Pharmaceutical Trading and Distribution Channels: The European Business of OTC Drugs (The expansion of the Italian brand “Menarini”)

Executive Summary

The vertical as the horizontal integration reached in the pharmaceutical market are the results of the several changes, which have invested that sector: economies of scale, economies of scope, mergers and acquisitions, etc. Also the old model of pharmaceutical supply chain in Europe has been invested by a gradual change of bearings. The EU business of medicines is turning towards the Direct-to-Pharmacy model, which is going to be the latest new trend of the whole sector. As a matter of fact every day more and more final consumers are relying on the supply chain to deliver the medicines they need across the Europe. The liberalization is affecting the whole sector especially of OTCs (Over the Counter drugs), with large consequences for the wholesaler margins and VAT. The EU laws, the parallel trade and the EU enlargement are playing an other strategic role in order to understand that phase of bedding.
In Italy, the industrial relations in the Chemical-Pharmaceutical sector are characterized by a high innovative profile. This is unfolding, during the years, in an agreed process among the different parties in order to reach the competitiveness among the firms. And that has been possible through the high flexibility, the training and the attention to the important instruments for the workers welfare. First in the industry, in order of time, this sector has a complementary provident fund born from the collective bargaining called Fonchim. Today it has 150000 members and an heritage of 1,6 billion euro. Still within the framework of national contract was set up an other fund called Faschim. It is a fund of supplementary health care, which should reimburse the costs incurred by its Members and their families. The last renewal contract stipulates that, within a year, from July 2008, the fund performances are guaranteed to the workers without charges against them. The pharmaceutical companies in Italy are distinguished basing on the degree of internationalization and on the ability to be competitive in the global market. Those characteristics are evident from several indicators:
- the 53% of the production is addressed to the foreign markets, almost double the industry average and four times the level of 90s;
- the total export on 2007 amounted to 11,9 billion euro, 9,5 billion euro only for medicines, a value that for each worker is more than double the manufacturing average;
- since there are fixed exchange rates the export growth is the highest among the industrial sectors, with an annual average increase up to 10% (+5,4% the manufacturing average);
- from 1996 the export as grown leading the 70% of total production growth;
- from 1995 the external balance of medicines is permanently positive, i.e. Italy produces more drugs than it consumes it. This is a demonstration of the Italian international specialization in the pharmaceutical sector;
- the pharmaceutical export represents the 37% of the total Italian export at the highest technological level. From 2002 the medicines export are higher than the public expenditure in pharmacy (industry revenue), and in 2007 it has been about 2,5 billion euro (+36%) .

The Italian pharmaceutical industry has its core business in Tuscany, third region in Italy with its 7200 direct employees and the Italian biggest pharmaceutical firms with the biggest national capital including the first Italian group Menarini.