Historia

inpatient medical treatment can today be treated with medicines. These highly innovative medicines often make special demands on distribution. They frequently require refrigerated storage and transport and must be able to be tracked and traced at all times. Sometimes direct delivery and adminis- tration of medicines is necessary.

Another trend in the pharmaceutical market is the increasing importance of generic medicines. These are imitations of medicines whose patent has expired. In recent years many medicines have lost their patent protection including some very high-volume medicines known as blockbusters. When these patents expire, generic drug companies crowd the market with consid- erably cheaper imitations. As the result of government pressure for greater economy, the ratio of generic medicines to total medicines prescribed is rapidly increasing across Europe. In some countries doctors only have to prescribe the active ingredients and no longer the products from individual manufacturers. The decision-making power then passes in many cases from the doctor to the pharmacist who decides which generic product from which manufacturer to dispense. IMS Health expects that by the year 2012, 85 per cent of medicines prescribed by general practitioners in Europe will not be patent-protected. Thanks to the size and strong positioning in the pharmacy market, Celesio is an important partner for manufacturers of generic medicines.

Changing distribution requirements of pharmaceutical manufac turers Many pharmaceutical manufacturers are responding to the changes in the pharmaceutical market by reducing staff, concentrating on core competen- cies and attempting to gain more control and transparency as regards the distribution of their medicines. This was in evidence in 2007 in the United Kingdom where some large manufacturers switched the dis tribution of their medicines, thereby considerably reducing the number of logistics partners

– The income structure is changing. Some of the new distribution models envisage that pharmaceuticals will no longer be bought and sold by wholesalers, but be supplied by companies like Celesio on a fee-for-services basis on behalf and for the account of the manufacturer. This leads to a change in the key financial figures. With such remuneration models increasing, Celesio’s revenue will decline but not necessarily its absolute gross profit. This is because for these type of models, the performance- related fees generally correspond to the gross profit. Furthermore, trade receivables and inventories will also be reduced as will trade payables. This causes a reduction in total assets.

– Highly innovative medicines often place high demands on distribution. The distribution of these medicines will require new business models, which offer new growth opportunities for Celesio.

Liberalisation of further pharmacy markets expected

Changes are also in evidence in the European pharmacy market. The phar- macy market has been in flux since the judgement by the European Court of Justice (ECJ) on the ban on third-party ownership of opticians’ shops in Greece in 2005. In its judgement, the ECJ ruled that having a qualified optician present in every optician’s shop was sufficient to safeguard public health. This would be less of a restriction on the freedom of establishment than the ban on third-party ownership and thus was deemed adequate to safeguard public health. According to experts, this judgement by the ECJ could also be applied to the pharmacy market. Against this background, liberalisation trends intensified in many European pharmacy markets during 2007. The ban on third-party ownership, which exists in many Western European countries, is the central focus of this. It prohibits, amongst others, corporate enterprises from owning pharmacies. Bans such as this, albeit with different features, exist in Germany, France, Italy, Spain and Austria amongst others. In the view of the European Commission, national bans on third- party ownership are contradictory to European Community law, specifically the freedom of establishment and free movement of capital for European companies. The EU Commission has already initiated infringement proceed- ings against Austria, Spain and France. Two cases are also pending decision

before the European Court of Justice concerning the compatibility of the ban on third-party ownerships with European Community law. Italy was brought before the ECJ by the European Commission on account of restrictions on the participation in and opening of public pharmacies. The second case concerns a decision by the Saarland Ministry for Justice, Health and Social Affairs. In June 2006, the latter had granted the Dutch company DocMorris licence to operate a branch pharmacy in Saarbrücken. After the Saarbrücken regional court ruled in expedited proceedings in August 2006 that the phar- macy may remain open, the Saarbrücken administrative court ordered the closure of the DocMorris branch. In January 2007, the Saarland higher ad- ministrative court overturned the decision by the Saarbrücken administrative court and upheld the operating licence for the DocMorris branch. In its state- ment of reasons, it followed the argumentation of the ECJ opticians ruling. In March 2007 the case was put before the ECJ. Experts are anticipating a judgement in 2008.

Abolishing the ban on third-party ownership on the grounds of European law inevitably also means abolishing the ban on multiple ownership of pharma- cies that exists in many countries. Celesio Pharmacies will make full use of the opportunities that result from the liberalisation trends if the legal, political and economic environment in the relevant countries is attractive. Since the acquisition of DocMorris, Celesio has been well prepared for a lib- eralisation of the pharmacy market in Germany. Due to operating 163 mu- nicipal pharmacies in Italy, Celesio is today very familiar with the Italian mar- ket. Celesio is also closely monitoring the development in France, Austria, Sweden and Spain, and is preparing for the expected liberalisation in these countries.