Alfresa : The Pharmaceuticals Distribution Industry and the Functions Required of a Pharmaceuticals Wholesaler

The Alfresa Group's Value Creation

The Pharmaceuticals Distribution Industry and the Functions Required of a Pharmaceuticals Wholesaler

The Alfresa Group has built a robust distribution network for ethical pharmaceuticals that it refers to as a capillary-type distribution network. By enhancing functionality to keep pace with medical advances and changes in the social environment, we will continue to ensure a stable supply of needed pharmaceuticals when and where they are required.

Japan's Demographics and

Social Security Costs

Japan's social insurance system depends fairly heavily on public fund- ing, while keeping a definitive relationship between the benefits from and payments into the social insurance system. In recent years, this dependency on public funding has increased markedly, as the number of later- stage elderly people receiving health- care and nursing benefits has grown. The government is, therefore, trying to curtail the increase in expenditures related to social insurance relative to the growth in the number of elderly people. The cost of pharmaceuticals is being reviewed, and a more efficient and high-quality healthcare provision system is being created.

Framework for

Pharmaceuticals

Distribution in Japan

Pharmaceuticals include ethical pharmaceuticals that are prescribed by doctors and used in accordance with their instructions, and over-the-counter (OTC) pharmaceuticals that consumers can buy at drugstores and other places. Approximately 96% of pharmaceuticals handled by pharmaceuticals wholesalers are ethical pharmaceuticals, and nearly all of these ethical pharmaceuticals (except some generic drugs) are procured from manufacturers by pharmaceuticals wholesalers, who deliver them to medical institutions. Pharmaceuticals wholesalers distribute the majority of OTC pharmaceuticals to drugstores, etc.

Pharmaceuticals wholesalers play a key role in the distribution of pharmaceuticals in Japan.

Source: The Federation of Japan Pharmaceutical Wholesalers Association's Guide for Fiscal 2023

NHI Drug Price Standard

System and Actual

Market Prices

Through the National Health Insurance (NHI) Drug Price Standard system, the national government sets official drug prices and lists the drugs that are covered by the NHI system. Medication charges that arise when medical institutions bill for medical fees or when dispensing pharmacies bill dispensing fees are calculated based on NHI drug prices. Starting in April 2021, NHI drug price revisions became annual revisions in practice with the introduction of interim-year revisions. These revisions are designed to reflect actual market prices (wholesale prices) into official drug prices in a timely fashion, thereby closing the gap between official and market prices.

NHI drug price

The official price of ethical pharmaceuticals decided by the national government

Wholesale price (market price)

The price of pharmaceuticals sold by pharmaceuticals wholesalers to medical institutions

Wholesale procurement cost

The price that pharmaceuticals wholesalers pay to procure pharmaceuticals from manufacturers

Structure of Profits at

Ethical Pharmaceuticals

Wholesalers

Profits at ethical pharmaceuticals wholesalers are derived from the primary trade price spread between the wholesale price and wholesale procurement cost, rebates*2 and allowances*3 that manufacturers pay to wholesalers, and information provision fees, etc.*4 Negative primary trade price spread*5 continues at ethical pharmaceuticals wholesalers.

*2 Rebates: Discounts and refunds based on transaction volume, payment conditions for purchases, and delivery methods, etc.

*3 Allowances: Rewards for sales marketing activities

*4 Information provision fees, etc.: Fees for providing

information about sales records, product recall fees, and post-marketing survey fees

*5 Negative primary trade price spread: Where the wholesale price is lower than the wholesale procurement cost

Industry-Specific Business

Practices and the

Guidelines*6

In 2018, the government drew up guidelines (revised in January 2022) for the purpose of accelerating initiatives to improve distribution and address issues in the distribution of ethical pharma- ceuticals, striving to eliminate the negative primary trade price spread, ending the practice of deliveries prior to price agreements,*7 and promoting unit price-based transactions.*8 Related parties to the guidelines have been following them accordingly.

*6 The guidelines: Guidelines for the Improvement of Commercial Transaction Practices of Ethical Drugs for Manufacturers, Wholesalers, and Medical Institutions / Pharmacies published by the Ministry of Health, Labour and Welfare

*7 The practice of deliveries prior to price agreements: Transactions where products are delivered to medical institutions, etc., prior to agreements on wholesale prices

*8 Unit price-based transactions: Transactions with wholesale prices set for individual pharmaceuticals to end the practice of bundled transactions, where discounts are negotiated on the total price of several pharmaceuticals

Universally Required Functions

Functions That Will Be Required by Pharmaceuticals Wholesalers in the Future

Ensuring the Timely Delivery

of Pharmaceuticals Where

They Are Needed

Whether in normal times or during disasters or pandemics, the supply of lifesaving pharmaceuticals must never be interrupted. Systems must be established to provide a stable supply of pharmaceuticals to medical institutions and other healthcare facilities nationwide.

Strictly Controlling the Quality of Pharmaceuticals

Given that pharmaceuticals are lifesaving products, strict quality control must be maintained throughout the distribution pro- cess. Compliance with PIC/S GDP,*1 the international standard for the appropriate distribution of pharma- ceuticals, requires strict temperature management within specific ranges, regardless of the season.

*1 PIC/S GDP: International guidelines that define appropriate methods to ensure the integrity of pharmaceutical products during the distribution process

Connecting Pharmaceutical

Companies and Medical

Institutions

Pharmaceuticals wholesalers play various roles to safely and sincerely deliver lifesaving pharmaceuticals from the companies that produce them to medical institu- tions. These roles include proposing efficacious and safe pharmaceuticals that match patients' needs, utilizing nationwide sales and distribution net- works, and providing information to pharmaceutical companies and medical institutions.

Selling Based on the Value of Pharmaceuticals

Actual market prices of pharmaceuticals need to be promptly reflected in official drug prices. To eliminate disparities between the two, the valuable pharmaceuticals that companies have developed need to be individually priced and sold at appropriate prices.

Responding to New Modalities

Recent years have seen advances in the practical application of pharmaceuticals for various new modalities, such as nucleic acid medicine, cell therapy, and gene therapy. In addition to therapeutic drugs, we have seen advances in diagnostics to determine hereditary tendencies in disease risk and highly specialized personalized medicine, requiring a wide variety of pharmaceuticals that are produced in small lots.

Connecting the Medical Practitioners Who Attend Patients

Efforts are underway in various regions to develop the Community-Based Integrated Care System, which provides comprehensive services in health- care, caregiving, and lifestyle support. This system aims to help individuals to continue living in familiar communities, maintaining their own unique lifestyles, even if they require long-term care. This approach requires coordination among and collaboration of various medical practitio- ners, including hospitals, clinics, pharmacies, and professionals in the caregiving and related fields, to create a supportive community network.

Increasing Patient Access to Healthcare

With the advancement of the Community-Based Integrated Care System and the digitalization of healthcare, we anticipate greater demand for pharmaceutical deliveries to patients' homes. Additionally, the development of therapeutic drugs for rare diseases is progressing, prompting the need for support to connect patients who previously had no effective treatment options to appropriate therapies.

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Alfresa Group Integrated Report 2023

Alfresa Group Integrated Report 2023

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