Business to Business: Pharmaceuticals

1. Business to Business:Pharmaceuticals Yi-fan (Eddie) Fang Sudhir Gopal Suman Grandhi Debby Keller Yucheng (Frank) Hu

2. Welcome to Pharmaceutical B2B “ Electronic commerce technology will affect most major business processes along the pharmaceutical value chain, from drug discovery to end-user distribution.” Jim Montgomery, Vice President, Global Strategy, EDS Health. “ Directly linking healthcare providers with pharmaceutical manufacturers over the Web…helps [to] streamline the supply chain by reducing the number of ‘touches’ in the purchasing process, creating efficiencies that will yield significant cost savings and promote free market access.” PharmasMarket.Com.

3. Major Players • Suppliers/Manufacturers. • Merck & Co., Inc. • Glaxo Wellcome / SmithKline Beecham. • Bristol-Myers Squibb. • Abbott Laboratories. • Pharmacia & Upjohn, Inc. • Vertical Markets. • Chemdex. • Medibuy. • Wholesalers/Distributors. • Amerisource Health - McKresson HBOC. • Bergen Brunswig - Neuman Distributors. *Classification based on 1999 sales, growth, market share & percent of revenue from pharmaceutical products (Sources: Hoovers Online, Fortune).

4. Supplier Distributor Vertical Market Sample Front Pages From Major Players

5. Who Are the Customers? • For Suppliers/Manufacturers • Vertical Markets • Wholesalers/Distributors • For Vertical Markets (e-procurement/fulfillment) • Suppliers - Pharmaceutical Companies • Buyers • Distributors and distributors’ customers • Laboratory researchers • For Distributors • Pharmacies (Merck-Medco, CVS.com, More.com) • Hospitals, Home Health agencies • Chain warehouses/stores • Governments

6. Traditional Distribution Model I N TERNET

7. Changes in Business Structure From Online B2B • The Internet has done away with the traditional supply line! • Consumers in all segments can buy direct. • Wholesalers, distributors and other intermediaries are unnecessary & being dis-intermediated. • Implications? “While direct-to-consumer advertising is increasing, there hasn’t been a decline in pharmaceutical sales-forces as predicted earlier.” (Philip Loftus, VP & Director Worldwide IS Architecture & Technology, Glaxo Wellcome ).

8. How Do They Attract Customers? • Manufacturers: • Promotional campaigns • Community & Company Programs • Scholarships, minority employment • Sponsor scientific education programs in schools • Charity Involvement • United Way partnership (Abbott) • Name visible during newsworthy events • Donate supplies to support disaster relief, emergency needs • Traditional media • Vertical Markets • Media attention • Expanded market reach, product selection & sales opportunities • Distributors • Member networks

9. Value Added & Incentives • Suppliers/Manufacturers • Efficient replenishing of stocks • Immediate product introductions • Ability to post Request for Quotations (RFQ’s) for lowest cost brand • Bundle services(Vendor Management Inventory, Customized Certificates of Analysis, Financial services) to give purchasing flexibility • Vertical Markets • Streamlined creation of multi-supplier orders • Market site handles order processing, customer service and account collections • Reduces cost of servicing each sale • Rapid, real-time review of order status • Expanded market reach & sales opportunities • Ability to post Request for Quotations (RFQ’s) • Lowest cost supplier (Chemdex) • Personal “favorites” lists for fast, easy re-ordering

10. Value Added & Incentives (Cont.) • Distributors • Investor relations info (stock quotes, financial reports) • Efficient market distribution of products • Informational advantages • Manufacturers can effectively pull demand data for products from wholesaler • Bundling products • Customizing orders/packaging/inserts • Customer FTP • Disease specific information (Amerisource, Bergen Brunswig)

11. Value Added For All Major Players These added incentives have customers making use of their sites across all major player segments • Lower start-up costs / working capital needs • Reduced marginal cost of servicing next sale • Scalability of infrastructure and security • Advanced, easy-to-use search engines • Detailed ordering info (how to/guidelines) for ease of use

12. Converting One-shot Customers Into Repeat Customers • Manufacturers: • Online continuing education courses(GlaxoWellcome) • Exclusive agreements with pharmacy buying groups • Provide environmental protection and safety resources(plant safety audits, technical training and 24-hour emergency service) • Vertical Markets: • Personal Feel: register for membership & join “community” • Switching cost after creating an account to obtain convenient services (i.e. quick purchasing, automatic billing, etc.) • Integrate with third-party and back-office systems to increase switching cost • Serve as daily “start-page” and first point-of-contact • eAuctions: submit & search products, check progress • Supplier eRFP promotions

13. Converting One-shot Customers Into Repeat Customers (Cont.) • Distributors: • Personalization and customization of site • Switching cost after registering to access site • Customer service programs to ensure satisfaction • Alliances with big suppliers to build credibility and attract customers

14. Recommendations- Where Should Pharmaceutical B2B Go From Here • Develop long term partnerships as the basis for an Internet Brand presence. • Broaden customer base by entering other player’s market to reach more customers. • Create more specific customer segmentations & levels for diff. customer types. • Permission Marketing campaigns. • Email reminders, newsletters, and updates to focus attention on company. • Utilize Internet advertising. • affiliate programs, reciprocal links, swapping banner ads, WWW on everything.

15. Conclusion- Watch for Changes From Impending Federal Regulations Regulatory model for traditional pharmaceutical transactions-heavily monitored United States Federal State Practice of Medicine Practice of Pharmacy Licensing FDA DEA FTC There are currently no state or federal regulations regarding the online pharmaceutical industry. We conclude impending regulations will greatly affect the growing market.