The Romanian Competition Council (RCC) marks two years since they launched, by virtue of an order of the RCC President, a sector inquiry on the national pharmaceutical industry, in a risk-assessment trial run to address potential malfunctions of anti-competitive nature.

The inquiry followed a preliminary study conducted by the RCC on the commercial evolution of the generics market and its interaction with the innovative medicines industry, evidencing that, despite initial forecasts and expectations, generics sector growth did not manage to outstrip innovative medicines market share, struggling to gain a foothold on the pharmaceuticals industry.

On the basis of such preliminary evidence, the RCC narrowed down the sector inquiry initiated in 2013 to the current level and growth rates of generic medicines market share, mainly zeroing in on the model of distribution currently used by pharmaceutical companies and medicine producers and its evolution prospects.

What an increasing share of the industry is currently considering to adopt in terms of drug distribution channels is the implementation of a direct-to-pharmacy (DTP) model – already common practice in many EU and non-EU countries. The RCC indicates that many pharmaceutical producers are now opting for a modified supply chain model, wishing to gradually abandon the classic distribution system. Traditionally, medicine manufacturers transfer their ownership rights to the products to wholesalers or dedicated distributors, who subsequently become the main suppliers to pharmacies and/or hospitals and/or other distributors, determining their own clientele and resale prices, leaving thus no room to pharmaceuticals companies/producers to maintain control over supply chains and set their own trading conditions. On the contrary, the new trend in the supply chain structure, in the form of a DTP model, calls for companies to sell their products directly to pharmacies and/or hospitals or appoint a reduced number of distributors or logistic service providers to deliver the products on their behalf, as the case may be.

On a theoretical basis, DTP is a distribution system that could optimize pricing policies in the pharmaceutical industry, enabling medicine manufacturers to shape and implement their own terms and conditions, monitoring all along the supply chain and taking almost full responsibility over delivery of their products to patients, securing high service levels. By modifying their distribution arrangements in line with the DTP model, producers enhance their industry-leading position in reducing parallel imports and tackling major legal hurdles that may arise from counterfeits trade, product shortages and any other logistic and quality control problems.

However, the rigid regulatory framework in Romania is currently putting forward significant challenges in the implementation of a DTP distribution system in lieu of the traditional supply chain procedure. Therefore, pharmaceutical companies and medicine manufacturers are not yet able to assess the risks that a potential change in the distribution structure may pose on patients, wholesalers or even the manufacturers themselves or be aware of any problems that may be raised in terms of competition and anti-trust policy.

By means of their sector inquiry, the RCC wishes to pay special attention to those specific competition issues that may show up in case of a change in the distribution process, including but not limited to parallel trade complaints, abuse of dominant position, export ban investigations, contractual restrictions on parallel exports/imports, intra-brand competition issues, price setting and anti-dumping policies.

In order to issue a final opinion with respect to the introduction, implementation, expansion and possible anti-competitive nature of a DTP model and determine the legislative and policy reforms that should be brought into play, the RCC is currently establishing active cooperation and contacting national pharmaceutical companies/medicine producers by setting a series of questions (usually in the form of questionnaires) requesting, inter alia, information on marketing/promotion/advertising activities and budgets, documents or any other statements, aiming at fathoming their intentions and assessing all potential risks in the sector for all stakeholders involved.

Meanwhile, by a press release issued in April 2014, the RCC announced certain preliminary findings of the sector inquiry, highlighting ways that limited distribution systems may operate in practice. Having examined a set of cases where the traditional distribution system has changed to DTP or limited distribution models, the RCC confirmed a significant decrease in discounts transferred by the distributors to the pharmacies.

In light of RCC’s preliminary findings and until the sector inquiry reaches a final standpoint and a complete risk assessment report is delivered, the RCC recommends that all market players and companies involved and engaged in the distribution of pharmaceutical products in Romania (manufacturers and/or distributors) put on hold any scheduled moves in modifying, in any way, distributorship agreements currently in place or abandoning the actual traditional distribution structure and model, by selecting alternative distribution outlets. The RCC expects that a final opinion and the respective risk assessment guidelines will be issued in due course given the urgency of the matter in terms of regulatory and legal compliance coupled with the market demand in redefining the production-distribution chain structure.

Laurentiu Gorun Romania