In the ever-evolving landscape of the pharmaceutical trade and channel world, we are witnessing a significant shift toward innovative distribution models. The traditional methods are giving way to more direct selling, with the emergence of new players and a diversification of product archetypes. This transformative period poses both challenges and opportunities, urging stakeholders to adapt and innovate.

Eroding Value Proposition of Wholesale Distribution

The worsening economics of the traditional full-line distribution model is challenging manufacturers in terms of product availability. Over the past three years, emerging manufacturers with innovative products have confronted distribution fees upwards of 15%. But because the generic patent cliff has slowed and costs have risen, wholesalers can no longer afford to distribute big pharma portfolios at a loss and are negotiating significant increases in fees. Consequently, across biopharma manufacturers, we are observing several trends in response, several of which will be addressed in this blog. We’ll cover how manufacturers are overhauling their approach to distribution service agreements, reviewing Fair Market Value (FMV) and bona fide fees considerations, and several other changes – in other communications.

The first major development has been to supplement indirect distribution with direct sales, or in some cases only to sell direct. Smaller manufacturers have trail blazed initially with several configurations depending on their product archetype and access consideration. IntegriChain has observed several agile flexible arrangements including direct-to-regional-pharmacy warehouses, direct-to-patient, and direct-to-cash pharmacy. This shift is not confined to specialty products but extends to general medicine products, signifying a broader industry transformation. More recently, top-10 manufacturers have announced direct-to-patient portals, most notably LillyDirect™ to cover several therapy classes across weight loss, diabetes, and migraine.

Branded Drugs Losing Out at the Pharmacy

Another key driver that underpins shifting channel strategies is due to the stress and economic pressures faced by pharmacies in the current landscape. Pharmacies are closing and retail chains may no longer stock branded products or charge fees on brands because wholesaler penalties for dispensing brands, preferred pharmacy restrictions, or payer DIR fees factored out of the pharmacy’s reimbursement. The bottom line is that retail pharmacies no longer make a profit on dispensing branded drugs, and if they do fill brands, the prescriptions must be clean, meaning the patient has coverage and no onerous restrictions. So why should branded manufacturers pay up to 15% for distribution only to have their products sit in a wholesaler’s warehouse, yet fail to be dispensed to patients? 

Evolution of Digital Hub and Dispensing Pharmacy Workflows

Over the past several years, tech-enabled hub and pharmacy networks gained momentum with newer specialty lite products. We observe three primary approaches – regional digital pharmacies, national digital pharmacies (e.g., Amazon, PillPack), and centralized patient support hubs. Regardless of the approach used, in all cases a digital hub is providing reimbursement support services and then transferring a clean prescription to a national or regional mail or retail pharmacy network. Each model offers unique advantages, from local courier delivery to nationwide mail-order services. There is potential for these models to drive down costs and improve patient experiences, especially in the context of the burdensome prior authorization process.

A tech-enabled approach in these models is essential for both specialty pharmacies and traditional retailers to stay competitive in the evolving landscape. There is potential among these innovations to enhance patient engagement, improve the provider’s experience, and reduce costs on the pharmacy side.

New Technology Providing Opportunities for Disruption

Amidst these challenges, we are seeing the growing role of digital and AI technologies. The fragmentation resulting from the adoption of new channel models presents an opportunity for technology to streamline processes and address business challenges. Various innovators in the pharmaceutical industry – from new PBM plan models to specialty distribution and logistics providers, niche disruptors, online marketplaces, and other innovative players – are contributing to the industry’s revolution by using AI and digital technologies. 

Embracing Change for a Sustainable Future

Embracing change in the pharmaceutical trade and channel is the key to survival. As distribution models evolve, stakeholders must navigate the challenges and seize the opportunities presented by digital and AI technologies. By fostering collaboration and innovation, the industry can build a more resilient and patient-centric future.

To learn more about how our Channel experts can help optimize your channel and distribution strategy, reach out to IntegriChain.