Pfizer is not involved in "fee-for-service" negotiations with wholesalers, the company declared in its fourth quarter earnings release Jan. 19.

"Pfizer is not engaged in any fee-for-service negotiations with U.S. wholesalers. We believe that wholesalers purchase and resell products for their own account and not as a service to Pfizer as a manufacturer," the company said.

The two-sentence statement was included in the lengthy Q&A section accompanying Pfizer's year end results press release.

It serves as a firm public rejection of the recent efforts by the three major wholesalers - AmerisourceBergen, Cardinal and McKesson - to convert manufacturers to a fee-for-service model from the traditional buy-and-hold model.

Drug distribution fees would be used to cut down wholesaler reliance on revenue derived from buying margins from manufacturer price increases.

The instability of the buy-and-hold model was demonstrated over the second half of 2004, wholesalers were quick to point out, when price increases anticipated from historical models were not realized (¹ Also see "Rx Price Restraint Hits McKesson; Wholesaler Sees Delay, Not Policy Change" - Pink Sheet, 13 September, 2004., p. 26).

Cardinal and McKesson issued an ultimatum in September, threatening to cut off distribution services to manufacturers who do not agree to fee-for-service contracts by March 31 (² Also see "Cardinal, McKesson Issue Ultimatum: March 31 Deadline For Manufacturers" - Pink Sheet, 13 September, 2004., p. 24).

On Jan. 13, Eisai informed pharmacies that Cardinal would no longer be purchasing its products after the parties failed to agree on new contract terms (³ Also see "Cardinal Drops Eisai; Wholesaler Still Confident In Fee-For-Service Model" - Pink Sheet, 17 January, 2005., p. 21).

The two firms announced a week later - and the day after Pfizer issued its release - that they have now agreed to a fee-for-service distribution contract.

"Under the terms of the multi-year contract, Cardinal Health will be paid service fees to distribute Eisai's full product line," Cardinal said.

Although Eisai is a relatively small company in the U.S., the disruption in its relationship with Cardinal marked a significant milestone in the evolving distribution business model.

The Jan. 13 announcement was the first demonstration that Cardinal would follow through on its threat to drop suppliers who do not agree to fee-for-service terms.

Eisai's relationships with Pfizer ( Aricept ) and Johnson & Johnson ( Aciphex ) also gave the contract negotiations a potentially deeper significance for the wholesale sector.

Cardinal said it continues to believe that the fee-for-service distribution model is the best formula for moving forward with suppliers, and that its new contracts fairly reflect the value of its services.

The wholesaler declined to comment on the status of any pending discussions with specific manufacturers.

In a letter to pharmacies explaining the new deal with Eisai, Cardinal explains that its "goal was to establish a fee-based agreement that provides good value for Eisai and fair compensation for Cardinal Health."

"With this agreement, the needs of both parties were met, as we were able to construct a customized distribution solution that reflects the unique requirements of Eisai's products and the value of the services Cardinal Health provides," the letter continues.

"We are very pleased with the terms of the agreement and more importantly with the fact that you will continue to have the lowest-cost access to Eisai's important product line."

Cardinal also told pharmacies that it has "already placed orders with Eisai and they will be expedited as soon as possible."

In a short Q&A document attached to the letter, Cardinal tackles the question of whether "there are other manufacturers with whom Cardinal Health has not yet reached an agreement whose products will be discontinued."

"There are no immediate concerns with other manufacturers," Cardinal said.

"However, as promised, Cardinal Health is committed to informing you as early as possible when a change may affect your business."

Cardinal also poses the question: "Are other distributors having the same/similar issues with manufacturers?"

The answer: "We have no knowledge of the relationship between manufacturers and any other wholesalers."

Cardinal has disclosed fee-for-service agreements with Merck, Gilead and Lilly, and says it has other undisclosed agreements in place.

With Pfizer digging in its heels against fee-for-service negotiations, wholesalers may start pondering the repercussions of losing Pfizer as a client.

While Pfizer's COX-2 inhibitors Celebrex and Bextra enjoyed strong sales in 2004, safety concerns brought to light in the fourth quarter and an FDA advisory committee safety review slated for February could dramatically affect product use.

Furthermore, as is the case with the Alzheimer's drug Aricept, Pfizer looks to co-marketers that may be responsible for distributing some of its products.

The chronic obstructive pulmonary disease treatment Spiriva is co-promoted by Boehringer Ingelheim; the antihistamine therapy Zyrtec is co-promoted by UCB Pharma.

However, wholesalers will have a difficult time looking past opportunities provided by the statin Lipitor , which is the first product to cross the $10 bil. mark in annual sales.

Pfizer recently implemented price increases in line with Cardinal expectations of 5%.

The three wholesalers appear to be projecting an average of 5% in price increases ahead of Medicare Part D benefit start date (⁴ Also see "Rx Prices Will Rise 5% Prior To Start Of Medicare Drug Benefit, ABC Says" - Pink Sheet, 3 January, 2005., p. 31).

Pfizer Says No To “Fee-For-Service” Contracts; Cardinal, Eisai Reach Deal

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