% for reimbursable drugs in 1998);

- the patients are not willing to pay out of their pockets and have a negative perception of delistings (drugs with no efficacy).

 

The 5 major therapeutic classes, in France, are: E.N.T., analgesics, vitamins, dermatological, respiratory products, but they are saturated of products and market needs are fulfilled, unless a technical innovation. Old (to very old) leading brands are solid and have served as umbrellas to enlarge the offer and image (e.g., Drill).

The major self-medication companies tend to be the same as for the ethical market, except some niche companies such as Boiron and Arkopharma; it is also as concentrated as the ethical market: the 11 most important OTC company hold over 50% market share in value terms.

Proforma sales of non-prescription drugs (reimbursable or not).

Sales in Million Francs

1999 OTCMarch Mov. Cum. (IMSestim.)

Market Share OTC1999

1997 Selfmedication July Mov. Cum.(estim.)

1997

OTCJuly Mov. Cum.

Total market

13140

100%

 

 

B.M.S. (Upsa+Oberlin)

1220

8.3%

1817

1132

Aventis (Theraplix/Cooper)*

1200 (e)

8.2%

2405

1476

Roche Nicholas

600

4.6%

1089

793

Sanofi-Synthelabo (Synth. OTC)*

600 (e)

4.6%

3287

1715

Pfizer (Warner Lambert)

500

3.7%

585

518

Merck-Lipha (Monod)

450

3.5%

762

486

Glaxo Smithkline (S.B.S.H.)

450

3.5%

501

416

Boiron (homeopathy)

450

3.5%

n.a.

424

Arkopharma (metals granulates)

450

3.5%

484

475

Beaufour Ipsen

450

3.5%

1059

458

Servier**

400

3.2%

2197

647

* decrease explained by divestment and by panel differences, **by market withdrawal

PARAPHARMACY

3.4. Parapharmacy and ethical cosmetics market and manufacturers.

 

In two phases, the parapharmaceutical market has dramatically changed for pharmacists:

- June 1987: end of the monopoly for pharmacies; parapharmaceutical products are open to health shops and more importantly to hypermarkets and department stores; in a few years, the vast majority of sales are siphoned up in favour of the mass market; on the other hand, parapharmacy-dedicated shops emerge (266 in 1994, 600 in 1996 and over 1000 estimated in 2000);

- July 1997: end of captive selective distribution exclusivity (the RoC legal case); manufacturers adapt their offer and their product lines in the three channels (though with conservatism or selective restraints, often).

 

Compared to the mass market, pharmacists have capitalised on their health technicity and image to specialise on more technical, more high value added, more health-oriented products:

Shampoos (against hair loss, against lice, antipellicular), face care (acne), body care (weight loss), sun protection (top indexes, auto-tan), making up (hypoallergenic), babies (medical milks and foods), sport (technical nutrients), dressing (waterproof), etc.

 

The parapharmacy and ethical cosmetics market represent today a marginal, often seasonal source of revenues to pharmacists (10% of turnover on average), compared to the "comfortable" drug business with constant and no-cost demand; however, gross margins are much higher (up to 3 times more), with only somewhat higher charges, since most marketing costs (pulled and pushed) are covered by the trading companies.

 

Players are the same international groups than in the mass market, predominantly with characterised brands, except a few niche companies that have specialised or kept a dedicated base in the pharmacies: Unilever (Sanogyl), Procter & Gamble (Clearasil, Rogé Cavailles), L'Oréal (La Roche Posay, Galderma), La Sed (Mercurochrome), Fournier (Urgo), Johnson & Johnson (Neutrogena, RoC), Sanofi-Synthelabo (Roger Gallet), Fabre (Avène, Klorane, Ducray, Galénic, René Furterer), Lutsia (Lutsine), Phyto Liérac.

 

Trends are unsecured for pharmacists, because of the eroding competition of the mass market to more technical products (improve image) and the dynamism of chains of parapharmacy. The last sector that pharmacist may actually defend is medical and lifestyle therapies, such dermo-cosmetics (advised by dermatologists), nicotine patches (advised by G.P.'s), etc.

Following: Business developments in E-PHARMACIES AND CHAINS

 

Actualisation / Updating:  Jan 15 2017