Looking at the deregulation of the Swedish Pharmacy system, Lars Rönnbäck, at Apoteket AB, Sweden’s biggest pharmacy group, quickly corrects me on the use of the word deregulation, he explains ‘the correct word to use, in a way is re-regulation, because we still have a lot of regulation in the market. It is not an entirely free market. I would say that there is no pharma market in Europe or elsewhere that is not surrounded by a number of regulations.’
Background
Sweden had a state-owned monopoly for pharmacies since 1971. The Swedish government owned all the pharmacies in the country and they were run by a state-owned company called Apoteket AB. In 2006, a new conservative government came into the market and began deregulating the existing pharma monopoly, which was deregulated in 2009.
The main reason for this withdrawal of the monopoly was to create competition in the market and lead to pharmacies with longer opening hours, the availability of medication and the effectiveness of medicine distribution, as well as lowering prices in the market etc.
What is The Reaction to Monopoly Break-Up ?
Lars Rönnbäck explains, ‘It has been a very, very big change in our country. We had an extremely modern pharmacy system based on the monopoly, where we were able to build up a number of IT-based services ways of working. We had an effective monopoly but I think it was time to allow new competitors to enter the market.’People who didn’t support this new initiative included some patient organizations, for retired people etc. but in general the major stakeholders in the market were supportive.
The Deregulation Process & Teething Problems :
The state sold around 616 pharmacies, in nine different clusters, to new owners and the sell out process was finalized in 2009, with the takeover period lasting to March 2010. The initial problems included the setting up of new regulations and deciding the way in which these new pharmacies should operate including;
- Concern around the pricing metrics (especially for prescription drugs that are reimbursed).
- Changes allowing pharmacies to integrate vertically and build their own distribution of products, which has had a knock-on effect to the supply chain.
- Increased opportunity for parallel trading to increase profits within pharmacies.
What are the Changes in the Supply Chain ?
During the monopoly Sweden had a one channel distribution, which meant there were only two wholesalers or distributors on the market, who supplied the market with all drugs and all consumer products that were sold in pharmacies. The one channel distribution concept, as it was called in Sweden, means that a drug manufacturer is supplying the whole market with its product through one, single distributor, which is seen as a cost-effective distribution system.
However, during the deregulation or the withdrawal of the monopoly it was also decided that pharmacies be allowed to set up their own distribution chain which is known as vertical integration.
Two of the biggest pharmacy chains, Apoteket AB and Apoteket Hjärtat, have also started their own distribution in order to take control of the distribution to our their pharmacies, so effectively the one channel distribution system in Sweden no longer exists.
Other pharmacy chains are starting to create and establish more effective distribution but it's more or less in the beginning of a development. Lars explains that they don't have all the products in their distribution so far; he adds ‘prescription drugs are reimbursed and generic drugs are still mainly supplied by the two former distributors, while other products, like consumer products, non-prescription drugs, parallel imported drugs etc. are in our own distribution system.’
Will Deregulation in Sweden impact the other Nordic Countries?
Looking to the other Nordic countries, Lars does not believe the Swedish market will impact these regions too much. He adds, ‘I would say that maybe our neighbours have been looking at the changes in Sweden, both with a little bit of fear and a little bit of fascination. So I'm not sure if we'll influence the pharmacy markets in those countries. There may be an impact to the distribution or the supply systems because the major distributors in the Nordic countries are established in not only one but several of the Nordic markets,’ says Lars. This includes the distribution systems in the Nordic countries due to the fact that they share distributors with the Norwegian market, such as Tamro AB and Oriolo..
Looking to the future of the pharmacy system in Sweden, three of the major chains are owned by private equity organizations and there is a strong commercial interest in both developing their chains may be similar to being a state owned.
Lars believes that private equity owned pharmacy chains might be looking at establishing a stronger position in all Nordic countries, not only in Sweden. “We will probably see a consolidation of the Swedish pharmacy market during the coming years because there is an over-establishment of pharmacies on the market. So there will be pharmacies closing down, such as smaller independent pharmacies”, he explains. 'But it's very much a speculation right now because we don't know.'
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