1

Business to Business:Pharmaceuticals

Yi-fan (Eddie) Fang

Sudhir Gopal

Suman Grandhi

Debby Keller

Yucheng (Frank) Hu

2

Welcome to Pharmaceutical B2B

“ Electronic commerce technology will affect most major business processes along the pharmaceutical value chain, from drug discovery to end-user distribution.”

Jim Montgomery, Vice President, Global Strategy, EDS Health.

“ Directly linking healthcare providers with pharmaceutical manufacturers over the Web…helps [to] streamline the supply chain by reducing the number of ‘touches’ in the purchasing process, creating efficiencies that will yield significant cost savings and promote free market access.”

PharmasMarket.Com.

3

Suppliers/Manufacturers.– Merck & Co., Inc.– Glaxo Wellcome / SmithKline Beecham.– Bristol-Myers Squibb.– Abbott Laboratories.– Pharmacia & Upjohn, Inc.

Vertical Markets.– Chemdex.– Medibuy.

Wholesalers/Distributors.– Amerisource Health - McKresson HBOC.– Bergen Brunswig - Neuman Distributors.

*Classification based on 1999 sales, growth, market share & percent of revenue from pharmaceutical products (Sources: Hoovers Online, Fortune).

Major Players

4

Supplier

Vertical Market

Sample Front Pages From Major Players

Distributor

5

Who Are the Customers?

For Suppliers/Manufacturers– Vertical Markets– Wholesalers/Distributors

For Vertical Markets (e-procurement/fulfillment)– Suppliers - Pharmaceutical Companies– Buyers

Distributors and distributors’ customers Laboratory researchers

For Distributors– Pharmacies (Merck-Medco, CVS.com, More.com)

– Hospitals, Home Health agencies– Chain warehouses/stores– Governments

6

Traditional Distribution Model

I

N

T

E

R

N

E

T

7

Changes in Business Structure From Online B2B

The Internet has done away with the traditional supply line!– Consumers in all segments can buy direct.– Wholesalers, distributors and other intermediaries

are unnecessary & being dis-intermediated. Implications?

“While direct-to-consumer advertising is increasing, there hasn’t been a decline in pharmaceutical sales-forces as predicted earlier.”

(Philip Loftus, VP & Director Worldwide IS Architecture & Technology, Glaxo Wellcome ).

8

How Do They Attract Customers?

Manufacturers:– Promotional campaigns– Community & Company Programs

Scholarships, minority employment Sponsor scientific education programs in schools

– Charity Involvement United Way partnership (Abbott) Name visible during newsworthy events

– Donate supplies to support disaster relief, emergency needs

– Traditional media Vertical Markets

– Media attention– Expanded market reach, product selection & sales opportunities

Distributors– Member networks

9

Value Added & Incentives

Suppliers/Manufacturers– Efficient replenishing of stocks – Immediate product introductions – Ability to post Request for Quotations (RFQ’s) for lowest cost brand – Bundle services(Vendor Management Inventory, Customized Certificates of

Analysis, Financial services) to give purchasing flexibility

Vertical Markets– Streamlined creation of multi-supplier orders – Market site handles order processing, customer service and account

collections Reduces cost of servicing each sale

– Rapid, real-time review of order status – Expanded market reach & sales opportunities– Ability to post Request for Quotations (RFQ’s)

Lowest cost supplier (Chemdex)– Personal “favorites” lists for fast, easy re-ordering

10

Value Added & Incentives (Cont.)

Distributors– Investor relations info (stock quotes, financial reports)– Efficient market distribution of products – Informational advantages

Manufacturers can effectively pull demand data for products from wholesaler

– Bundling products– Customizing orders/packaging/inserts– Customer FTP– Disease specific information (Amerisource, Bergen Brunswig)

11

Value Added For All Major Players

These added incentives have customers making use of their sites across all major player

segments Lower start-up costs / working capital needs Reduced marginal cost of servicing next sale Scalability of infrastructure and security Advanced, easy-to-use search engines Detailed ordering info (how to/guidelines) for ease of use

12

Converting One-shot Customers Into Repeat Customers

Manufacturers:– Online continuing education courses(GlaxoWellcome)

– Exclusive agreements with pharmacy buying groups– Provide environmental protection and safety resources(plant safety

audits, technical training and 24-hour emergency service) Vertical Markets:

– Personal Feel: register for membership & join “community”– Switching cost after creating an account to obtain convenient services

(i.e. quick purchasing, automatic billing, etc.)– Integrate with third-party and back-office systems to increase

switching cost– Serve as daily “start-page” and first point-of-contact– eAuctions: submit & search products, check progress– Supplier eRFP promotions

13

Converting One-shot Customers Into Repeat Customers (Cont.)

Distributors:– Personalization and customization of site– Switching cost after registering to access site– Customer service programs to ensure satisfaction – Alliances with big suppliers to build credibility and

attract customers

14

Recommendations- Where Should Pharmaceutical B2B Go From Here

Develop long term partnerships as the basis for an Internet Brand presence.

Broaden customer base by entering other player’s market to reach more customers.

Create more specific customer segmentations & levels for diff. customer types.

Permission Marketing campaigns. Email reminders, newsletters, and updates to focus

attention on company. Utilize Internet advertising.

– affiliate programs, reciprocal links, swapping banner ads, WWW on everything.

15

Conclusion- Watch for Changes From Impending Federal Regulations

United States

Federal State

Practice of Pharmacy

LicensingPractice ofMedicine FDA FTCDEA

There are currently no state or federal regulations regarding the online pharmaceutical industry. We conclude impending regulations will greatly

affect the growing market.

Regulatory model for traditional pharmaceutical transactions-

heavily monitored