Pharmaceuticals“For the fi rst 50 years of your life the food industry is trying to

make you fat. Then, the second 50 years, the pharmaceuti cal industry is treati ng you for everything”

- Pierre Dukan.

The wealth of informati on available to prospecti ve buyers in B2B procurement can beoverwhelming. While some industries and commoditi es remain relati vely unchanged over ti me, it’s far more common to be faced with an avalanche of new data from year-to-year.

This Annual Report will investi gate the global pharmaceuti cal market, highlighti ng the most current and relevant informati on in B2B purchasing. Well-informed decisions help a buyer

to achieve the best logisti cs path and value for commoditi es.

The global pharmaceuti cal market is growing like cancer cells unresponsive totreatment. This might be good news or bad news, depending on your positi on within the industry. In 2013, Canada experienced 3.9% market growth to reach a value of 22.9 billion, a number which is predicted to hit 27.3 billion by 2018. Perhaps not surprisingly, the U.S. currently holds the number one positi on in the pharmaceuti cal consumpti on market, followed by Japan, France, Germany, and China (see graph). The combined market value of North America, South America, Europe, and Japan accounts for a full 85% of internati onal profi ts.

THE MARKET FOR BIG PHARMA

USA444

Japan82

SouthKorea

15

China38

India20

Canada25

Mexico19 Brasil

20

Italy25

Spain25

Turkey16

France46

UK32

Germany38

Top 14 pharmaceuti cal markets

A market defi niti on is required before we start experimenti ng with pharmaceuti cal concepts. For the purposes of this report, ‘pharmaceuti cals’ consist of ethical drugs only. Pharmaceuti cal grades are based on the product meeti ng a level of purity, which determines the amount of binders, fi llers, excipients, dyes, and/or unknown substances permitt ed in the product. Depending on the purity level a pharmaceuti cal product will be ranked as A.C.S., Reagent, U.S.P., or N.F. (in order of descending purity).

All market values have been calculated at ex-factory prices - the value at which manufacturers sell drugs to distributors. The top ten largest distributors control a third of themarket, so companies such as AstraZeneca PLC, Johnson & Johnson, Novarti s, Merck & Co.,and Pfi zer Inc. have att ained industry dominance. In the U.S., the most frequently prescribed therapeuti c classes are analgesics, anti diabeti c agents, anti hyperlipidemic agents, andanti depressants.

BUYER POWER: KNOW WHAT YOU NEED

Key buyers in the pharmaceuti cal industry include hospitals, pharmacies, healthinsurance providers, and government healthcare programs. Buyer power is strengthened by price control policies. In Canada, the Patented Medicine Prices Review Board (PMPRB)sets maximum permitt ed prices for drugs covered by patents. This means that all prescripti on drug prices are determined at the province level and pharmacies are mandated to stay within a specifi ed range for product mark-up.

The quality of materials, equipment, personnel, and third party clinical testi ng servicesare variables that can aff ect a buyer’s negoti ati ng positi on. Trends such as escalati nghealthcare costs, an aging populati on, the availability of generic drugs, and the development of personalized medicine stemming from genomic research have created new opportuniti es for buyer movement in the market. Granted, this movement may be circular: the relati onship between pharmaceuti cals, healthcare systems, corporati ons, and diseases has the public on a carousel of confusion.

Buyers might want to consider att ending global events such as Pharmtech & Ingredients2015 in Russia, and/or the 20th annual euroPLX 59 in Athens. For more informati on on these events and others, consult htt p://www.pharmiweb.com/Events/default.asp.

What does this mean for buyers and suppliers? To quote the World Health Organizati on(WHO), “there is now an inherent confl ict of interest between the legiti mate business goals of manufacturers, and the social, medical, and economic needs of providers and the public toselect and use drugs in the most rati onal way”. The industry is being monitored, but sti ll lackstransparency: many “responsible business standards” are actually developed by pharmaceuti cal companies in order to secure a global niche, and/or create a marketi ngplatf orm. In the UK, promoti onal spending by Big Pharma is fi fty ti mes greater than spending on public health informati on. As controversial as this may be, such business standards are likely bett er than nothing, as most do address issues such as child labour, workplace conditi ons, and environmental welfare.

SUPPLIER POWER: SOURCING SYNTHETICS

The major suppliers to the market are manufacturers of acti ve pharmaceuti calingredients (API’s), which form a sub-sector of the chemical industry. These API’s are supplied on a contractual basis, so companies risk high switching costs if they consider taking their business elsewhere. To harness supplier power, the pharmaceuti cal industry relies heavily on sourcing managers to purchase raw materials. The demand for new API’s is conti nuous - cutti ng-edge therapeuti c agents cannot be developed without these materials. If arevoluti onary drug hits the market, the supplier of the API can make a large amount of money. This potenti al scenario makes e-procurement soluti ons an ideal tool for sourcing managers to identi fy opti mal materials. Trackable, easily accessed contracts can be managed to secure maximum savings and effi ciencies. The purchasing process does not have to be ti me-consuming, complicated, and disorganized.

It’s unlikely that suppliers would forward-integrate into the pharmaceuti cal market; however, their capabiliti es in chemical synthesis make them realisti c candidates for generic drug manufacturing. Recently, larger pharmaceuti cal companies have started producing their own chemicals in an att empt to grow profi ts. Clinical testi ng is sti ll predominantly outsourced to third parti es, as these trials are essenti al for regulatory approvals.

NEW ENTRANTS: TAMPER‐PROOF COMPETITION?

A company wishing to enter the pharmaceuti cals market must fi rst demonstrate that itsdrugs are safe and eff ecti ve, to the sati sfacti on of a nati onal regulator, such as HealthCanada (specifi c to within Canada). From start to fi nish it can take 10-15 years to make a newdrug accessible to the public - a process that requires manufacturers to expend substanti al costs on R&D and marketi ng, which further increases the capital requirements for new entrants.

It’s slightly easier to penetrate a well-researched market with an existi ng drug, providingthe licensing authority in that country is sati sfi ed. Laws defending intellectual property andpatent expirati on dates can vary from country to country; smaller companies generally lack thefi nancial horsepower to tackle the competi ti on in these new markets. On a positi ve note, it’smoderately easy to exit the pharmaceuti cal market: patents, trademarks, and syntheti c methodsare “weightless” and can be sold relati vely easily.

Did You Know That...

Drug reps oft en give gift s to doctors to convince them to prescribe the medicati ons that they represent. These drug reps typically have no science or medical educati on.

Drugs developed by major pharmaceuti cal companies could cost anywhere between 2 and 11 billion to bring to market.

Every year drugs and vaccines prevent approximately 3 million deaths from malaria.

References:Pharmaceuti cals in Canada. (2014). MarketLine. Retrieved July 15th, 2015.

World Health Organizati on: Pharmaceuti cal Industry. (2015). Retrieved July 15th, 2015, from htt p://www.who.int/trade/glossary/story073/en/.

The Global Pharmaceuti cal Industry. Morgan Castner and Daniel Shankle. Duke University. (2014). htt ps://web.duke.edu/soc142/team2/social.html.

Stati sti cs and Facts About The Pharmaceuti cal Industry Worldwide. Stati sta. (2015). www.stati sta.com

The Global Pharmaceuti cal Industry Report. Industry Week. (2015). www.industryweek.com.

Analysing The Global Pharmaceuti cals Industry 2015. PR NewsWire. (2015). www.prnewswire.com.

The Top 15 Pharma Companies by 2014 Revenue. FiercePharma. (2015). htt p://www.fi ercepharma.com/special-reports/top-15-pharma-companies-2014-revenue.

The Truly Staggering Cost of Inventi ng New Drugs. Forbes. (2012). htt p://www.forbes.com/sites/matt hewherp-er/2012/02/10/the-truly-staggering-cost-ofi nventi ng-new-drugs/.

New entrants to the pharmaceuti cal market should also keep in mind some guidelines for product transport. To avoid the possibility of counterfeit goods, mix-ups, adulterati on, and contaminati on, all shipments should be secured in dedicated vehicles and include the documentati on necessary to indicate regulatory compliance. Regulati ons are mainly set by nati onal legislati ons in order to monitor the acti viti es of pharmaceuti cal distributors. In general, these distributors follow a system of inventory control that ensures upcoming expirati on dates are taken in account. This forms part of the larger good storage practi ces (GSP).

As the pharmaceuti cal industry evolves, companies will occupy niches for products that have yet to be developed, for diseases that have yet to be identi fi ed. As projected market forecasts indicate, the cynicism surrounding aspects of Big Pharma will conti nue to be surpassed only by our reliance on it, and end results may cause dizziness.