Swedish drug business gearing up for growth - but in which direction?

The number of Swedish pharmacies will nearly double within a few years, from 950 to 1600. Many old players and new players are jostling for position. And it’s still unclear who will ultimately bear the costs.

These were the essential points of a longer AmCham seminar held at Delphi Law on February 3, well-attended by about 75 participants representing primarily law firms, retail drug chains, pharmaceutical companies and management consultants.



Sture Lindmark

Sture Lindmark, a former board member of Apoteksbolaget and former CEO of the Federation of Swedish Commerce and Trade, introduced the panel and the main issues. Deregulation of the Swedish retail drug industry began unfolding in 2008 with expanded sales outlets for nicotine pharmaceuticals and culminated in 2009 with the abolishment of the retail drug monopoly and the distributor’s oligopoly. Dozens of new actors rushed into a market where there is only one pharmacy for every 10,479 Swedes. In contrast, there is one pharmacy for every 2,102 Spaniards. Clear room for expansion.

But who will pay the costs related to increased marketing, logistics, custom relations, stock keeping, sales functions, premises, etc? Will reformation of the reregulated market continue? Will the present price model be changed? Will there be horizontal integration with consumer product goods, health and beauty sectors?



Sven Löchen

Sven Löchen from Interpares is a consultant to Apoteksbolaget. He ran us through the lessons to be learned from the Norwegian pharmaceutical market. The 2001 deregulation of the monopoly there had no effect on prices but successive deregulations in 2003 and 2007 led to more open trade and generic price reductions. There was also vertical integration as the market re-tuned itself. But Norway is left with an oligarchic situation in which three groups control 97% of the market, and 29 independents fight over the remaining 3%. There are 672 active importers, but wholesalers must offer a full product range, which makes startup cost prohibitively high. A third-party logistics market has yet to develop and there is no national IT system tying druggists to the medical system, as there is in Sweden.



Åke Hallman

Åke Hallman of Samhällsinsikt is the former CEO of Apoteksbolaget. According to him, early effects of the re-regulation are the emergence of many more third-party distributors. Distributors under the monopoly previously enjoyed a 75% market share by volume, but that is now declining. 75% of the retail drug market is price-controlled now – the patented drug portion.

The industry experiences high costs in maintaining a high professional level. In his view, margins must increase to support professionally-staffed stores that don’t have non-drug merchandise. In his view, this will put pressure on manufacturers – especially high-priced Swedish manufacturers – to lower their prices.

As he sees it, the only reasonable solution is to set up maximum net prices to consumers, applying “price pressure backwards” that forces the manufacturers and distributors to sort it out.




Elisabeth Eklund

Elisabeth Eklund, a Senior Associate at Delphi, provided an overview of her specialty – competition law – and how it will apply in the re-regulated situation. As players reposition themselves to capture market share, it will be vital for regulators to track market dominance using the right parameters. Measuring market share based on turnover, not on the number of sales outlets, for example. And of course sorting out the activities of companies within the same group (sharing control at some level) and those competing with each other (and thus prohibited from cartel-building). According to her, for example, hospital pharmacies can operate independently.

 
Berit Salheim    , Peter Utterström and Sture Lindmark

All the panelists agreed: Details are still up in the air, so there are more rules coming. And there is further consolidation not too far around the corner. Some say there might be too many actors. The market is regulated by five Swedish agencies and represented by three trade associations.

Text by: Robbin Battison, Battison & Partners AB
Photos by: Rob Nelson