Pharma 2005 I

The European e-Business Market Watch
Sector Report No. 04-I (July 2005)

ICT and Electronic Business in the
Pharmaceutical Industry
Key issues and case studies
European
Commission
Enterprise & Industry Directorate General
The e-Business W@tch

The European Commission, Enterprise & Industry Directorate General, launched the e-Business W@tch to monitor the growing maturity of electronic business across different sectors of the economy in the enlarged European
Union, EEA and Accession countries. Since January 2002 the e-Business W@tch has analysed e-business developments and impacts in manufacturing, financial and service sectors. Results are continuously being published
on the Internet and can be accessed or ordered via the Europa server or directly at the e-Business W@tch website (www.europa.eu.int/comm/enterprise/ict/policy/watch/index.htm or www.ebusiness-watch.org).
This report is the first Sector Impact Study on electronic business in the pharmaceutical industry published by the
e-Business W@tch in the 2005 period. It builds on previous e-business studies on the chemical sector from 2003
and 2004. This study focuses on specific issues that were found to be particularly relevant for the sector at stake.
It features case studies on how companies use ICT for conducting business in this industry.
Disclaimer
Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use
that might be made of the following information. The views expressed in this report are those of the authors and
do not necessarily reflect those of the European Commission. Nothing in this report implies or expresses a warranty of any kind. Results from this report should only be used as guidelines as part of an overall strategy. For
detailed advice on corporate planning, business processes and management, technology integration and legal or
tax issues, the services of a professional should be obtained.
Acknowledgements
This report was prepared by Berlecon Research on behalf of the European Commission, Enterprise & Industry
Directorate General. It is a deliverable in the context of the e-Business W@tch, which is implemented by a team
consisting of empirica GmbH (co-ordinating partner), Berlecon Research, Databank Consulting, DIW Berlin, Lios
Geal Consultants, RAMBLL Management and Salzburg Research, based on a service contract with the European Commission.
e-Business W@tch would like to thank Mr Dirk Krischenowski, Chiron, who is a member of the e-Business
W@tch Industry Advisory Board in 2005, for reviewing the draft report and providing valuable comments and
suggestions.
Contact
For further information about this Sector Study or about the e-Business W@tch, please contact:
Berlecon Research GmbH

Oranienburger Strae 32
DE-10117 Berlin
Germany
e-Business W@tch
c/o empirica GmbH
Oxfordstr. 2
DE-53111 Bonn
Germany
European Commission
Enterprise & Industry DirectorateGeneral
Technology for Innovation / ICT
Industries and e-Business
Fax: (49-30) 285296-29
Fax: (49-228) 98530-12
Fax: (32-2) 2967019
info@berlecon.de
info@ebusiness-watch.org
entr-innov-ict-ebiz@cec.eu.int
Rights Restrictions
Material from this report can be freely used and reproduced but not commercially resold and, if quoted, the exact
source must be clearly acknowledged.
Berlin / Brussels, 2005
July 2005
Pharmaceutical industry
Table of Contents
Introduction to the e-Business W@tch ............................................................4
Executive Summary.........................................................................................7
Electronic Business in the Pharmaceutical Industry in 2005: Main Issues
and Challenges ........................................................................................9
1
Introduction .............................................................................................9
1.1
Definition and scope of the study ................................................................... 9
1.2
Summary of previous sector studies............................................................ 12
Key application areas of electronic business ......................................14

2.1 Use of B2B Internet trading platforms in the pharmaceutical sector ........ 16
2.1.1 From e-marketplaces to B2B trading platforms ......................................... 16
2.1.2 Current practices in the use of B2B Internet trading platforms .................. 17
Case Study: Marmosa Winning new customers via website & B2B portals ....... 18
Case Study: Pharma-mall: an integration platform initiated by pharmaceutical
companies.................................................................................................. 22
Case Study: Pharmaplace - a collective sourcing initiative by medium-sized
pharmaceutical companies ........................................................................ 26
2.1.3 Conclusions ............................................................................................... 29
2.2 The use of CRM systems and mobile solutions for sell-side activities..... 30
2.2.1 The use of CRM systems in the pharmaceutical industry.......................... 30
Case Study: Deployment of a new CRM system at EGIS Poland......................... 31
2.2.2 Mobile solutions for sales force optimisation ............................................. 35
2.2.3 Conclusions ............................................................................................... 39
2.3 RFID-based solutions in the pharmaceutical industry................................ 40
2.3.1 Basic concept and the role of RFID ........................................................... 40
2.3.2 Challenges in establishing RFID / Auto-ID solutions ................................. 43
2.3.3 Conclusions ............................................................................................... 47
Conclusions and business implications................................................48

3.1
Opportunities and risks for SMEs ................................................................. 48
3.2
Outlook on future developments................................................................... 50
Policy implications ................................................................................53
Background information on the sector .................................................56

5.1 Industry trends and challenges..................................................................... 56
5.1.1 Challenges due to specific characteristics of the sector ............................ 56
5.1.2 Current trends and developments.............................................................. 57
5.2
Industry statistics ........................................................................................... 60
References.....................................................................................................64
Annex: Technical solutions and usage potentials .......................................66
July 2005
Introduction to the e-Business W@tch

e-Business W@tch observatory and intermediary since late 2001
The European Commissions e-Business W@tch monitors the adoption, development and impact of
electronic business practices in different sectors of the economy in the enlarged European Union. The
background of this initiative was the eEurope 2002 Action Plan, which provided the basis for targeted
actions to stimulate the use of the Internet for accelerating e-commerce, acknowledging that "electronic commerce is already developing dynamically in inter-business trading" and that "it is important
for SMEs not to be left behind in this process." The eEurope 2005 Action Plan confirmed and built
further upon these objectives with Action 3.1.2 "A dynamic e-business environment", which defined the
goal "to promote take-up of e-business with the aim of increasing the competitiveness of European
enterprises and raising productivity and growth through investment in information and communication
technologies, human resources (notably e-skills) and new business models".
It is against this background that the European Commission, Enterprise & Industry Directorate General, launched the e-Business W@tch in late 2001. The objective of this initiative is to provide sectoral
analysis based on empirical research, including representative enterprise surveys in countries of the
European Union, the EEA and Accession States, with special emphasis on the implications for small
and medium-sized enterprises (SMEs).
Since its launch, the e-Business W@tch has published more than 50 e-Business Sector Studies on 17
different sectors of the European economy, three comprehensive synthesis reports about the status of
electronic business in the European Union, two statistical pocketbooks and various other resources
(newsletters, special issue reports, etc). These are all available on the website at www.ebusinesswatch.org.
The quantitative analysis about the diffusion of ICT and e-business is based to a large extent on regular representative surveys among decision-makers in European enterprises. The 2005 survey covers
more than 5000 enterprises from 10 different sectors across 7 EU member states. In addition, more
than 70 case studies on e-business activity in enterprises from all EU, EEA and Accession countries
are carried out, to complement the statistical picture by a more detailed analysis of current e-business
practices.
Survey results of the previous years have confirmed the initial assumption and rationale of the eBusiness W@tch that the sector in which a firm operates and the size of a company, rather than its
location, are the main determinants of its e-business activity,. The large demand for the various publications and statistics provided by the e-Business W@tch, and their exploitation by other research
institutions (for example, in the EITO Yearbook 2003 and in the OECD Information Technology Outlook 2004), document the demand for sectoral e-business analysis. Facilitated by positive responses
and the growing interest in its analysis, the e-Business W@tch is increasingly developing from an
observatory into a think-tank and intermediary, stimulating the debate about the economic and policy
implications of e-business among stakeholders at an international level.
The wide-angle perspective: e-Business W@tch provides the "big picture" as a basis for further research
The mission of the e-Business W@tch is to present a "wide-angle" perspective on e-business developments and practices in the sectors covered. This has important implications regarding the level of
detail in which various issues can be explored, both in terms of the quantitative picture (survey) and in
terms of the qualitative assessment and background research.
Over the past 10 years, "electronic business" has increased from a very specific to a very broad topic
to be studied. The OECD proposes a definition of e-business as "automated business processes (both
intra-and inter-firm) over computer mediated networks". This definition is useful as it makes clear that
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e-business is more than e-commerce (which focuses on commercial transactions between companies
and their customers, be it consumers or other companies) and that e-business includes internal processes within the company as well as processes between companies. Furthermore, the OECD definition implicitly indicates that the focus and main objective of electronic business is to be found in business process automation and integration, and the impacts thereof.
This implies that the potential scope for e-business analyses has also broadened. The measurement
of e-commerce transactions (the volume of goods and services traded online) can and should be
complemented by studies analysing the degree to which business processes, including intra-firm
processes, are electronically linked to each other and have become digitally integrated. Hence, it becomes practically impossible to cover in depth all areas and facets of e-business in one study. Thus,
study scope needs to be carefully defined.
The e-Business W@tch Sector Studies apply a wide-angle perspective and zoom into selected aspects of electronic business only. In general, studies with a wide-angle approach allow for a wider
range of issues to be covered and investigated at the same time. This, however, necessarily limits the
level of detail in which each single issue is explored. This must be considered when using the Sector
Studies prepared by the e-Business W@tch.
The role of economic analysis in the Sector Reports
In addition to the analysis of e-business developments, the e-Business W@tch Sector Studies also
provide some background information on respective sector. Following the configuration of the sector
(on the basis of NACE Rev. 1.1 classification) at the introduction of each study, this overview includes
some basic industry statistics, as well as information about the latest trends and challenges concerning the specific sector. Readers should not mistake this background information, however, as the main
topic of analysis. An e-Business W@tch "sector report" is not a piece of economic research on the
sector itself, but a study focusing on the use of ICT and e-business in that particular sector. The
introduction to the sector is neither intended to be, nor could it be a substitute for more detailed and
specific industrial analysis.
The data presented in each sectors overview are mainly derived from official statistics prepared by
Eurostat, but are processed and refined by DIW Berlin. The purpose is to close the many gaps that
occur in the official statistics, with missing data being imputed on the basis of extrapolations and own
calculations.
The mission of the e-Business W@tch is to monitor, analyse and compare the development
of e-business in different sectors of the European economy not the sectors themselves.
Its objective is to provide reliable results, based on commonly accepted methodologies,
which are not readily available from other sources and would trigger the interest of policymakers, researchers, and other e-business stakeholders for more in depth analyses (or statistical surveys).
The e-Business W@tch has adopted a wide-angle perspective in its approach and the
necessary trade-offs are transparently depicted in all its deliverables.
The definition of sectors and the adequate level of aggregation

Economic sectors constitute the main level of analysis for e-Business W@tch. In 2005, the sample
consists of ten sectors. Their configuration and definition are based on the NACE Rev. 1.1 classification of business activities.
The rather broad aggregation of different business activities into sectors in 2002-2004 made it possible to cover a broad spectrum of the economy, but also caused some challenges for the analysis of ebusiness developments. For instance, it was hardly possible to focus on individual sub-sectors in
much detail within a single sector report. The selection and definition of sectors proposed for 2005
reflect these concerns. Six out of the ten sectors proposed are sub-sectors that were part of (aggre5
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gated) sectors analysed in 2002-2004. The rationale for "zooming in" on former sub-sectors is that the
broad picture for the whole sector is now available from previous sector studies, and that this seems to
be the right time within the prospective life-cycle of the e-Business W@tch to focus the analysis on
more specific business activities.
The 10 sectors covered in 2005 were selected on the basis of the following considerations:
The current dynamics of electronic business in the sector and the impact of ICT and electronic
business, as derived from earlier e-Business W@tch sector studies.
Interest articulated by the industry in previous years on studies of this type.
Policy relevance of the sector from the perspective of DG Enterprise & Industry.
Roll-out strategy of 2003: New sectors (not covered in 2002/03 and/or 2003/04) have been
added, as well as specific industries which have only been covered as part of a larger sector in
the past
In 2005, the e-Business W@tch will also deliver four cross-sector studies. These Special Reports will
focus on a particular e-business topic of interest across different sectors rather than on a single sector.
The 10 sectors analysed in 2005
The 10 sectors which are being monitored and studied in 2004/05 include seven manufacturing, construction and two service sectors. Four of these sectors have been covered in the previous years of
implementation, while the other six were covered as well, but as part of (aggregated) sectors analysed
in 2002-2004.
Exhibit: Sectors and topics covered by e-Business W@tch in 2005
Sector Studies
NACE Rev. 1
1 Food and beverages

2 Textile industry
Publication date(s) *
15
July 2005
Sep. 2005
17, 18
July 2005
---
3 Publishing and printing
22
July 2005
Sep. 2005
4 Pharmaceutical industry
24.4
July 2005
Sep. 2005
29
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Sep. 2005
5 Machinery and equipment

6 Automotive industry
34
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---
35.3
---
Sep. 2005
45
July 2005
Sep. 2005
55, 62.1+3, 92.3+5
---
Sep. 2005
72
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Sep. 2005
A A User's Guide to ICT Indicators: Definitions, sources, data collection
July 2005
---
B International Outlook on E-Business Developments
July 2005
---
C E-Business Standards and Interoperability Issues
---
Sep. 2005
D ICT Security and Electronic Payments
---
Sep. 2005
7 Aerospace
8 Construction
9 Tourism
10 IT services
Special Topic Reports
* There will be 1 report (in 2005) on 4 of the 10 sectors, and 2 reports on the other six.
July 2005
Executive Summary
Sector definition
The sector study covers the following business activities:
NACE 24.4: Manufacture of pharmaceuticals, medicinal chemicals and botanical

products,
NACE 24.5: Manufacture of soap and detergents, cleaning and polishing preparations, perfumes and toilet preparations.
The pharmaceutical industry is part of the chemical industry (NACE 24). However, it differs
from most of the other sub-sectors of the chemical industry in two ways. First, its outputs are
mostly produced for end use and not as inputs for other parts of the chemical industry. Second, the pharmaceutical sector is characterized by a high R&D intensity. Several similar
characteristics can be found in the manufacture of soaps and detergents, cleaning and polishing preparations (NACE 24.51) as well as in the cosmetics industry (NACE 24.52).
E-Business Activity
The key e-business issues analysed in this report, as well as the case studies presented,
should be understood as representative examples of current ICT and e-business practices
and of related opportunities and challenges. The following topics have been selected for
analysis due to their importance for the pharmaceutical industry:
The use of B2B Internet trading platforms,
CRM systems and mobile solutions for the support of sales activities
RFID-based solutions.
The analysis and particularly the case studies discussed show that the concept of B2B Internet trading platforms is well suited to reflect the current reality of B2B e-business in the
pharmaceutical industry. The cases studies demonstrate the use of different Internet trading
platforms that do not always have much in common with the original idea of e-markets. Nevertheless these platforms meet the needs of companies for their B2B e-business activities.
IT and Internet-based solutions play a key role in supporting marketing and sales processes
in the pharmaceutical industry. In fact, CRM systems and mobile solutions, as discussed in
this report, show quite some potential for streamlining company processes on the sell-side
and for facilitating the management and work of the pharmaceutical sales force. A key message of the analysis and case studies, however, is that its realisation requires more than just
the plain implementation of a CRM system or the equipment of the sales force with wireless
devices. Acceptance of the solution by users turned out to be a key success factor.
Combating counterfeiting activities currently appears to be a main driver for the deployment
of RFID/Auto-ID solutions in this sector. The role of the pharmaceutical industry as a forerunner in this field is further accelerated by the large range of suitable applications, the favourable ratio of tag prices to product values and by the enforced pedigree requirements of
some regulation authorities. However, a widespread deployment of this technology within this
sector brings many challenges with it. If worldwide cross-industry solutions are to be the
goal, the establishment of accepted standards is crucial. In addition the establishment of
RFID/Auto-ID networks requires the solution of business issues like who gets access to
which information and the consideration of privacy issues. Therefore, in the short term, the
deployment of small specialised projects may be more likely than a full roll-out of a unique
RFID/Auto-ID concept along the entire supply chains of several industries and regions.
7
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Conclusions
The conclusions and policy implications discussed in this report are mainly based on qualitative analysis. The new statistical results of the e-Business Survey 2005 will be published in
the forthcoming sector report (September 2005) leading to consolidated business implications and policy challenges based on qualitative as well as quantitative analysis.
The conclusions extend the case study-based analysis by revisiting the specific opportunities
and risks of ICT and e-business for SMEs in this sector and by providing an outlook into
likely future ICT developments that are of importance for this sector. SMEs have the opportunity to use ICT and e-business tools as the basis for the development of niche markets, for
maintaining customer relationships or for collaboration with business partners. Risky developments for SMEs arise mainly from the insufficient exploitation of e-business tools, nonappropriate technical tools and the insufficient consideration of SME needs in new technological developments.
A key area of application in the future is the usage of ICT and e-business in the field of R&D.
There are several ways in which new technologies may help to increase research efficiency
and exploit the potentials of biopharmaceutical research. Under discussion, for example, are
new computing models, new models for knowledge management and Internet-based collaboration platforms.
Policy Implications
Policy implications made clear in this report highlight two issues, namely the need for better
IT-related business skills in SMEs and the ongoing development of an RFID infrastructure for
the pharmaceutical industry. ICT and the Internet have changed the way certain business
activities can be conducted, and there is some evidence in this report that SMEs have not yet
fully acquired the necessary business skills to make use of these changes. In this regard,
there might be a role for European policy, at least on two levels: the e-Business Policy Support Network and the eMarket Services project.
Furthermore, it would probably be beneficial for the European pharmaceutical industry as a
whole to get an independent assessment of the opportunities and challenges of RFID in the
pharmaceutical supply chain. Such an assessment could be conducted by establishing an
expert group at the appropriate unit(s) and/or by commissioning an independent study.
Economic Background
The European manufacture of pharmaceuticals (NACE 24.4) is concentrated in a few countries. In 2001, more than two thirds of the sectors production value was generated by pharmaceutical companies in the large EU countries of France, Germany, Italy, and the UK.
Large companies dominate production. Even though about 90% of the enterprises in this
sector are SMEs, large companies account for more than 85% of production value and employ nearly 80% of the sector workforce.1
The characteristics of the pharmaceutical sector imply specific challenges for companies. Of
particular importance are the fulfilment of regulatory requirements, the management of risks
in product development and the ability to deal with heterogeneous target groups in marketing
and sales. Apart from sector-specific challenges, pharmaceutical companies have to manage
change in their business environment. Increasing cost pressure, a changing industry structure and the rising importance of biotechnological applications are important current trends.
Cost pressure is driven by the so-called blockbuster or R&D innovation crisis, increasing
competition due to a rising importance of generics, as well as cost-containment measures in
order to consolidate public health insurance systems.
Source: Eurostat New Cronos / DIW Berlin, see section 5.2.
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Electronic Business in the Pharmaceutical Industry in

2005: Main Issues and Challenges
1
Introduction
This study explores the development and implications of ICT and electronic business in the
pharmaceutical industry. It builds on previous sector studies from 2003 and 2004, published
by the e-Business W@tch on the chemical industry to which the manufacture of pharmaceuticals belongs in official statistics. This report focuses on specific issues that were found
to be particularly relevant to the sector in question. The analysis is supported by case studies
of ICT and e-business activity in specific enterprises, drawn from expert interviews with selected companies. A second report, to be published later this year, will focus on quantitative
aspects.
The conclusions in this report highlight the main business implications of ICT and e-business
for small and medium-sized firms in the sector. In addition, important drivers for the development of electronic business in this industry for the next 2-3 years are presented. Finally,
the study indicates ICT-related policy challenges.
1.1
Definition and scope of the study
Sector definition
This report analyses IT and e-business issues in the pharmaceutical industry, defined for the
purposes of this report, by the following business activities:
Exhibit 1-1: Business activities covered by the pharmaceutical industry (NACE Rev. 1.1)
NACE Rev. 1.1

DE 24.4
Business Activity
Manufacture of pharmaceuticals, medicinal chemicals and botanical products
24.41
Manufacture of basic pharmaceutical products
24.42
Manufacture of pharmaceutical preparations
DE 24.5
Manufacture of soap and detergents, cleaning and polishing preparations, perfumes

and toilet preparations.
24.51
Manufacture of soap and detergents, cleaning and polishing preparations, perfumes

and toilet preparations.
24.52
Manufacture of perfumes and toilet preparations (cosmetics industry)
Activities subsumed under NACE2 24.4 constitute the core of the pharmaceutical industry.
This report, however, also covers the activities of the cosmetics industry (NACE 24.51) and
the manufacture of soaps and detergents, cleaning and polishing preparations (NACE
24.52). The latter two sub-sectors have several things in common with the core pharmaceutical industry, which justifies their joint consideration.
NACE Rev. 1 is a 4-digit activity classification which was drawn up in 1990. It is a revision of the "General
Industrial Classification of Economic Activities within the European Communities", known by the acronym
NACE and originally published by Eurostat in 1970.
9
July 2005
In contrast to most other parts of the chemical industry, subsumed under NACE 24 (manufacture of chemicals, chemical products and man-made fibres), the outputs in the industry
considered here are mostly produced for end-users and not for other parts of the chemical
industry. In addition, most of the products come into contact with human bodies and thus can
have an immediate impact on human health. Therefore, the industry has to meet high safety
standards and is subject to many regulatory measures in order to ensure the consumers
safety. And finally, companies active in the analysed sub-sectors often use similar distribution channels such as pharmacies and drugstores. For the remainder of this report, therefore,
the term pharmaceutical industry, is intended to include the whole sector as defined in Exhibit 1-1. This industry differs in one more respect from the remainder of the chemical industry: it is characterised by an extraordinarily high R&D (Research and Development) intensity.
According to EFPIA (The European Federation of Pharmaceutical Industries and Associations), pharmaceutical companies in Europe spend about 20% of their sales volume on research and development. This R&D is not only laboratory research to discover new substances or production processes, but a large amount of money and time is also invested in
clinical trials and approval processes.
Close ties with related sectors
The sector definition chosen here is not the only possible definition. Others include, e.g. the
following sectors, which have close ties with the pharmaceutical industry:
Agrochemical industry: Just like the pharmaceutical industry, also the agrochemical
sector is characterised by a high R&D intensity. Both industries are often combined
into the so-called life sciences industry.
Manufacturers of medical instruments and providers of healthcare services:

Companies in these sectors face similar challenges as far as the supply side and related regulation and policy issues are concerned. The three sectors together are often
classified as healthcare industry.
Wholesalers and retailers: Collaboration along the supply chain is a key issue in the
pharmaceutical industry. For discussion of sales and marketing activities, for instance, specialised wholesalers and retailers of pharmaceuticals are often added to
the sector.
Even though the focus of this report is on the pharmaceutical industry as defined in Exhibit 11, many ICT and e-business issues also involve the aforementioned neighbour industries,
because, for example, the issues affect a whole supply chain, or because companies are
active in the manufacture of pharmaceuticals as well as in a neighbour industry. The case
studies and business example provided in this report, therefore, also partially cover these
other industries.
Increasing importance of biotechnological developments
In addition, many new developments in the pharmaceutical sector are based on biotechnological3 inventions. In fact, the consulting company PricewaterhouseCoopers (PWC) found
out that in 2003, no less than 25 of the FDAs (U.S. Food and Drug Administration) 32 new
product approvals originated from biotech companies. This dynamic would also explain a
large number of the acquisition activities in the pharmaceutical industry in the same year:
The high level of acquisitive interest in biotechnology companies was a dominant feature in
the sector in 2003. Eight of the top ten targets were biotech companies. Moreover, PWC
The term biotechnology can be defined in different ways. Put in simple words, biotechnology describes technology based on biology, which provides new applications for agriculture, food science and medicine, see
also Wikipedia: www.wikipedia.org (February 2005).
July 2005
10
expected to see continued activity in the biotech arena in 2004.4 Although there is no specific NACE classification for the manufacture of biopharmaceuticals yet5, developments and
activities in this field are also discussed in this report.
Segmentation of the pharmaceutical industry
Companies active in the pharmaceutical industry can be further segmented based on their
business focus or the characteristics of their products. The manufacture of pharmaceutical
products, for instance, can be roughly divided into two parts: R&D and the production of
pharmaceuticals. The often-used expression research-based pharma refers to companies
that spend significant efforts on research and development of new products. A specific subgroup in this area are Contract Research Organisations (CROs) that have specialised in
supporting R&D activities, for instance, by organizing and executing clinical trials as an outsourcing service for larger players.
In contrast to research-based pharmaceutical companies, a significant share of enterprises in
the sector concentrates almost exclusively on production and sales. These can be further
divided into companies that licence substances from patent holders and companies that copy
original products after the expiration of the patents. The latter are also known as producers of
generics.6 According to EFPIA, the market shares of generics in 2002 in the EU-member
states were between 2% in Portugal and 27% in Germany.7
With respect to the products supplied by companies in the pharmaceutical industry, one can
distinguish between suppliers of prescription pharmaceuticals and those of OTC (Over The
Counter) products. Whether a product has to be prescribed by a physician or can be sold
over the counter has, for example, serious implications for the design and execution of marketing and sales activities. Advertising of prescription pharmaceuticals directly to the consumer (DTC), for instance, is prohibited in the EU, and sales channels are usually limited to
pharmacies. In contrast, OTC pharmaceuticals can be sold and promoted with far fewer restrictions.
Background data
The European Commission concluded in its communication on A Stronger European-based
Pharmaceutical Industry for the Benefit of the Patient, that the pharmaceutical industry in
Europe generates wealth and high quality employment while playing a central role in the development of public health []8. In fact, the pharmaceutical industry in Europe shows economic strength. In 2001, in the EU-25 (of today) more than 550,000 persons were employed
in pharmaceutical companies.9 The production value in the same year was roughly 148 billion euros, and the value added almost 55 billion euros. Moreover, due to the high R&D intensity, the sector plays a crucial role for the creation of jobs with high skill-levels.
PWC (2004): Pharmaceutical Sector - Annual Report 2003, Corporate Finance Insights Analysis & Opinions on Merger & Acquisition activity, PricewaterhouseCoopers, 2004 (www.pwc.com/pharmainsights).
According to the German Federal Statistical Office, biotechnology companies are currently attributed to NACE
classifications on a case-by-case bases.
There is no consistent definition of generics yet. They are typically understood as pharmaceuticals produced
by a manufacturer different from the inventor of the original product and are market when intellectual property
rights are exhausted, see also EPFIA (2004).
EFPIA (2004): The pharmaceutical industry in figures 2004 edition, Report, EFPIA 2004 (www.efpia.org)
EC (2003): A Stronger European-based Pharmaceutical Industry for the Benefit of the Patient A Call for
Action, COM (2003) 383 final, 1.7. 2003.
The data presented on the economic background (Source: Eurostat New Cronos / DIW Berlin) refer to the
core of the pharmaceutical sector, i.e. activities under NACE 24.4; background statistics are presented in
more detail in chapter 5 of this report.
11
July 2005
The manufacture of pharmaceuticals is concentrated in only a few countries. In 2001, more

than two thirds of the sectors production value was generated by pharmaceutical companies
in the large EU countries of France, Germany, Italy, and the UK. Manufacturers of pharmaceuticals in these countries employed nearly two thirds of the sectors workforce in todays
EU-25 countries. In addition, large companies dominate production. Even though about 90%
of the enterprises in this sector are SMEs, large companies account for more than 85% of
production value and employ nearly 80% of the sectors workforce. However, this does not
mean that small companies are less important in this sector. Biopharmaceutical companies,
for example, are responsible for a substantial share of innovations, although these companies are typically small. Due to their innovative activities they are preferred acquisition targets
for large companies.
1.2
Summary of previous sector studies
In previous sector studies by the e-Business W@tch the pharmaceutical industry was analysed as part of the combined chemical industries (chemical industry as well as manufacturing of rubber and plastics products). Therefore it seems natural to take survey results published in those studies as a starting point for the analysis in this report. However, as discussed in section 1.1, the pharmaceutical industry differs in several aspects from most of the
other chemical sub-sectors. This also was a motivation for restricting the 2005 analysis of the
e-Business W@tch to the pharmaceutical industry to obtain results for a homogeneous sector.
Exhibit 1-2: Sector scoreboard and assessment of e-business usage in the chemical industries 2004
Assessment: Manufacturing sector with a

cautious e-business approach
Chemical industries
A
Chemical companies tend to be pragmatic and

rather conservative users of information technology. They are not a leading adopter of ebusiness. Other manufacturing sectors such
as electronics or the automotive industries are
more intensive users.
1,5
0,5
-0,5
-1,5
Still, in terms of business connectivity and

internal business process automation, companies from the chemical industries are better
equipped than firms on average across all
sectors.
C
Max
Average
Chemicals
Max = maximum indexed value for one of the 9 sectors

Average = mean value for the 9 sectors
This does not hold true for customer facing ecommerce solutions, which are not yet widely
used.
Categories
A) Connectivity of enterprises
B) Internal business process automation
C) Procurement and supply chain integration
D) Marketing and sales
Source: e-Business W@tch (2003/04)10
10
e-Business Sector Study on the Chemical Industry, May 2004. www.ebusiness-watch.org ('resources').
July 2005
12
According to the e-Business Survey 2003/2004 (see Exhibit 1-2), the combined chemical
industries turned out to be rather conservative users of information technology when compared with other manufacturing sectors such as automotive or electronics. Due to the specific
characteristics of the pharmaceutical sector we expect companies from this sector to use ITC
more intensively. Differences are mainly expected in two areas.
Internal process automation: The high R&D intensity of this sector (see also chapter 5 for a discussion of this issue) makes those IT applications useful that help to
manage knowledge (e.g. knowledge management systems) and to deal with the large
amounts of data. As will be discussed in section 3.2 of this report, the IT requirements
of pharmaceutical research are further increasing (e.g. due to the raising relevance of
biopharmaceutical research). This development is likely to further drive future investments in knowledge management applications and new IT infrastructure,
Marketing and Sales: Pharmaceuticals are (other than chemicals) produced for the
consumer market, where marketing and sales activities are a key priority. In addition,
pharmaceutical companies have to deal with different needs and target groups (e.g.
consumers, pharmacies, physicians and health insurance companies). These challenges are likely to drive IT usage to increase the efficiency of sales force activities
and marketing processes. The use of specific IT solutions for the support of marketing and sales processes will be explained in more detail in section 2.2 of this report.
The upcoming statistical results of the e-Business Survey 2005 will show, whether these preliminary assessments are also confirmed by the data. The survey results will be published in
the forthcoming report on e-business in the pharmaceutical industry (September 2005).
13
July 2005
Key application areas of electronic business
This chapter aims at providing some insights into current ICT and e-business practices specific to the pharmaceutical industries, as well as into the opportunities and challenges of using these technologies. The chapter does not claim to provide a comprehensive overview, as
that would exceed the limits of this report. In fact, it would be difficult to realize, as ICT and ebusiness are relevant for nearly all core business areas of the pharmaceutical industry.
Therefore, the key issues analysed in this chapter, as well as the case studies presented,
should rather be understood as representative examples of current ICT and e-business practices, as well as of related opportunities and challenges. The following issues as particularly
illustrative for pharmaceutical companies:
The use of B2B Internet trading platforms: Chapter 2.1 discusses the role played
by different types of B2B Internet trading platforms in the pharmaceutical industry today. This issue is particularly illustrative for developments in the field of eprocurement and supply chain connectivity. The case studies presented in this chapter demonstrate that pharmaceutical companies of different sizes have different
needs in the field of B2B e-business.
CRM systems and mobile solutions to support sales activities: Chapter 2.2 discusses CRM systems and mobile solutions to support sales activities. Particularly in
this field we expect the pharmaceutical industry to be an advanced user of these
technologies due to peculiarities of its customer base. Based on case studies and
business examples, strategies for a successful deployment of such enterprise IT solutions will be discussed.
RFID-based solutions: This issue stands for several future developments (see section 3.2) where the pharmaceutical industry is considered to be a forerunner. Chapter
2.3 analyses the various potentials of RFID for tracking and tracing products along
the pharmaceutical supply chain. Moreover, the challenges and critical issues relating
to the design and development of RFID-based solutions will be discussed.
The case studies and business examples as summarized in Exhibit 2-1 together with
analyses of secondary literature build the basis for first conclusions and policy implications
derived in the chapters 3 and 4 of this report. Together with the new statistical results to be
published in the second part of the report, they will lead to consolidated conclusions and policy challenges based on qualitative as well as quantitative analysis.
July 2005
14
Exhibit 2-1: Case studies and business examples to be presented in this chapter
Chapter
Title and Purpose
Chapter 2.1: Use

of B2B Internet
trading platforms
Case Study: Marmosa trying to win new customers via website and B2B portals
Insights into problems of SMEs when using e-business tools to support marketing and sales activities
Case Study: Pharma-mall an integration platform initiated by pharmaceutical
companies
Example of integration platforms that are initiated, financed and supervised by

producers of pharmaceuticals themselves.
Potentials for manufacturers of pharmaceutical products and their customers

as well as challenges faced by platform provider and ways to overcome them
Case Study: Pharmaplace a collective sourcing platform initiated by mediumsized pharmaceutical companies
Insights into e-business related problems faced by medium-sized companies

in this sector
Business example: Diagdirect: a B2B Internet trading network for in-vitro diagnosis
Chapter 2.2: The

use of CRM systems and Mobile
Solutions
Example of user-driven trading platforms, Diagdirect aggregates online supplier catalogues to support laboratories ordering process
Case Study: Deployment of a new CRM system at EGIS Poland
Discussion of strategies, challenges and success factors for planning, implementing and introducing a CRM system
Business example: E-business activities supporting marketing and sales at
UCB Pharma Poland
E-business strategy and first experiences by a pharmaceutical company trying to improve the performance of sales and marketing activities
Business example: Sales force optimisation by a mobile solution at Queisser
Pharma
Chapter 2.3:
RFID-based solutions
Example of pharmaceutical manufacturer deploying mobile solutions to streamline

the work of its sales force.
Business example: Authenticating pharmaceuticals at the point of dispensing

an RFID/barcode pilot by Aegate (UK)
Example of practicable RFID-based solutions, which increase the safety of the patients, are feasible today and suited to SMEs in the sector
15
July 2005
2.1
Use of B2B Internet trading platforms in the pharmaceutical sector
2.1.1 From e-marketplaces to B2B trading platforms

The pharmaceutical industry seems to be well suited to the use of e-business tools to support B2B relationships on the buy- and sell-sides. First, many of the goods to be traded can
be easily described and show a high level of standardisation. In addition, pharmaceuticalspecific challenges, such as the management of product recalls, are driving collaboration
along the value chain. These factors increase the usefulness of industry-wide trading and
communication platforms. Finally, the global nature of the pharmaceutical industry requires
that companies actively sell and/or produce in a variety of international markets.
In the past, particularly during the dot.com boom, e-marketplaces had often been discussed
as the ultimate vehicle for implementing B2B e-business strategies. With the butterfly
model11 in mind, they were usually defined as sites bringing together several buyers and
several sellers and supporting their e-business transactions. In this way, companies could
enter e-markets, search for cheap supplies or new suppliers, accept the price or participate
in a price negotiation and eventually fix the contract. The focus of e-marketplaces as perceived by the public was the conclusion of business transactions, and the main advantages
were increased market and price transparency. Based on this understanding, e-marketplaces
were typically defined as Internet sites run by an independent provider that contained at
least one trading function, for example the possibility to participate in auctions or to order
from catalogues.
However, in practice the concept did not fully meet the actual needs of companies. As a consequence, the use of e-marketplaces remained way behind initial expectations. Even in the
chemical industry of which the manufacture of pharmaceuticals is a part and which shows
a similar suitability for the use of e-business tools the share of companies participating in emarketplaces was negligible (at about 2%)12. Consequently, the number of e-marketplaces
often start-ups originating from the e-business boom has decreased significantly. The
number of e-marketplaces in Germany, for example, fell from more than 180 in 2001 to less
than 100 in 2005.13
However, it would be wrong to interpret these numbers as evidence that B2B e-business is
fading away. A closer look shows that a large part of B2B e-business activities takes place
outside e-marketplaces. Many of the current Internet trading platforms, for example, have
specialised in supporting very specific supply activities. In addition, several platform services
are operated by user companies themselves. In order to clarify the concept of electronic B2B
transactions, an expert group of the European Commissions DG ENTRI proposed the term
B2B Internet Trading Platform to include all Internet-based technical solutions that aim at
facilitating the establishment of new trading relationships between companies or at supporting existing relationships.14
11
Illustrates the conventional view on e-marketplaces as websites bringing together a large number of suppliers
offering goods on the one site and buyers searching for goods on the other.
12
Results of the e-Business W@tch Survey 2003.
13
Source: databases by Berlecon Research (2001) and eMarketservices (2005), see www.emarketservices.com
(February 2005).
14
Final Report of the Expert Group on B2B Internet trading platforms, July 2003,
http://europa.eu.int/comm/enterprise/ict/policy/b2b/.
July 2005
16
2.1.2 Current practices in the use of B2B Internet trading platforms

The current landscape of B2B e-business is characterized by three major types of Internet
trading platforms: B2B portals, Trading Networks and Sourcing Services Providers.15
B2B Portals
B2B portals focus primarily on supporting the process of information gathering and on making supply and demand aware of each other. In this respect, B2B portals are closest to the
original idea of e-marketplaces. In the pharmaceutical industry, most B2B portals are supplier
and product directories like Pharmaceuticalonline.com or Cossma Internet Suppliers Guide
(www.cossma.com). They support development as well as production of drugs or cosmetics
by facilitating the search for suppliers or production inputs as well as the search for potential
outsourcing partners.
Pharmaceutical companies can use the directories to search for manufacturers and distributors in categories like laboratory materials and equipment, industry-specific software or
packaging. But also contract manufacturers and contract research organisations (e.g. for
carrying out clinical trials) offer their services via online directories. A specific service in this
area is provided by Pharma-Transfer (www.pharma-transfer.com), which publishes management summaries of research reports on new pharmacological compounds. Based on
these, the platform aims to support licensing and partnering processes across the world in
the field of pharmaceutical research.
Companies in the pharmaceutical industry may also go onto the B2B portals to advertise
their own products. Particularly for small companies and niche vendors, who do not have a
large distribution network, portals promise to provide them with a larger reach. However, the
case study on B2B portal experiences made by Marmosa a small Spanish manufacturer of
natural cosmetics and pharmaceuticals shows that the listing on B2B directories alone
does not automatically result in new customers. Problems revealed by this case study are
most likely representative for many other small companies in this sector, as well as in other
industries.
15
See also e-Business W@tch / European Commission (2004): The current state of B2B E-Markets, Special
Report, March 2004.
17
July 2005
C ASE S TUDY : M ARMOSA T RYING

W EBSITE AND B2B PORTALS
TO
W IN
NEW CUSTOMERS VIA
Abstract
Marmosa is a small Spanish manufacturer of natural cosmetics and foodstuff based on
avocado oil.. A new company website as well as services from B2B portals are used to
win new customers and to internationalise the business. The company, for example,
has published their offers in several B2B directories. However, the company could not
yet win new customers through these e-business activities. The case study discusses
problems Marmosa has faced when using Internet-based services for their purposes.
Case Characteristics
Location of the company
Malaga, Spain
Company size (no. of employees)
Primary customers
Distributors of foodstuff and cosmetics
E-Business Focus
Use of company websites
Use of B2B Internet trading platforms
Gathering information via the internet
= at implementation stage; = used in day-to-day business; = critical business function
Background and objectives

In order to avoid competing solely on price in the agriculture and food industry, many
companies in these sectors are searching for additional niches. One such niche is the
refinement of agricultural products (e.g. herbs, plant oils) into natural cosmetics. However, as these are niche products, regional markets and conventional distribution networks are often not the best channels through which to reach potential customers. The
Internet, at first sight, promises to overcome such problems, as potential customers
from everywhere can conveniently find and order from web sites, even from specialised
ones. This was the motivation of Marmosas CEO, Pepe Moreno, for putting a lot of effort into intensifying his use of the Internet.
Marmosa, Soc. Coop. And. is a Spanish producer of avocado oil. The company was
founded in 1999 and employs three people. Based on the production of avocado oil,
Marmosa offers foodstuff (e.g. sugar and oil) as well as natural cosmetics (e.g. creams,
soaps or body oils). Today, the main customers of Marmosa are wholesalers all around
Spain. However, the CEO, Pepe Moreno, wants to increase Marmosas business and
win new customers abroad. In order to do this, he is using the Internet in two main
ways: by publishing a company website and by using services of B2B portals in the
Internet.
Activities
Use of the company website
In 2002, Marmosas company website was published under the domain
www.marmosa.com. The website contains a small introduction to the company, detailed information about the food and cosmetics products offered, opportunities for visiJuly 2005
18
tors to register as clients or distributors, as well as an online form for registered clients.
The information is published in four different languages: English, French, German and
Spanish. Photos next to the text illustrate the companys offers.
Pepe Moreno estimates the costs for the technical implementation of the website to
have been around 4300 euros. He contributed content and photos, while a specialised
company overtook technical implementation and maintenance. 80% of the costs have
been financed by participation in the project Pipe 2000, initiated and organised by
various Spanish trade promotion organisations and co-financed by the European Union. The projects aim is the promotion of foreign trade activities by SMEs in Spain. Participating companies receive support from an external expert, who helps them to identify potential markets and to plan and execute foreign trade activities. In addition, investments supporting these activities such as the design and implementation of Marmosas website are subsidized.
The website is mainly used to support the sales activities of Marmosa by facilitating
customers access to information about the company and its products. Mr. Moreno
considers the website as an enhanced business card: With the information provided
on our website we want to provide our customers with an image of the company. If Mr.
Moreno, for example, makes new business contacts, he presents them with an information sheet with basic contact details and a reference to the company website to gain
further information. As far as this goes, the company website supports the establishment and maintenance of customer relationships.
However, the website itself has not succeeded so far when it comes to attracting new
customers. About nine visitors had registered as clients, but did not respond to Marmosas offers. This, according to Mr. Morenos view is the downside of the lack of personal contact. During a face-to-face negotiation he could react promptly to the wishes
or objections of his clients, whereas Internet customers leave immediately if the first offer provided doesnt match their needs.
This is not the only reason, however, for the unsatisfactory outcome. During the ebusiness boom, websites were sold to SMEs as a tool which would attract new customers easily. What they were not told was that doing this successfully often requires
significant changes to the companys sales and marketing approach. This is typically a
lengthy and expensive learning process going far beyond investing in IT equipment and
in acquiring IT skills. In Marmosas case it would mean at least partially becoming an eretailer, whereas their previous sales experience had mainly been with wholesalers and
distributors.
Use of B2B Portals
Mr. Moreno began in 2004 to use the services provided by B2B portals. He registered
at several B2B industry directories in order to search for potential clients and to publish
the company offer. Currently, Marmosa is listed on roughly 10-15 B2B portals. Its products can be found, for example, on B2B platforms like Worldtradeaa.com or B2B
Tradeholding.com. It is usually described as follows: Natural cosmetics of avocado oil
We are producers of avocado oil in Spain, and we manufacture natural cosmetics of
avocado oil: Creams for the skin Mask for the face Creams for the lips Soap
Aromatic bath oil Massage oil Corporal oil Hair conditioner. Visitors of the online
directories who are interested in these offers either receive company contact information after registration (which might involve payment of a fee) or can request more information by sending an email forwarded through the platform.
According to Mr. Moreno, the yearly costs for using these B2B portals vary between 60
and nearly 200 Euro per platform. Several directories demand registration fees; others
bill their clients for the number of successful contacts, typically in the form of emails
received. While Mr. Moreno has received hundreds of new contacts through these plat19
July 2005
forms, only about 20% of them were really useful and serious. A large number of contacts, for example, were ads or requests for invitations by migrants trying to enter the
European Union. None of the contacts has so far turned out to be a success.
Mr. Moreno points out two main problems related to the use of online directories. First,
many of these services work only in English. Therefore, it often is difficult for him to understand what kind of information is required. In order to solve this problem, he has
learned some English. In addition, he uses an online dictionary for translating the information to be provided into English. A larger problem, however, for him is the inferior
quality of business contacts provided by many of the online directories. Moreover, he
receives many identical business contacts via different platforms possibly because
some of them are operated by the same company and differ only in name. Therefore,
he considers his main challenge when using B2B portals as to figure out, which of the
marketplaces are good and which are bad.
Despite these problems, Mr. Moreno is still optimistic that his efforts in using the Internet will benefit his company in the long run. He considers having a website as essential
for any company today. Even though it has not yet provided him with new customers, it
has helped in maintaining the relationship with existing customers and improving the
company image. In order to make more people aware of the website, he is currently
planning activities to improve its position within search engines. He would also like to
optimise the choice and use of Internet trading platforms for his purposes. However, he
is not aware of any services that could help him to solve the selection problem.
Lessons learned
The case study has illustrated the difficulties faced by small companies when trying to
set up e-business via the Internet. Despite Marmosas efforts in setting up their own
company website and publishing the company offers on B2B trading platforms, the
company has not yet succeeded in winning new customers. The Marmosa case indicates that technical implementation and access to Internet-based services are not the
main e-business related problems for SMEs today. Many technical tools have become
commodities and are affordable even for small companies.
The main challenge, however, seems to be the efficient use of Internet tools and services. In this regard, various challenges have been identified:
July 2005
Promotion of websites: The pure existence of a website does not automatically mean that new customers will be gained. First, visitors have to be attracted
to the website. In fact, as many web sites by SMEs, also Marmosas site is not
optimized for search engines and therefore difficult to find when people search
only for the product on offer in search engines. Secondly, strategies are needed
to convert visitors into customers. Being able to do so requires Internet-related
sales and marketing know-how, not technical expertise. E.g, the website has to
be far more professionally designed than necessary for a simple informative
website. Workshops allowing for the exchange of experiences by similar companies active in this field (e.g. carried out by regional trade promotion organisations) could be an efficient tool to achieve this knowledge. The e-Business Policy Support Network (www.e-bsn.org) might be a helpful framework for carrying
out such business events (see also chapter 4 of this report).
Language skills: Without understanding the language required often English

many opportunities offered by Internet services cannot be exploited. Particularly SMEs face this problem. since their resources for improving capabilities in
this area either by attending language courses or by hiring additional employees with the needed skills are typically limited.
20
Evaluating the quality of Internet-based services: Mr. Moreno considers the

selection of serious services as a major challenge for the usage of Internet trading platforms. In fact, there is a large number of industry directories available on
the Internet. The quality of services, however, varies significantly. A European
portal on Internet trading platforms like the eMarket Services project
(www.emarketservices.com) might be a good starting point to help SMEs to distinguish between good and not so good platforms (see also chapter 4).
Sources and references

This case study was conducted by Berlecon Research GmbH (info@berlecon.de) on behalf of
the e-Business W@tch.
References:
Interview with Pepe Moreno, CEO of Marmosa Soc. Coop. And., 01.02.2005
Company website: www.marmosa.com
Trading Networks
Compared to B2B portals, trading networks follow a completely different logic by focusing on
the reduction of process costs rather than on information gathering. They interconnect the
ordering and purchasing systems of buyers and suppliers and thus help to make the ordering
process cheaper, faster and less error-prone. Trading networks for the pharmaceutical industry exist in the form of catalogue aggregators and integration hubs.
Catalogue aggregators, like cc-chemplorer, integrate different product catalogues from a
number of suppliers into one large catalogue for buyers. Products listed in aggregated catalogues are often MRO (Maintainence, Repair and Operation) goods or office equipment, i.e.
goods used across different industries.
Integration hubs, like GHX (Global Healthcare Exchange), usually interconnect the ERP
systems of trading partners within a certain industry. Compared to the large variety of B2B
portals, the number of integration hubs is rather small. Likewise they seldom feature in public
discussion. Apart from their rather technical nature, this can also be explained by the existence of network effects. Such effects characterise a situation where the benefits from participating for each individual company are larger, the greater the number of other companies
connected. This effect favours the biggest provider and drives the number of platforms down
in the long run. The case study on pharma-mall and the business example on Diagdirect
show that trading networks controlled by the companies that are using them is not an unusual business model in the pharmaceutical industry. As main advantage in comparison to
start-up e-markets, many of the industry-sponsored marketplaces seem to have a better understanding of their clients needs. This is a logical consequence from their closeness to the
industry. In addition, they also show the financial means to survive the time period needed to
fully understand the specific requirements by the clients.
21
July 2005
C ASE S TUDY : P HARMA - MALL :
AN INTEGRATION PLATFORM INITI-
ATED BY PHARMACEUTICAL COMPANIES

Abstract
Pharma-mall is an integration hub initiated by a joint venture of the pharmaceutical
companies Boehringer Ingelheim, GlaxoSmithKline, Merck, Novartis and Schering. The
platform interconnects ERP systems of the associated pharmaceutical companies with
those of their customers. In contrast to independent trading platforms, Pharma-mall is
initiated, financed and supervised by producers of pharmaceuticals themselves. Pharmacies and hospitals as customers of the associated pharmaceutical companies can
use the integration services free of charge. Both pharmaceutical companies and their
customers benefit from savings in process costs and the reduction of errors in the ordering process.
St. Augustin. Germany
Company size
15 employees
Primary customers
Large pharmaceutical companies, pharmacy and hospital clients
E-Business Focus
B2B Internet Trading Networks
Integration
Procuring online
= at implementation stage; = used in day-to-day business; = critical business function

The collaboration of research-based pharmaceutical companies in non-core business
areas is not unusual. In order to manage the high risk involved in developing new
products, for example, R&D co-operation is common in this sector. In addition, producers of pharmaceuticals are also collaborating in sales logistics. By operating a joint distribution centre, for example, the distribution of products can be made more efficient for
the benefit of producers and customers alike. This was the starting point for the foundation of the Pharmlog Pharma Logistic GmbH a joint venture of six German researchbased pharmaceutical companies in the field of logistics in 1993.
Confronted with the e-business boom in 2000 and 2001, and inspired by good experiences with collaboration at Pharmlog, Boehringer Ingelheim, GlaxoSmithKline, Merck,
Novartis and Schering agreed to extend their co-operation into the field of electronic
business. Mr. Windel, CEO at pharma-mall, explains that at that time the pharmaceutical companies were looking for a way to integrate e-business opportunities without
giving established relationships to their clients away. The wish to keep the ownership
of the last mile to the customers turned out to be a strong argument against the participation in public e-marketplaces or trading networks.
On public platforms, the pharmaceutical companies expected conflicts between their
own interests and those of the platform operators. Mr. Koenig, sales and logistics manager at Merck, points out that at that time platform operators often demanded information the company wasnt willing to reveal. Many operators, for example, intended to implement a revenue model, where fees were based on the transaction value. Companies in the pharmaceutical industry as well as in other industries, however, are often reJuly 2005
22
luctant to reveal their revenue streams to third parties. In addition many platforms did
not offer enough value for the fees demanded. Particularly during the dot-com boom,
the public discussion and perception of e-marketplaces as ultimate vehicle for ebusiness led to exaggerated price expectations by platform operators. Hospitals and
pharmacies, which also wanted to benefit from more efficient procurement processes
enabled by e-business, faced similar problems. Consequently, in 2002 the pharma-mall
Gesellschaft fr e-commerce mbH was founded as a joint venture between the five
German pharmaceutical companies and the logistical services provider Pharmlog.
Activities
Today, pharma-mall provides an integration hub that interconnects the sales systems
of associated pharmaceutical companies with the manifold ERP or procurement systems of hospitals and pharmacies. By integrating the various backend systems,
pharma-mall supports the entire supply process, including ordering, confirmation and
accounting. A pharmacy, for instance, is able to choose the article needed in its ERP
system and directly transfer an order to the manufacturers sales system. When the order passes through pharma-mall, a confirmation is generated automatically.
Judged by the usage of this platform, pharma-mall does meet some of the needs of
pharmaceutical companies and their customers. According to Mr. Windel, about 220
customer systems have been linked to pharma-mall so far. Today, around one third of
the purchases by hospital clients connected are channelled through the platform.
Connecting to pharma-mall enables both pharmaceutical producers and their customers to optimize processes. For hospitals and pharmacies it is even free of charge. Mr.
Windel points out different ways in which processes may be optimised:
Time savings and error reduction: In conventional procurement processes,

orders have to pass through several systems, which are often not even connected electronically. By connecting ERP systems via pharma-mall, orders can
be transferred digitally without media breaks, which makes the entire order
process faster and safer.
Planning reliability: If an order reaches pharma-mall, a confirmation is generated and delivered automatically. Compared to conventional processes, where
often a telephone call was required to check the order status, the transparency
of the order process is improved.
Optimization of logistical processes: The system is directly connected to

Pharmlog, the joint distribution centre of the pharmaceutical manufacturers. If
customers demand it, orders can be collected by pharma-mall and delivered together to reduce logistical costs.
However, whether and how these potential gains are realised, adds Mr. Windel, depends on the companies individual process management and organisation.
Pharmaceutical producers may profit in two ways: by streamlining processes and by
improving customer loyalty. At Merck, e.g. the sales and logistics department processes around 1,500 order positions per day, Mr. Knig knows. Around 37% of sales
volume within pharmacies and hospitals are processed via pharma-mall. At this level,
the company needed about half a full-time employee less after automating order acceptance. In addition, there was a significant reduction in complaints, since the errorprone manual transfer of orders from the order to the sales system became obsolete.
Mr. Knig estimates the savings potential at Merck for a full implementation of the project, i.e. for processing the entire direct sales volume via pharma-mall at about 1.5
full-time employees. To get closer to these savings, it is necessary to connect as many
customers as possible. In order to integrate also e-business averse clients who still
23
July 2005
order via fax, pharma-mall has started to implement a text-scanning system. This system scans faxes, recognizes the order data and forwards it in digital form to the pharmaceutical companies.
In general, Mr. Knig considers a main success factor for pharma-mall to be the frequent reassessment of the e-business goals, current practices and necessities of both
pharmaceutical companies and their customers. In this way, the business activities of
pharma-mall can be continuously adjusted to changing requirements. For example,
pharma-mall had originally concentrated on providing a webshop system similar to a
shopping mall in real life. However, it turned out that customers had a greater need for
the connection of ERP systems, while the webshop system was not used very much.
According to Mr. Windel, there are three main factors behind the success of the project:
Business approach of pharma-mall: The needs of the customers are central

in the pharma-mall model and this focus is not diluted by other business interests. Services have to be provided at minimal costs, explained Mr. Windel. In
this regard, we are a cost - not a profit center. Moreover, the close ties with
manufacturers help pharma-mall both to understand the needs of the pharmaceutical companies and to be considered as a serious partner.
Technical approach as data clearing center: Customers connected to

pharma-mall can continue to use their own systems. Therefore, processes and
technical systems do not have to change significantly. Data remains in the ownership of buyers. This facilitates the adoption of e-business technologies.
Provision of added services: Pharma-mall understands itself as an ebusiness enabler that offers technical services as well as consulting and training
in order to promote procurement activities over the platform. In addition pharmamall also offers services for buying from suppliers not connected to the platform.
This helps to intensify customer relationships and further sharpen the profile as
a competent partner.
Lessons learned
B2B Internet trading platforms, which provide process support by interconnecting ERP
systems have often been neglected in discussions about e-marketplaces in the past.
Such systems do not provide an increase in price transparency often discussed as a
main advantage of e-marketplaces. Rather, they decrease processing costs, so that
both pharmaceutical manufacturers and their customers can profit.
In general, the case study demonstrates that the continuous adjustment of e-business
strategies to the changing needs of clients is an important success factor for the establishment of B2B platform services. Furthermore, to exploit the full potential of such services, the integration of e-business-averse clients is important. The provision of added
services, such as fax-scanning or consulting services, which help customers to overcome e-business barriers, seems to be a promising strategy.
This case study was conducted by Berlecon Research GmbH (info@berlecon.de) on behalf of
the e-Business W@tch.
References:
Interview with Mr. Christoph Windel, CEO of pharma-mall GmbH, 19.01.2005.
Interview with Dr. Rolf Knig, Sales and Logistics Manger at Merck Pharma GmbH,
13.02.2005.
Website: www.pharma-mall.de
July 2005
24
A further example for a user-driven B2B trading network is shown in the following business
example on Diagdirect. With this trading network the suppliers of research-based pharmaceutical companies have initiated an Internet service that supports the ordering process of
their consumers by providing them with an interface to a single aggregated catalogue.
Business example:
Diagdirect: a B2B Internet trading network for in-vitro diagnosis

The Internet platform Diagdirect (www.diagdirect.com) has been initiated, financed and managed by suppliers of laboratories active in the field of in-vitro
diagnostics (e.g. ABX, Abbott and Sebia). The central purpose of Diagdirect is
the aggregation of online supplier catalogues to support the laboratories ordering process. In this way, suppliers can improve customer loyalty by facilitating
their ordering process and at the same benefit from savings in process costs.
Laboratories can use Diagdirect free of charge. They may benefit from the platform offer in several ways. The ordering process is simplified by the aggregation
of supplier offers on one single Internet platform. However, a comparison of
prices is not supported by Diagdirect, as the aim is not to provide buyers with
the cheapest possible product but to facilitate the ordering process. Added functions like order tracking or contract management further facilitate the management of many orders. Finally, as orders are transmitted electronically, the shipment can take place sooner, which again increases customer satisfaction.
In 2004, the platform processed around 1,200 orders per month from about 800
suppliers. That accounts for about 5% of the sales volume by private laboratories in this field.
Source: Case study SFRL: Diagdirect supply chain management for in-vitro diagnosis conducted by Marc Sahraoui (Devise) on behalf of the e-Business
W@tch, January 2005.
Sourcing service providers

The focus of sourcing service providers is the support of the sourcing processes using technical tools as well as related services. This includes supporting the selection and qualification
of new suppliers, the negotiation of sourcing contracts or the analysis of sourcing processes.
In their role as suppliers of IT solutions they can also be regarded as ASPs (Application Service Providers), who operate the software and provide applications to associated users on
demand.
Sourcing services do not differ much across industries. Therefore, specialised offers for the
pharmaceutical sector are hard to find. However, pharmaceutical companies like Merck,
Aventis, GlaxoSmithKline or Bayer frequently appear on reference lists of well-known sourcing services providers like Portum or Freemarkets (today Ariba). Merck, for example, is a
reference client of Portum and in this capacity claims to have realised savings of up to 2535% by using Portums auctioning tools and services in negotiating framework contracts.16
While large companies like Merck might be able to achieve such savings due to their considerable purchasing power, this is different for SMEs, which are in a weaker position. This was
the starting point of pharmaplace, a collective sourcing initiative aiming to increase the purchasing power of medium-sized manufacturers of pharmaceuticals in Germany.
16
See case studies presented on the Portum website: www.portum.com (February 2005).
25
July 2005
C ASE S TUDY : P HARMAPLACE - A COLLECTIVE SOURCING

TIVE BY MEDIUM - SIZED PHARMACEUTICAL COMPANIES
INITIA-
Abstract
Pharmaplace is a sourcing and procurement services provider that focuses on the support of collective sourcing activities by medium-sized pharmaceutical companies. As
an outsourcing partner, pharmaplace takes over the negotiation of framework contracts. And by supplying technical tools, the platform supports the ordering, sourcing
and negotiation processes. This enables companies to order articles from a catalogue
platform and to use tendering and auctioning tools in their negotiation process. The
case study demonstrates challenges related to the adoption of e-business tools by
SMEs in the pharmaceutical industry.
Cologne. Germany
Primary customers
Medium-sized companies in the pharmaceutical industry and their suppliers
E-Business Focus
B2B Internet trading platforms
E-Procurement
E-Sourcing
= in implementation stage; = used in day-to-day business; = critical business function

Companies in the pharmaceutical industry are challenged by an increasing cost pressure. Small and medium-sized companies have the additional problem that they do not
have the market power to pass down the cost pressure to sub-contractors. This situation may worsen their competitiveness compared to larger players. In addition, medium-sized pharmaceutical companies usually do not have the same resources as
large ones to exploit the opportunities of e-business.
This was the motivation for a collective sourcing project initiated by the German pharmaceutical industry organisation BPI (Bundesverband der Pharmazeutischen Industrie
e.V.) in 1999. The aim of the project was the establishment of a co-operation of 30 medium-sized manufacturers of pharmaceuticals in the field of sourcing and procurement.
By aggregating the sourcing volumes of several companies the co-operation was supposed to provide better terms and conditions. Furthermore, it wanted to facilitate the
use of e-business technologies to intensify collaboration among medium-sized companies in this sector. By these means, the idea was that the competitiveness of mediumsized enterprises in the pharmaceutical industry should be improved.
After a successful testing of this business approach, the pharmaplace AG was founded
in 2000. Owners of pharmaplace are the BPI Service GmbH a subsidiary of BPI ,
nine manufacturers of pharmaceuticals and two technology providers. Pharmaplace
has a central position within the sourcing co-operation by providing both services and
technical tools to support the sourcing and procurement processes of the associated
companies. According to the Purchasing and Sales Director at pharmaplace, Mr. Walkling, more than 50 medium-sized pharmaceutical companies employing between 20
and 1000 people are associated with pharmaplace.
July 2005
26
Activities
Pharmaplaces core business is the management of collective sourcing activities.
Based on the pooled purchasing power of the associated companies, pharmaplace negotiates framework contracts. In addition, pharmaplace offers added services such as
conducting benchmark studies. These enable companies to evaluate their procurement
and sales activities in comparison with enterprises of similar size and focus.
In addition to these services, pharmaplace provides a technical platform with several ebusiness tools:
Online Catalogues: Companies can order indirect goods, e.g. MRO (Maintenance, Repair and Operation) goods or office equipment, directly from one aggregated catalogue on the platform. Today, more than 20 suppliers for which
usually framework contracts exist have their product catalogues integrated
into pharmaplace.
E-sourcing tools: Pharmaplace offers tools that help to run and analyse tenders and online auctions. These tools are also appropriate for supporting collective sourcing decisions. An advantage of software solutions being installed centrally is that the associated companies have to pay pharmaplace only for the actual use but do not have to spend money for the deployment of the solutions.
While the technical tools make pharmaplace an Internet trading platform, the main reason for companies to participate in pharmaplace are the services provided. According
to Mr. Walkling, the pharmaplace customers first of all want to achieve better prices as
a result of pharmaplaces sourcing activities. This is also confirmed by Mr. Reeg, procurement manager at Engelhard Arzneimittel, a German manufacturer of pharmaceuticals with about 200 employees. For him, the main benefits of pharmaplace are better
purchasing conditions resulting from the negotiated framework contracts. He regards
the exchange of knowledge with other companies using the platform, and the benchmark studies provided, as further benefits.
In contrast to the pharmaplace services, the technical tools provided on the platform
turned out to be less popular than expected. According to Mr. Walkling, there is virtually
no demand for the sourcing tools. Only online catalogues are frequently used by the
pharmaplace members. Mr. Walkling explains this outcome by reference to the specific
characteristics of medium-sized companies, particularly their limited size and low procurement volume. This is also confirmed by Mr. Reeg: At Engelhard Arzneimittel there
are three people responsible for sourcing and procurement. Thus, the saving potentials
from using e-business tools to streamline procurement processes are much smaller
than for large players that have to manage complex procurement processes. This
does not, however, mean that there are no savings possible at all. In fact, significant
cost savings could be achieved by outsourcing contract negotiation and management
of indirect goods to pharmaplace.
As an additional barrier for the use of online sourcing tools it turned out that streamlining processes with the help of e-business tools usually requires a reorganisation of
conventional processes and, thus, places additional challenges on the company management. Mr Walkling explains this in the case of desktop purchasing: whereas in
conventional procurement processes the ordering of goods is centrally organised,
online catalogues allow individual departments to order directly from their desktops.
Desktop purchasing, therefore, requires the reassignment of responsibilities from the
procurement management to individual company departments and, consequently, new
workflows and control mechanisms have to be defined. This necessary reorganisation
of processes often needs more effort and time than expected.
27
July 2005
An additional reason for the reluctance to use online auctions is the small buying volumes of SMEs in the pharmaceutical industry. A collective buying tool currently under
development by pharmaplace seems to be more promising. The software system will
support collective buying processes in order to obtain volume discounts from suppliers.
Mr Walkling adds, however: it is still challenging to achieve enough synergies that
make this offer economic.
Lessons learned
The case study provides insights into the current use of e-business tools by mediumsized companies in the pharmaceutical industry today. It emerges, that their e-business
strategies are more influenced by cost and benefit considerations than by visionary
ideas. The experiences of pharmaplace confirm that e-business technologies that are
efficient tools in the hands of large players need not be suited for the specific characteristics of small and medium-sized enterprises. Many e-business solutions either exploit the economic advantages of large companies (e.g. sourcing tools to utilize the
purchasing power) or help to overcome their disadvantages (e.g. electronic tools to
speed up purchasing processes).
A further factor inhibiting the use of e-business tools is the necessary reorganisation of
company processes. Change management needs time and requires considerable effort
to redesign workflows, establish new control mechanisms and for convincing the employees involved.
Despite these obstacles, online catalogues as a complement to the contract services
provided are widely used by pharmaplace users. This shows that e-business aversion
by SMEs is not a sufficient explanation for differences in e-business tool use between
small and large companies.
This case study was conducted by Berlecon Research GmbH (info@berlecon.de) on
behalf of the e-Business W@tch.
References:
Interview with Georg Walkling, Purchasing and Sales Director at pharmaplace, 20.01.05
Interview with Mr. Reeg, Procurement manager at Engelhard Arzneimittel, 20.01.2005
Website: www.pharmaplace.de
July 2005
28
2.1.3 Conclusions
The analysis and particularly the case studies discussed in this chapter have shown that the
concept of B2B Internet trading platforms is well suited to reflect the current reality of B2B ebusiness. The cases studies demonstrate the use of different Internet trading platforms that
do not always have much in common with the original idea of e-markets. Nevertheless these
platforms meet the needs of companies for their B2B e-business activities.
Online directories, for example, do not provide a trading function and have therefore been
discussed mainly as a side-product of e-marketplaces, if at all. However, as the Marmosa
case has shown, there is demand for industry directories to help in the establishment of new
business contacts and to enhance the companies reach to customers. This holds particularly
for SMEs, which do not have a large distribution network or own subsidiaries in different regions. In contrast to conventional e-marketplaces, which have been intensively analysed and
evaluated, the research interest in supplier or product directories has been rather low so far.
Consequently, such directories are not well-covered by platforms on e-markets like eMarket
Services (www.emarketservices.com) or Line56 (www.line56.com). Selecting an appropriate
directory, therefore, turns out to be a major challenge for companies wanting to use these
services.
Integration platforms, like pharma-mall, hardly fit into the original e-marketplace model, as
price transparency often considered to be the main advantage of e-marketplaces does
not play a role in this business model. However, both the associated pharmaceutical companies and their customers obviously profit from this offer.
Pharmaplace, as a sourcing service provider, offers not only sourcing services but also additional related e-business tools. Whereas services are popular among the associated members, the use of e-sourcing tools has not lived up to expectations. Pharmaplace is, thus, representative of a number of other trading platforms of this type that switched from a more
technology-oriented to a more service-oriented business approach.
Moreover, the case studies on Marmosa and pharmaplace have shown that a lower use of ebusiness tools by SMEs is not necessarily due to high costs of technical equipment or due to
a general e-business aversion. The main barriers indicated by these case studies are the
costs associated with the reorganisation of processes and for the acquisition of necessary
knowledge. In addition, not all e-business tools are really useful for SMEs, as some specifically target larger companies.
29
July 2005
2.2
The use of CRM systems and mobile solutions for sell-side

activities
The pharmaceutical industry often serves as a prime example of the usefulness of specific
customer-facing IT- and e-business solutions, as customer relationships are important and
complex and as large sales forces need to be managed. In fact, Customer Relationship
Management (CRM) systems or mobile solutions as discussed in this section show significant potential for supporting marketing and sales activities in the pharmaceutical industry.
However, the analysis and case studies in the following paragraphs will also demonstrate
that their proper use and integration in company processes are key success factors for exploiting the potential of these systems. The implementation of state-of-the art technologies is
less important in comparison. The findings in this chapter should also be transferable to the
deployment and use of other enterprise solutions such as Enterprise Resource Planning
(ERP) or Supply Chain Management (SCM) systems.
2.2.1 The use of CRM systems in the pharmaceutical industry

The management of marketing and sales activities is challenging in this sector. There are
various intermediaries between pharmaceutical companies and end users, and all have
some influence on the success of marketing and sales activities. Wholesalers and distributors, for example, may serve as key entry points to the mass market. Pharmacies, drugstores
and physicians are, moreover, trusted partners of the end users and may thus indirectly affect their choice. Therefore, the establishment and maintenance of relationships with these
parties is a key priority in this sector.
In addition, efficient customer relationship management is increasingly important in the light
of an increasingly competitive market. In the past years, many pharmaceutical companies
reacted to this challenge by increasing marketing budgets and by extending their company
sales forces. In 2001, for example, the pharmaceutical enterprise Novartis spent about 35%
of its revenue on marketing activities. In the same year, around 16,700 people were employed in the Novartis sales force.17 Due to the rising cost pressure, the efficient use of these
resources has received increasing attention.18 Therefore the introduction and proper use of
IT and Internet-based technologies, particularly of CRM systems, as a basis for efficient customer relationship management is a key priority in many pharmaceutical companies today.
The term CRM (customer relationship management) solutions stands for integrated software
applications that help companies to collect and process information about customers.19 In
simple words, CRM systems may be used in a strategic, as well as in an operative, way to
target the right customer in the right way. By doing that, they can help to maintain and improve customer relationships. Moreover, CRM systems open ways to optimise the deployment of the field force and to streamline marketing and sales processes.
However, the fact that a pharmaceutical company has a CRM system installed does not
automatically lead to happy customers, increased sales volumes or market shares. Many
companies, not only in pharmaceuticals but also from other industries, had to go through this
experience in recent years, after they introduced expensive CRM systems without deriving
17
FAZ (2001): Novartis glnzt auf dem amerikanischen Markt, Article, 12.10.2001 (www.chemicalnewsflash.de).
18
See, e.g. eyeforpharma (2004): Industry experts say marketing ROI critical for the success in the pharmaceutical industry, Press Release, 12.01.2004 (www.eyeforpharma.com).
19
See the annex for a detailed explanation of CRM systems and possibilities for using them.
July 2005
30
the promised benefits. The way a CRM system is used is crucial. This is the key message of
the following case study concerning the implementation of a CRM system at EGIS Poland.
C ASE S TUDY : D EPLOYMENT

P OLAND
OF A NEW
CRM
SYSTEM AT
EGIS
Abstract
EGIS Poland is a subsidiary of EGIS Ltd, one of the leading manufacturers of pharmaceuticals in Eastern Europe. EGIS Poland focuses on marketing and sales activities for
EGIS and ANFARM (a Polish manufacturer of pharmaceuticals) products in Poland. In
2003, the company decided to deploy a new CRM system. The case study demonstrates
the challenges and success factors in planning, implementing and introducing the system. It emerged that the deployment of CRM systems is more of a management project
than an IT project.
Warsaw, Poland
250
Primary customers
Pharmacies and physicians as customers of pharmaceutical companies in Poland
E-Business Focus
Use of a CRM system
Mobile solutions
= in implementation stage; = used in day-to-day business; = critical business function

EGIS is one of the leading manufacturers of pharmaceuticals in Eastern Europe today.
The EGIS group is headquartered in Hungary and has about 20 subsidiaries all over
Eastern Europe. EGIS Poland Sp. z.o o., located in Warsaw, is one of them. EGIS Poland conducts sales and marketing for EGIS drugs in Poland. In addition, the company
also represents and distributes products of the Polish pharma company ANFARM. The
company employs about 250 people, 175 of them are representatives carrying out
sales promotion activities in the field.
Maintaining customer relationships is a key priority at EGIS Poland, and knowledge
about the customers is a key success factor in the competition with other distributors of
pharmaceuticals. Almost all companies active in the market deploy a large sales force
and have large budgets for carrying out marketing and sales activities explains
Katarzyna Stepien, CRM project manager at EGIS Poland and continues In order to
get an edge over the competitors in the emerging Polish market, we must use information about customers more efficiently than others. But the conventional CRM system
used by EGIS Poland turned out not to be appropriate for fulfilling this task. Functions
that enabled the sharing of customer information or the analysis of sales data were limited. In addition, the old system was out-of-date in terms of the programming language
and the structures deployed technically. Therefore, in 2003 the company decided to
implement a new CRM system.
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July 2005
Activities
From the beginning, EGIS Poland considered the implementation of the new CRM
system to be a management rather than an IT project. explained Anndrzej Geryk,
General Manager at EGIS Poland.
Selection of the project partner
The strong focus on management aspects was already clear when the technical provider was chosen. Three factors were decisive in this selection:
Functionality of the system: The new system had to provide all the features
needed for modern customer relationship management, including modules for
sharing and analyzing data.
Access to external information sources: The solution should provide access

to external databases with information about the Polish pharmaceutical market.
Experience and service orientation: The provider had to be experienced in

carrying out CRM projects, the offer should at best include added services that
help to realize best practices for both implementation and usage.
According to Mr. Geryk, nearly all solutions on the market provide the technical features needed. Two companies also offered access to databases with information about
the Polish pharmaceuticals market. The offer of Dendrite in co-operation with MDM
(Medical Data Management) Poland as project partner was successful, because this
team offered a large range of services to support the practical execution of the CRM
project.
The focus of project partner MDM is on databases with information about the pharmaceutical markets in Eastern Europe. Based on these data, related services for pharmaceutical marketing such as market research, training, consulting or mailing services are
offered. In 2004, MDM had been acquired by Dendrite, a US-based provider of CRM
systems for the life science industry. Now the company offers their services as Dendrite Poland. But already in 2003 MDM resold, implemented and supported CRM solutions from Dendrite.
Technical solution and challenges
For EGIS Poland two modules of Dendrites Webforce solution were installed:
Force Pharma: This is the core module of the CRM system. It enables the
sales force to collect, search and share information as well as to prepare simple
statistics.
Force Analyser: This module supports a detailed analysis of the success of

sales activities and, thus, serves as basis for preparing promotional campaigns
and sales force management.
Webforce is a client-server solution with a centralised database and applications. The

database contains data collected internally, but also integrates information provided by
MDM or other external information services. The sales force, which at EGIS is completely equipped with laptops, can access the system securely via the Internet using a
VPN (Virtual Private Network) connection. The business logic to manage the access
rights of users had been developed individually for the needs of EGIS Poland.
According to Adam Malicki, director of business development at Dendrite Poland and in
charge of the EGIS project, a major technical challenge was a configuration of the system suitable to meet requirements of the Polish market. Since EGIS Poland was the
first user of Dendrites CRM system in Poland, a polish baseline had to be created. A
solution that worked well in the USA or in the UK need not automatically work well in
July 2005
32
Poland. Therefore, templates for the profiling of physicians or the classification of sales
territories had to be adjusted.
Organisational challenges
The main challenge when implementing a CRM system is to achieve the acceptance of
the users, says CEO Mr. Geryk. The project management had to ensure that users interests were properly taken into account. Therefore, a project group was set up consisting of regional field force managers as well as of representatives of the company departments involved (e.g. marketing). In several meetings organised by MDM the project
group discussed issues of customisation to tailor the system to the needs of EGIS. Mr.
Malicki distinguishes three stages of the co-operation between the project team and the
various stake holders:
Scoping, i.e. the discussion of general questions in order to define the features
required;
Documentation, i.e. keeping the stake holders informed about the current implementations steps;
Pilot; i.e. discussion of corrections and reconfigurations based on first experiences with the system.
To further increase acceptance, various activities were undertaken to communicate the

advantages of the new system. We had to make clear that the system is more than
just a new reporting system, explained Mr. Geryk. In addition, these activities had to
help reducing fears associated with the implementation of the new CRM solution. CRM
manager Mrs. Stepien explained that some of the representatives, for example, were
simply afraid of sharing information via the system because they feared that their position within the company could deteriorate. Informational meetings were organised
training programs were set up, and even a specific newsletter was published that continuously informed the representatives about the current state of the project and promoted the advantages of the new system.
Today, the CRM system enables the sales force to conduct better and more qualified
sales talks. In addition, marketing campaigns and promotional events can be better
targeted than before the systems introduction. Mrs. Stepien admitted, however, that after just two years of implementing the new CRM system, measurable effects could not
yet be reported. In general, she considers the introduction of the CRM-system to be a
rather long-term project: We still have to educate representatives about the efficient
use of the technical features provided. At the same time, extensions to the system are
planned, e.g. by enabling wireless access for representatives by means of a mobile solution.
Lessons learned
The implementation of the new CRM system at EGIS is a best practice example. The
experiences of the EGIS managers with this system can be summarized in three key
messages:
The deployment of a CRM system is primarily a management and not an IT

project. The managers in charge of the project at EGIS are convinced that
technical implementation alone does not provide a competitive advantage. The
successful deployment of CRM solutions requires changes in processes and,
therefore needs top management support. The EGIS case has demonstrated
that even the choice of technical providers may depend on added services offered that support the efficient use of the system.
33
July 2005
Involving users in order to gain their acceptance is a key success factor:

EGIS Poland spent quite a lot of effort on communicating the project and on
convincing users of the advantages of the system. Such systems can only provide the envisaged benefits if they are properly used by all sales and marketing
personnel. This need makes this type of applications more difficult to introduce
than software which is only used by a few people.
Implementing a CRM system is a long-term project: Companies have to get

used to the system and have to learn how to use it efficiently. A step-by-step introduction and customizations may support this learning best, but makes the
implementation a long-term project. Even when the system is installed, the case
study suggests that the training of employees will have to continue for quite a
while.

This case study was conducted by Berlecon Research (info@berlecon.de) on behalf of the eBusiness W@tch.
References:
Interview with Anndrzej Geryk, General Manager at EGIS Poland, 28.01. 2005.
Interview with Katarzyna Stepien, CRM Manager at EGIS Poland, 25.01.2005.
Interview with Adam Malicki, Director Business Development at Dendrite Poland, 21.01.
2005.
Websites:
EGIS Ltd.: www.egis.hu
EGIS Poland: www.egis.pl
Dendrite: www.dendrite.com
MDM/Dendrite Poland: www.dendrite.pl
Similar experiences by another Polish pharmaceutical company are reported in the following
business example. It shows the reasonably typical situation that enterprises need to optimize
their IT systems and processes in several areas at once to obtain the full benefits of IT and
e-business systems.
July 2005
34
Business example:
E-business activities supporting marketing and sales at UCB

Pharma Poland
UCB Pharma Sp. z o.o., Warsaw, is a subsidiary of the UCB Pharma Group, a
pharmaceutical multinational headquartered in Belgium. Focused on marketing
and sales of the groups drugs in the Polish market, the division has over 100
employees and a sales representatives network covering the whole country.
Facing competitive pressures on the national market, the management of the
Polish unit wanted to improve their firms performance through e-business solutions. In 1999 it decided to implement simultaneously a system supporting the
management of internal business processes, sales representative reporting and
assessment tools, market analysis and reporting tools as well as warehouse
management system.
The focus was on the optimisation of sales force activities. Therefore, a software solution by IMS Health Ltd. was chosen to better measure effectiveness
and productivity of the companys sales representatives. In addition, the company licensed pharmaceutical modules and a related data service (providing information about the Polish pharmaceutical market) from Medical Data Management (MDM) Poland / Dendrite Ltd. This solution was purchased to structure, integrate, and manage data across the entire enterprise and to perform
accurate analyses of customers and market trends.
However, optimizing sales required not only a more effective sales force but
also improved stock management and an integration of the respective systems.
To ensure that client orders are processed quickly and accurately and that the
financial management of the company runs smoothly, UCB Pharma Poland implemented an integrated management system developed by the local company Comarch SA. At the same time, KS-Hurt, a warehouse management stock
management system was put in place to manage the companys orders, stock
and logistics.
In general, the solutions implemented had a positive effect. Key benefits include
the improvement of organisational performance as a whole, a better recognition
of the market and consumer behaviour, as well as increased customer satisfaction by responding and processing orders quickly.
Source: Case study Integrated Management System and Enterprise Resource
Planning at UCB Pharma, Warsaw, Poland, conducted by Aneta Herrenschmidt-Moller on behalf of the e-Business W@tch. The case study is based on
interviews with Maciej Bogucki, General Manager and Marcin Grochoswki, IT
Manager in UCB Pharma Poland (January 2005).
2.2.2 Mobile solutions for sales force optimisation

Mobile solutions have the potential to become like CRM systems a key application in the
pharmaceutical industry. Many pharmaceutical companies have a large sales force that
spends most of the time with the customers. Connecting them to the companies IT systems
promises efficiency gains and better informed sales representatives. However, the term mobile solution can be interpreted in different ways, which sometimes causes confusion. On
the one hand, mobile solutions are more than connecting sales representatives laptops via a
secured Internet connection to the companys IT infrastructure. On the other hand, while
transmission of data via mobile networks is an integral part of many mobile solutions, the
35
July 2005
mobile network is less important than the discussion sometimes suggests. Therefore, the first
part of this chapter briefly explains the concept.20
Components of Mobile Solutions
A mobile solution for connecting fieldworkers to the companys IT typically consists of three
major parts: mobile devices, interfaces for the transmission of data, and mobile software.
Mobile devices: Many pharmaceutical companies (e.g. Queisser Pharma, see business example) have started early to endow their sales force with mobile devices.
Typical mobile devices used by pharmaceutical representatives today are mobile
phones, PDAs (Personal Digital Assistants) and notebook computers.
Interfaces for the direct or indirect transmission of data from the mobile device
to the companys computer system: Most mobile solutions, such as the one presented in the business example on Queisser Pharma, do not require a permanent
wireless connection to the company network. Rather, mobile devices are equipped
with fat clients, i.e. smart applications and databases, which have all the features
needed to be functional offline.
Mobile software: The mobile software, which typically consists of a mobile middleware server installed in the company and of software installed on the devices, is the
key component of mobile solutions, particularly of those supporting specific processes. The software must integrate mobile devices, specific applications and databases installed in the company backend, as well as data transmission technologies
into one complete solution.
In general, sales force processes can be optimised with mobile solutions in three ways by
Reducing redundant process steps through direct transfer of field data to the central computers systems;
Increased information quality through avoidance of media breaks and by
Enabling access to time and location-critical data.
Several usage scenarios for mobile solutions exist. Many of them are of particular interest to
pharmaceutical companies, which usually employ large sales forces with many representatives spending a large part of their time on the road and in discussions with clients:
20
Mobile E-Mail: With the opportunity to send and receive e-mails on-site and in real
time, the information flow between company and sales force can be improved. On email requests by customers, for example, representatives can react immediately.
Mobile PIM (Personal Information Management) and Sales Force Management:

Mobile updating of contact and calendar information can optimise time and contact
management of the sales force. New sales meetings, for examples, can be arranged
through company headquarters and sales representative at the same time, since both
have access to an updated calendar. For sales forces that are centrally managed,
such solutions can make the visit to sales headquarters to access the daily contact
and meeting list redundant.
Mobile CRM: Mobile solutions can be used to access the CRM system for recording
and retrieving customer data on-site. Using this type of application, pharmaceutical
representatives can carry out better and more-qualified sales talks. In addition, by recording client data in real time and without media breaks, the quality of the CRM database can be improved.
See the annex for an elaborated discussion of technical components and usage potentials of mobile solutions.
July 2005
36
Mobile stock recording: As shown in the business example on Queisser Pharma,

the recording of product stocks at pharmaceutical retailers may also be the job of the
sales force in the pharmaceutical industry. This process can be speeded up and
made less error-prone by employing a mobile solution.
Mobile solutions are often a combination of the functions listed above. The following business example demonstrates such a combined use of mobile solutions.
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July 2005
Business example:
Sales force optimisation by a mobile solution at Queisser Pharma

Queisser Pharma, known from its brand Doppelherz, is a medium-sized German pharmaceutical company founded in 1897. Main customers of Queisser Pharma are both retail chains, where Queisser products are listed, and pharmacies that decide independently about the products offered over the counter.
About 30 employees of Queisser Pharma belong to the sales force in the field and work
in retail chains as well as independent pharmacies. In retail chains, Queissers products
are listed, so the sales force primarily has to make sure that the shelves are always filled.
The situation is different with pharmacies: since their owners decide independently how
many and which products they order, Queissers sales force actually has to sell products
to them.
Since 1992 Queisser Pharma has used mobile devices for the collection of data on-site,
mainly for collecting the actual stocks of goods. In recent years, however, sales, consulting and promotion have gained importance, as has the need for a streamlined information-flow between company and field force. In order to prepare sales talks, for example,
representatives need up-to-date information about customer history and current market
developments. The original mobile data collection system could not be extended to meet
these requirements. Therefore, in 2001 the company engaged the technology provider
GML to install a modern integrated mobile solution.
The solution had to meet two major requirements:
Easy handling of the devices: The Queisser management identified acceptance and
proper use of the solution by representatives as the main success factor of the project.
Therefore, the mobile devices really had to facilitate the work of the sales force, otherwise
they would not use them. Therefore it was planned to facilitate collection of data with addon barcode scanners. Moreover, applications installed on the devices had to be optimally
adjusted to the workflow of the representatives. Finally, PIM (Personal Information Management) tools installed on the devices were supposed to raise the attractiveness of
the mobile solution further.
Optimal information flow between company and sales representatives: In the conventional workflow, sales reports, for example, had often been written in an extensive and
unstructured form and submitted via fax. To alter this, the solution had to support the
structured recording of data and delivery to the company without media breaks. This way,
the recording and analysis of data should be facilitated. Moreover, a remote synchronisation of sales and order data should speed up the information flow.
GML succeeded in meeting these requirements by installing a classic mobile infrastructure at Queisser Pharma. PDAs (with access to mobile phone networks) are used as mobile devices that contain applications as well as the data needed by the sales force. A
mobile middleware at the headquarters manages information exchange between company backend and mobile clients. It manages a weekly synchronisation of basic customer
data between the companys ERP (Enterprise Resource Planning) system and the data
installed on the mobile clients. In addition, sales representatives in the field can update
information on demand, either via a secured fixed line Internet connection or by wireless
connection via a mobile phone network.
According to Queissers management, the solution has significantly accelerated the company workflow. Queisser products are reaching the shelves of the clients one day earlier
than before. But most of the positive results of the project which cost about 40,000 euros, including software, hardware and training are not easily measurable. Most important, representatives accepted the solution and use it to conduct better and more qualified
sales talks. Moreover, the up-to-date information from the field supports the key account
in its communication with the Queisser clients, especially with the management of the retail chains.
Source: Berlecon Research (2004): Prozesse optimieren mit Mobile Solutions, Report,
March 2004.
July 2005
38
As mentioned above and illustrated in the case study, the introduction of a mobile solution is
a typical IT project. A mobile middleware that manages the exchange and synchronisation of
data is the key element. Thus, challenges are similar to those of other IT-related projects,
including the choice of appropriate technical components and integration tools or the provision of adequate security. However, in the business example discussed here as well as in
other case studies,1 it has turned out that the most important challenges are management
and organisational issues, in particular the acceptance of these solutions by the sales force.
The design of the solution may be an important contributor to user acceptance. Queisser
Pharma, for example, made easy handling of the devices a key requirement. The employees,
in fact, have a decisive influence on the success on the IT investments. Is a solution not accepted, employees will not (fully) use it. This message supported also by other case studies (see e.g. the Egis Poland case) holds true not only for mobile solutions but also for IT
solutions in other areas.
1.1.1 Conclusions
IT and Internet-based solutions play a key role in the support of marketing and sales processes in the pharmaceutical industry. In fact, CRM systems and mobile solutions as discussed in this chapter show quite a lot of potential for streamlining company processes on
the sell-side and for facilitating the management and work of the pharmaceutical sales force.
The key message of this chapter, however, is that its realisation requires more than just the
pure implementation of a CRM system or the pure provision of wireless remote access to the
sales force. Acceptance of the solution by users emerged as a key success factor. As case
studies and business examples have shown, the companies have many possible ways of
increasing user acceptance, including adequate and workflow-compatible design, integration
of stakeholders in the decision-making process, as well as education and training measures.
Such measures to achieve the optimal usage of solutions are often more important than the
technical details of the IT solutions.
21
See, for example, case studies in the report Prozesse optimieren mit Mobile Solutions by Berlecon Research, March 2004.
39
July 2005
2.3
RFID-based solutions in the pharmaceutical industry
The pharmaceutical industry often serves as a prime example of the usefulness of RFID
(Radio Frequency Identification) solutions today, particularly where tracking and tracing solutions along the supply chain are concerned. In the current discussion of this issue, large
numbers are circulating for the estimated economic benefit and market value of RFID adoption in the pharmaceutical industry. According to a report published by the U.S. Healthcare
Distribution Management Association (HDMA), for example, the economic benefits of socalled EPC/RFID22 solutions for manufacturers of pharmaceuticals are between $ 500 million
and $ 1 billion annually.23 The consulting company Capgemini reported a multi-billion dollar
impact of radio frequency identification adoption for the pharmaceutical industry.24
In order to evaluate the value proposition of RFID-based solutions for this sector, it is necessary to understand the idea behind the use of RFID for tracking and tracing products along
the supply chain. In fact, RFID is only one element of the more comprehensive RFID/Auto-ID
concept for IT-based tracking and tracing of products. The idea behind this approach as well
as the role of RFID within this model will be presented in section 2.3.1. Based on it, section
2.3.2 discusses possible applications and key drivers for RFID/Auto-ID solutions in the
pharmaceutical industry. Finally, section 2.3.3 will analyse challenges in this field and possible deployment scenarios.
As will be seen, RFID in the pharmaceutical industry is still at an early stage, and has only
been introduced in some pilot projects so far. However, the early pilots as well as the ongoing preparatory work illustrate very well the challenges and opportunities of such complex IT
and e-business systems in the pharmaceutical industry.
2.3.1 Basic concept and the role of RFID

Tracking and tracing: A basic model
At first glance, the idea behind an IT-based tracking and tracing of products along the supply
chain is quite simple. Three basic components are needed:
Auto-ID, i.e. a product code that allows for a unique identification of the product. In
contrast to product identification standards (e.g. a code identifying a box of aspirin)
deployed today, the code should by able to identify the product on item level (this
specific box of aspirin).
Identification technology that allows reading the product code automatically while
passing through the supply chain. Popular identification systems are the barcode and
RFID (Radio Frequency Identification) technology.
Central information services that combine the product code with product-related information necessary for carrying out tracking and tracing services.
By combining these three components, an information network can be established that works
as follows: The products get uniquely coded at the point of manufacture. The code and additional information (e.g. producer, date of production/expiry, price etc.) are sent to the central
22
RFID/EPC solutions use the RFID technology for identifying products labelled by Electronic Product Code
(EPCs). Instead of EPC one may also use the more general term Auto-ID.
23
Accenture / HDMA (2004): Annual Economic Benefits of EPC/RFID Total $1.8 Billion for Pharmaceutical
Manufacturers, Distributors HDMA Healthcare Foundation Report Quantifies Costs and Benefits of Adoption.,
Press Release, 03.11.2004 (www.accenture.com).
24
Capgemini (2003): Capgemini Finds Multi-Billion Dollar Impact Of Radio Frequency Identification Adoption
For The Pharmaceutical Industry, Press Release, 11.12. 2003 (www.capgemini.com).
July 2005
40
information service. On the way along the supply chain, the product passes different checkpoints, where the unique code is identified and the information service is notified. This way,
the information service receives all the information necessary for tracking and tracing the
products. By combining it, the product can be authenticated at the checkpoint just by
checking whether the unique codes at the checkpoint comply with those submitted by the
manufacturer and by checking whether a product can actually be where it is given its track
record. Moreover, an electronic pedigree can be generated describing the journey of the
product from the manufacturer to the point of dispensing.
RFID versus barcodes
In general, this model also works with the conventional barcode technology, which is deployed as product identification technology by more than 1 million companies in more than
140 countries across more than 23 industries today.25 However, compared with barcode
technology, RFID has some advantages. The RFID technology basically consists of two
components: tags and readers. RFID tags also called transponders consist of a microchip attached to an antenna and work as data carriers. They are fixed to the product and
contain the information to be transferred. Based on radio frequency transmission the readers
are able to communicate with the tag and read the data. On certain tag types they can also
add information to the tag. The main advantage of RFID is its greater suitability for the identification of products on item level also called mass serialisation. Essential for this are the
following two characteristics:
No line-of-sight: Whereas barcode scanners need line-of-sight in order to identify the

information on the labels, RFID readers can even read information from tags that are
hidden or embedded in items.
Simultaneous identification: RFID is able to read several items simultaneously. This

means that different items within a package or a container can be checked at once.
It is due to these characteristics that RFID is often considered as the key that makes tracking
and tracing of products on item level viable. Manual work drops out nearly completely and
the time for identification can be reduced significantly. In addition, information on RFID tags
can be read through dirty packaging or other materials. Finally, compared to barcodes, RFID
tags are more difficult to replicate, e.g. by drug counterfeiters. This characteristic makes
them particularly suited for combating counterfeiting, which is a key issue in the pharmaceutical industry today.
RFID/Auto-ID application areas in the pharmaceutical industry
The deployment of the RFID technology in the basic model described above is referred to as
the RFID/Auto-ID approach. Tracking and tracing solutions based on the RFID/Auto-ID approach are able to solve various key problems for the pharmaceutical industry. Combating
counterfeiting is discussed as an important reason for the deployment of RFID/Auto-ID solutions. As indicated by the WHO26 definition (see following box), counterfeiting encompasses
various kinds of fraud. Besides tampering with the products themselves, packaging may also
be faked in order, for instance, to sell products after their expiry dates, to facilitate reimbursement fraud or in order to resell products from low-cost to high-cost regions.
25
See EPCglobal (FAQ):Will EPC tags replace bar codes, www.epcglobal.org (February 2005).
26
World Heath Organisation.

41
July 2005
Definition and evidence of counterfeiting

The WHO defines counterfeiting as follows:
A counterfeit medicine is one which is deliberately and fraudulently mislabelled
with respect to identity and/or source. Counterfeiting can apply to both branded
and generic products and counterfeit products may include products with the
correct ingredients or with the wrong ingredients, without active ingredients, with
insufficient active ingredients or with fake packaging.
Evidence for worldwide counterfeiting activities has been listed on the HDMA
News Media Factsheet Pharmaceutical Product Tampering. The list is based
on publicly available resources. The following three examples are only an excerpt:
Counterfeiting worldwide: According to the WHO, 5-8% of the worldwide
trade in pharmaceuticals is counterfeit (Security Management, 09.01.01).
Counterfeiting in Spain: The department of Health and Consumption in Spain
has announced that 200 counterfeit pharmaceuticals have been identified in the
local market. (World Markets Research Centre Daily Analysis, 11.06.02)
Counterfeiting in Nigeria: Approximately 20% of drugs sold in Nigeria are
counterfeit (IFPW Focus, 13.06.02)
Sources: Websites by
HDMA News Media Factsheet: www.healthcareorganisation.org

(20.02.2005); and
WHO: www.who.int (20.02.2005).
Counterfeiting affects both patient safety and the economic interests of the companies in the
pharmaceutical sector. RFID/Auto-ID solutions can serve as efficient tools for combating
counterfeiting activities. In its report on Combating Counterfeit Drugs the US Food and
Drug Administration (FDA) concluded that RFID tagging appeared to be the most promising
approach to reliable product tracking and tracing.27 This recommendation by the FDA in
early 2004 has significantly stimulated the discussion about the usefulness of RFID/Auto-ID
solutions in the pharmaceutical industry during the last year.
Counterfeiting is not, however, the only motivation for the deployment of RFID. It is, in fact,
the large range of possible usage scenarios that makes the RFID/Auto-ID model interesting
for the pharmaceutical industry. Further important areas of application are:
Return management: In case of product recalls, for example, pharmaceutical companies may be able to respond more efficiently and quickly by identifying recalled
products within the supply chain. But return management does not only encompass
product recalls: it also includes other activities such as the return of expired drugs.
Supply chain optimisation: Along with an improved visibility, RFID/Auto-ID solutions

may help to streamline supply chain processes. This can also be in the interest of
wholesalers and retailers. The US retail chain Wal-Mart, for example, has asked its
suppliers including many manufacturers of pharmaceuticals and cosmetics to tag
pallets and cases by the end of 2006.28
Patient safety: The deployment of RFID tags may help to prevent medication errors
at the point of dispensing (see also business example about the Aegate pilot below).
27
FDA (2004): Combating Counterfeit Drugs, Report, February 2004.
28
RFID Journal (2003): Wal-Mart expands RFID mandate, Article, 18.08.2003 (www.rfidjournal.de).
July 2005
42
Solutions that combine RFID-tagged drugs and patient identification, in order to avoid
medication errors in hospitals, are also being discussed.
Product control: RFID/Auto-ID solutions can support the control of products while
passing through the supply chain. Environmental information like temperature or humidity can be recorded at the control points and transferred to the information service,
so that expiration dates can be adjusted accordingly.
Regulatory compliance: With the aim of combating counterfeiting, several political

initiatives endorsing the pedigree requirements for the supply of pharmaceuticals
are on the way. Often cited examples are Floridas pedigree law and the Bollini law in
Italy (see box below). Recording and filing data in order to comply with these laws
constitute new challenges for pharmaceutical companies especially smaller ones.
RFID/Auto-ID could help in establishing electronic pedigrees and thus facilitate the
feasible fulfilment of these requirements.
.
Two initiatives endorsing the pedigree requirements
Florida pedigree law: Before drugs are purchased within the country, Florida requires pedigrees with signatures verifying the name, address and date of all
prior sales tracing back to the manufacturer.
Bollini Law in Italy: The law requires the application of a special sticker containing a serial number and bar code to each (drug) unit of sale. It further requires
all parties within the supply chain to record and archive each serial number.
Sources:
MIT Auto-ID Center (2003): Securing the Pharmaceutical Supply

Chain, White Paper, 2003;
ASCET (2004): RFID: The Pharmaceutical Supply Chains Newest

Remedy, Vol. 6, 15.06.2004, (www.ascet.com).
Summarizing, RFID/Auto-ID for tracking and tracing of products along the supply chain offers
a large range of applications that address important challenges for the pharmaceutical industry today. Besides producers of pharmaceuticals, wholesalers, pharmacies and, in particular,
patients would also benefit. However, the development of RFID/Auto-ID solutions for the
pharmaceutical industry is still in the early stages. Even though the basic idea behind this
concept sounds simple, many critical problems need to be solved before RFID/Auto-ID solutions become mature tools and before the potential benefits can be realized.
2.3.2 Challenges in establishing RFID/Auto-ID solutions

Implementing an industry-wide RFID/Auto-ID network is predominantly an issue of standardisation. Harmonising single components into one integrated solution is crucial to minimise
investment risks and exploit economies of scale. A harmonised approach would both accelerate the development of components by technology providers and facilitate the deployment
by the users. Today, the most promising approach in this field is the so-called EPCglobal
network. The idea behind it and the main challenges related to its establishment will be discussed in the first part of this chapter. The second part will focus on further critical issues
related to the establishment of RFID/Auto-ID networks in the pharmaceutical industry. The
third part discusses a deployment scenario in this sector that has been tested in the UK.
EPCglobal network
In 2003, EPCglobal was founded as a joint venture of the European and US standards organisations EAN (European Article Numbering) International and UCC (Universal Code
Council). These organisations are behind the article numbers printed as bar codes on most
consumer products worldwide, they have a strong position especially in the consumer pack43
July 2005
aged goods (CPG) industry and in retail. Their collaboration at EPCglobal aims to encourage
the adoption of the EPCglobal network, by both specifying standards for a harmonised approach and promoting its deployment as a commercial system. Today, EPCglobal supported by major technology providers and industry players is the main driver of RFID-based
solutions.
The EPCglobal network tries to implement the basic RFID/Auto-ID model described in section 2.3.1. Its development goes back to the work of the Auto-ID Centre, a research project
headquartered at the Massachusetts Institute of Technology (MIT).
While EPCglobals system looks promising in theory, its realisation even more so on the
global scale reflecting the markets of many pharmaceutical companies is a rather complex
undertaking. EPCglobal has to deal with the large range of specifications and standardisations needed and in doing so has to consider the heterogeneous interests of the different
parties involved. (The components of the EPCglobal network and challenges for their specification are explained in detail in the annex of this report.)
This is time consuming and carries the risk of specifications becoming out of date before they
are finished. The long development time needed for the EPC Gen 2 standard, for example, is
a central point of critique by British Telecom (BT), which itself is a member of EPCglobal.
The delay may lead to a growing risk of rival, separate standards emerging in separate industry verticals as well as in different regions around the world.29 Some also complain that
EPCglobal does not properly take into account the interests of SMEs. Ross Hall, CEO of BT
Auto-ID Services, concludes: EPCglobal is an exclusive club. The $100,000 membership
fee is a huge amount of money, and even many large, household-name companies cant
justify that expense.30
Summarizing, even though EPCglobal is a promising approach, its success is not guaranteed. The problems EPCglobal is facing are typical problems of setting up a basic standardized IT infrastructure, which involves many different parties with divergent interests. History
shows that the outcome could be a success (like the mobile standard GSM or the e-business
standard EDIFACT), but that it could also be drawn out much longer than originally expected
and suffer from setbacks (e.g. the mobile standard UMTS in Europe or the e-business standard ebXML).
Critical business issues and privacy considerations
Specification of a common standardized infrastructure is not the only critical issue that has to
be solved before specific RFID/Auto-ID applications can be realised. The main issues to be
addressed include both business issues and privacy considerations.
Before establishing an information network, the companies have to decide who runs the
service and controls the information. To this end, the provision of information network
services by independent third parties is a realistic scenario. By outsourcing the operation of
the information network, companies can concentrate on their core business. In addition, investment risks would mainly be borne by the network providers. B2B trading networks (see
chapter 2.1), for example, that already operate B2B integration networks seem to be well
positioned for operating RFID/Auto-ID networks. Global eXchange Services (GXS), for example, as one of the largest integration hubs worldwide, has already announced a partnership with VeriSign in order to enhance its network by the provision of EPC information services.31 However, the case study of pharma-mall (see chapter 2.1) has shown that companies may fear conflicts of interest between the powerful services providers and themselves.
29
RFID Journal (2004): EPCglobal must act fast, says BT, Article, 03.11.2004 (www.rfidjournal.com).
30
Ibid.
31
GXS / VeriSign (2004): Global exchange Services and VeriSign announce partnership to enhance GXS trading grid with electronic product codes, Press Release, 30.11.2004.
July 2005
44
Finding and negotiating agreements that mitigate these risks may well be a long-term process, which gets even more complex the more companies are involved.
Privacy issues in RFID-based solutions are also frequently discussed. Again, the history of
technology shows that such public discussions can become more prevalent the closer to introduction the services are. Even though the applications described above do not directly
affect the end-users, their fears have to be considered. Dealing with pharmaceuticals particularly requires secure and trusted solutions. As RFID chips can typically be read without those
carrying tagged items noticing, information about certain drugs (and thereby about diseases
they are supposed to cure) may be obtained from people without their knowledge and assent. There is as yet no definitive approach for dealing with such privacy issues of RFIDbased solutions neither with respect to pharmaceuticals nor in other application areas such
as RFID-enhanced passports. One possible way to tackle these issues is described in the
business example below.
In general, finding appropriate solutions for the range of critical issues discussed in this chapter needs time. Therefore, the question arises whether extensive RFID/Auto-ID projects,
which support various applications and address a large number of players across different
regions and sub-sectors, will be feasible within the next few years. It seems possible that
small projects focusing on the support of specific tasks will prevail at least in the short run.
The business example of Aegate an RFID-pilot carried out in the UK discusses such a
project.
RFID/Auto-ID: A practicable approach
Business example:
Authenticating pharmaceuticals at the point of dispensing an

RFID/Barcode pilot by Aegate (UK)
Aegate is a venture of the PA-Consulting Group a globally active management, systems and technology consulting firm. The start-up was founded in
2004 with the aim of running a three months pilot. The purpose of the pilot was
to test a simple solution for authentication of pharmaceutical products at the
point of dispensing. The pilot took place in the UK from November 2004 until
January 2005. Six manufacturers of pharmaceuticals including Merck Generics UK, Merck Pharmaceuticals, Novartis, Schering Health Care, and Solvay
as well as 50 dispensing outlets (e.g. pharmacies and hospitals) participated in
the pilot.
The tested solution authenticates pharmaceuticals at the point of dispensing by
the use of mass-serialisation technologies. The solution consists of three main
components:
RFID-tags and Barcode labels: Several types of these so-called massserialization technologies were applied in order to test their suitability for product authentication. The pilot concentrated on the integration of massserialisation technologies into the workflow of pharmacists and manufacturers
rather than on testing the technologies itself.
Readers: They were specifically designed for this pilot. The readers support
various identification technologies and contain a screen on which critical information related to the product can be displayed.
Database: A database provided the basis for the central information service
operated by Aegate. A secure Internet connection is used to connect the database with the readers installed in the dispensing outlets.
The solution works as follows: Manufacturers fix a barcode label or attach a
RFID tag with a unique random number to the product. The manufacturer sends
the random number identifying the product on item level as well as critical
45
July 2005
information linked to it (e.g. expiration date, hints for dispensing or product

warnings) to the central database. At the point of dispensing the pharmacist
uses the reader for the identification of the product. The identified item code is
automatically sent to the central database. The information service compares
this number with those submitted by the manufacturers and sends the respective item information to the reader. The pharmacist receives the information on
the reader screen. In this way, the solution addresses the following issues:
Combating counterfeiting: If the code on the product does not comply with the
code in the database, the pharmacist is informed immediately.
Reducing dispensing errors: Hints and warnings related to the product appear on the screen before the product is given to the patient.
Automatic check on expiry dates: If the product has expired, the pharmacists
get a warning at the crucial moment.
Instant stop of recalled products: In case of product recalls, manufacturers
can send a message to the database and thus stop their dispensing instantly.
A further focus of the pilot was the consideration to privacy issues. For this purpose, Aegate worked out a Privacy code of conduct with several conditions to
be put in place in order to guarantee the privacy of the consumers. RFID tags,
for example, were not allowed to contain any additional information beyond the
manufacturers built-in number. In addition, the information on the tags must not
allow any link to the medicine prescribed. According to Alison Williams, Project
manager at Aegate, this was the main reason for the use of random numbers
instead of applying product identification standards. Further rules restricted the
technical possibilities of readers and tags. The technological capability of the
radio frequency transmission, for example, must not exceed a range of 30 cm.
The pilot was overseen by an independent advisory group made up of the participants and representatives from the National Pharmaceutical Association
(NPA), the Dispensing Doctors Association (DDA) and the Royal Pharmaceutical Society of Great Britain (RPSGB). The analysis on the results was still on
the way while editing this case as a business example in this sector report (February 2005).
Source:
Interview with Alison Williams, Director Aegate Ltd.,18.01.2005.
Aegate website: www.aegate.com (20.02.2005).
The following features of the Aegate solution address obstacles to RFID-based solutions in
the pharmaceutical industry described above:
32
The solution bypasses the supply chain. The solution only requires collaboration
between pharmaceutical producers and dispensing outlets, like pharmacies or hospitals. This reduces complexity. Ross Hall, CEO of the project partner British Telecom
Auto-ID Services, for example, described the problem as follows The European
pharmaceutical supply chain is very complex, with drugs sometimes being traded
multiple times before they reach the patient.32 While the integration of all parties
along the supply chain would extend the range of applications possible, it would also
significantly raise the complexity of the solution and slow down its implementation due
to the many parties involved.
Needs of pharmacists are taken into account. By integrating the reader screen,
the solution provides pharmacists with a tool at hand that supports their work. In this
PA-Consulting (2004): Combating pharmaceutical fraud. Aegate, the latest venture from PA Consulting
Group, to commence UK pilot in association with BT, press release, 03 November 2004 (www.paconsulting.com).
July 2005
46
way, a win-win-situation is generated, which facilitates the cooperation of the supply

chain partners.
The solution allows for both barcode and RFID technology. The change of technologies needs time. By allowing for both the conventional barcode and the RFID
technology, the solution promotes a smooth transition. In this way, manufacturers can
first test Auto-ID approaches based on the current barcode technology.
The solution takes into account privacy issues. Taking into account privacy issues
could become a key factor for the success of the RFID-based solutions. The public
discussion of RFID-projects like the Metro Future Store in Germany has shown, how
sensitive the public response to this issue may be.33
2.3.3 Conclusions
This chapter has discussed both potentials and challenges of RFID/Auto-ID solutions for
tracking and tracing products along the pharmaceutical supply chain. Combating counterfeiting activities currently appears to be one of the main motivations for the deployment of
RFID/Auto-ID solutions in this sector. The role of the pharmaceutical industry as a forerunner
in this field is further accelerated by
the large range of applications suitable,
the favourable ratio of tag prices to product values, as well as by
the pedigree requirements enforced by some regulation authorities.
Currently, several pharmaceutical companies like Pfizer have already started initiatives with
the purpose of deploying RFID tags for medicines attractive to counterfeiters (in this case
Viagra).34
However, a widespread deployment of this technology within the pharmaceutical industry
brings many challenges with it. If worldwide cross-industry solutions are to be the goal, the
establishment of accepted standards is crucial. Even though the EPCglobal network is a
promising approach to this, its realisation might need more time than generally expected.
Moreover, the establishment of RFID/Auto-ID networks raises business issues to be solved
and requires the consideration of privacy issues. Therefore, the deployment of small specialised projects may be more likely in the short run than the full implementation of a single
RFID/Auto-ID concept along the entire supply chains of several industries and regions.
The pilot presented in the business example nevertheless demonstrates that already today
solutions are feasible that support major tasks like combating counterfeiting in an efficient
way. This type of solution may also be more suitable for small and medium-sized players in
the sector, who typically do not have the resources for carrying out visionary projects. The
possibility of these more pragmatic approaches should also be taken into consideration by
public authorities while designing measures that promote RFID-based approaches to increase patient safety.
33
See, e.g. InformationWeek (2004): Watching Out The closer RFID gets to consumers, the hotter privacy
issues become, Article, 16.02.2005 (www.informationweek.com).
34
Pfizer (2004): Pfizer Plans to Incorporate RFID Technology into Viagra Packaging in U.S., Press Release,
30.11.2004.
47
July 2005
Conclusions and business implications
The analysis and case studies in chapter 2 provided insights into how companies in the
pharmaceutical industry use ICT and e-business tools today and may use them in the near
future. This analysis also showed how these enterprises use ICT to overcome challenges like
increasing price competition, the need for a more efficient sales force or counterfeiting.
It seems that large pharmaceutical companies are better able to exploit the benefits of IT and
Internet-based solutions. In fact, large players like Pfizer, Merck or Bayer frequently appear
in the reference lists and white papers of IT services providers, whereas examples for innovative e-business practices by SMEs are much harder to find despite the fact that roughly
90% of companies in this sector are SMEs.
This chapter extends the case study-based analysis by revisiting the specific opportunities
and risks of ICT and e-business for SMEs (section 3.1) in this sector and by providing an
outlook into likely future ICT developments that are of importance for this sector (3.2).
Please note that this first sector report on e-business issues in pharmaceutical industry is
mainly based on qualitative analysis. The conclusions and business implications discussed in
this chapter as well as the policy implications in chapter 4 of this report should therefore be
considered as preliminary. New statistical results from the e-Business Survey 2005 will complete the analysis. They will be published in the forthcoming sector report (September 2005)
leading to consolidated conclusions and policy challenges based on qualitative as well as
quantitative analysis (i.e. taking into account the insight from both the case studies and the
statistical picture).
3.1
Opportunities and risks for SMEs
Exhibit 3-1: E-business opportunities and risks for SMEs in the pharmaceutical industry
Opportunities
Risks
SMEs may use ICT and e-business tools as basis

for:
Risky developments for SMEs arise from:
Development of niche markets: Internetbased sales platforms, for example, can provide the reach, which is necessary to establish
niche businesses.
Insufficient exploitation of e-business

tools: Even if e-business tools are installed,
knowledge about their most beneficial use may
be missing (e.g. online marketing know-how).
Maintaining customer relationships: There

are many e-business tools, such as websites
or simple customer databases, which can be
used by SMEs to cultivate customer relationships.
Non-appropriate technical tools: Not all ebusiness tools are suitable for SMEs. Using
them nevertheless may lead to frustration. In
some cases, appropriate tools suitable for
SMEs are missing,
Collaboration with business partners: Internet platforms can provide a basis for SME collaborations in the fields of R&D, procurement
or sales in order to share investment costs and
to exploit synergy.
Non-consideration of SME needs in new

technological developments: New technological developments are often determined
mainly by (and for) larger players.
Opportunities of e-business for SMEs

SMEs in the pharmaceutical sector are, to some extent, confronted with the same business
challenges as their larger competitors (pointed out in section 5.1). However, they often cannot choose large enterprise strategies to meet these challenges. For example, they typically
July 2005
48
do not have the market power to pass on cost pressure to their suppliers or distributors nor
do they have the financial resources to increase R&D or sales and marketing activities by
large amounts.
However, because of their company size, SMEs are at least in theory more flexible than
their large competitors. It is, therefore, easier for them to sidestep the increasing massmarket competition by changing their business focus and enter niche markets such as the
manufacture of natural cosmetics and pharmaceuticals (see case study on Marmosa in chapter 2.1). The Internet, as a relatively cheap medium with worldwide coverage, is well suited to
support such activities. In fact, many basic ICT and e-business tools, such as website or
online shops, have become commodities today and are even affordable for small companies
with limited financial resources. In addition, various Internet-based services, such as B2B
portals or auction sites like eBay (see, e.g. http://health-beaty.ebay.com) provide the opportunity to find business partners or to sell to consumers worldwide. This is an essential condition for the establishment of niche businesses.
SMEs may also use e-business tools as the basis for cultivating customer relationships. A
simple tool for doing so is the company website. The Marmosa case has demonstrated its
use as an electronic business card for supporting sales activities. Going beyond the business
card, the website may also be used for providing additional customer-related content and
services. Tips for the proper use of cosmetics or disease-related information by manufacturers of pharmaceuticals may help to deepen the relationship with existing customers or to
acquire new ones.
Information about customers is the key to managing customer relationships. This holds true
for both large and small companies. Though customer relationship management systems are
usually targeted at the problems (and budgets) of large players, the use of a simple customer
database may also help SMEs in managing relationships with customers. As concluded in
chapter 2.2, however, it is more the proper use than the technical features that make a CRM
solution a success.
Finally, SMEs may also use IT or Internet-based solutions to collaborate. In this way, capacities can be pooled and the competitive position relative to larger players in this sector can be
improved. The case study on pharmaplace has demonstrated a way of doing so: In this case
the Internet acts as a common platform for the provision of sourcing services and e-business
tools. Implementation costs can be shared and purchasing power from aggregation can be
accrued.
E-business risks
The lack of e-business skills,35 for instance online marketing and online sales skills, as well
as limited time and resources for acquiring them, hinder SMEs from exploiting the full potential of ICT and e-business investments. For example, having a website on the Internet alone
does not automatically attract new customers. Larger companies usually have a marketing
and sales department with some employees knowledgeable about online marketing. This
means that total investments in ICT together with the skills to use the Internet opportunities,
have much higher returns than the pure ICT investments. There is the risk that SMEs focusing solely on the ICT aspect and not understanding the relevant business aspects will be
disappointed by the results achieved and stop using ICT and e-business tools altogether.
35
E-business skills are defined by the e-skills Forum as the capabilities needed to exploit opportunities provided
by ICT, notably the Internet, to ensure more efficient and effective performance of different types of organisations, to explore possibilities for new ways of conducting business and organisational processes, and to establish new businesses; see European e-Skills Forum (2004): "E-Skills in Europe: Towards 2010 and Beyond",
Synthesis Report, September 2004.
49
July 2005
Furthermore, many e-business solutions primarily address the problems of large enterprises:
the designing and selling of ERP or CRM solutions targeted at smaller companies only recently achieved more attention from the major software vendors. SMEs that try to imitate the
e-business behaviour of large companies not only run the risk of using inappropriately large
and complex IT systems, but also risk facing problems that are not important for their companies. The case study of pharmaplace, for instance, has shown that tools for streamlining
procurement processes may have only limited benefits for SMEs. Due to their small size,
they are less affected by some of the problems large companies want to solve with ebusiness solutions. Also due to their limited purchasing power, they can only benefit to a limited extent from online procurement auctions.
The needs of the big players in this sector are also dominant when it comes to future ICT and
e-business developments. For example, there seems to be a threat that RFID, especially the
EPCglobal specifications, will primarily address the needs of those larger players that are
willing to pay the substantial membership fees necessary for participating in the specification
and standardisation process (see discussion of EPCglobal in section 2.3.2). If no proper
counteractions are taken, there is the risk that these ongoing developments will lead to a
similar outcome as other e-business initiatives. In the electronic exchange of business
documents, for example, even those large companies that are already using e-business tools
have to continue providing the traditional (fax and paper) infrastructure in order to trade with
smaller partners, because consideration of how to integrate them started too late. This is
clearly keeping all participants from achieving the full benefits of ICT and e-business.
3.2
Outlook on future developments
ICT and e-business technologies that address current business challenges (discussed in
detail in section 5.1) are dominating the discussion about future ICT and e-business developments in the pharmaceutical industry. The focus is on specific solutions that try to:
improve the efficiency of marketing and sales activities,
enhance collaboration along the supply chain and
increase the efficiency of R&D activities.
Increased cost pressure forces pharmaceutical companies to improve the efficiency of their
marketing and sales activities in order to stay competitive. Financial resources for a further
increase of marketing and sales budgets, or for a further enlargement of sales forces, are
limited. Section 2.2 already discussed the use of ICT and e-business technologies in helping
to streamline sales activities. It emerged that specific solutions, such as CRM systems and
mobile solutions, are well suited to increase the efficiency of sales and marketing processes.
However, the case studies presented demonstrated that companies do not primarily need
new state-of-the-art technologies. It is more the proper use of these technologies and their
optimal adjustment to the specific needs of the companies that makes the ICT support of
marketing and sales processes successful.
Various factors contribute to an increase in supply chain collaboration. Optimising supply
chain processes to achieve cost savings is certainly a major motivation. In addition, converting the outcome of biopharmaceutical research into commercial products poses challenges
to conventional supply chain processes. In order to supply targeted treatment solutions (i.e.
treatments designed for specific patient subpopulations36), for example, processes on the
sell-side must be optimised (see also section 5.1), which requires more intensive collaboration. It is therefore safe to assume, that the use of ICT and e-business tools to improve col-
36
See IBM (2004): Pharma 2010: Silicon Reality, Report, IBM Business Consulting Services, April 2004.
July 2005
50
laboration in the pharmaceutical supply chain will continue. RFID will most likely be one of
the technologies used, as has been shown in section 2.3 above.
An additional application area that will gain importance in the future is the use of ICT and ebusiness in the field of R&D.37 There are several ways, in which new technologies may help
to increase research efficiency and to exploit the potential of biopharmaceutical research.
Within the media and on conferences related to IT and the pharmaceutical industry, the following future developments are discussed:
New computing models: The increasing importance of biotechnological research

challenges conventional ICT networks. For example, to test treatments in this area
millions of molecules have to be screened. Therefore, the pharmaceutical industry
has emerged as a major user of new computing models like grid computing (see following box).
New models for knowledge management: Today, pharmaceutical R&D has to deal
with a huge amount of information coming from various sources. Combining them in
an efficient way is a major challenge for future knowledge management systems.
Emerging technologies such as semantic analysis, which can help to classify documents automatically according to their contents, as well as semantically based
searches, may turn out to be ways of coping with the increasing volume of available
knowledge.
Internet-based collaboration platforms: Collaboration between research-based

pharmaceutical companies, as well as between public and private R&D departments,
may help to increase efficiency in this field. The consulting company CRO, for example, concludes in the recently published report on Innovation in pharmaceutical industries that a greater co-operation and sharing of data could increase the predictability and reduce the costs of developing products that will fail.38 The use of Internetbased collaboration platforms as a basis for information exchange, therefore, could
become an increasingly important issue. However, projects in this area are still hard
to find. According to the same CRO report, although many companies talk about this,
there has been little action.
37
As discussed in the introduction of chapter 2, ICT and e-business impact nearly all business areas in the pharmaceutical industry, only a selection of which could we covered in this report. As an example of a future impact we have chosen to analyse RFID. However, this choice does not mean that the use of IT solutions to
support R&D is of less (future) relevance for the sector.
38
See CRO (2004): Innovation in pharmaceutical industries, Study undertaken on behalf of the European
Commission, November 2004.
51
July 2005
Business Example:
Grid.org a virtual computing platform for pharmaceutical research

Grid.org is a virtual computing platform for carrying out pharmaceutical research
projects by making use of grid computing. This method is defined by Grid.org as
follows: Grid computing is a form of distributed computing that involves coordinating and sharing computing, application, data, storage, or network resources
across dynamic and geographically dispersed organizations. In simple words,
grid computing can be described as pooling the processing power of many single computers in order to fulfil one task.
The platform is powered by United Devices, a provider of grid solutions. Research projects carried out over this platform are typically organised by public
research organisations and sponsored by IT vendors active in this field. The
processing power needed is provided by thousands of people worldwide supporting this project on a voluntary basis. In this way, treatments for diseases like
cancer, smallpox or anthrax have been analysed.
For the smallpox project, for example, more than 2 million home PCs from volunteers in more than 190 countries were connected. Accumulated, more than
39,000 hours of computing time had been provided. Using this processing
power, it was possible to screen 35 million potential drug molecules against
eight models of smallpox protein.
Sources:
Website: www.grid.org (February 2005);
IBM (2004): Pharma 2010 Silicon reality, IBM Business Consulting Services, April 2004.
July 2005
52
Policy implications
This chapter highlights two issues arising from the analysis which are highly relevant to policy:
the need for better non-technical e-business skills in SMEs, and
the ongoing development of an RFID infrastructure for the pharmaceutical industry.
This does not imply that other issues discussed in this study are not important for the pharmaceutical industry but for many of these, the enterprises themselves have to understand
and cope with the identified challenges. Please note that the policy implications discussed in
this chapter are mainly based on case studies and qualitative analysis. The forthcoming second sector report on e-business in the pharmaceutical industry (September 2005) will also
take into account the new statistical results of the e-Business W@tch and thus allow for consolidated policy implications based on qualitative as well as quantitative analysis.
SMEs need better business skills for successful e-business
This report has provided some (albeit anecdotal) evidence that there is a lack of skills in
SMEs for exploiting the opportunities of Internet and e-business. These are not so much
technical skills in the narrow sense. Rather, ICT and the Internet have changed the way certain business activities can be conducted, and there is some evidence that SMEs have not
yet fully acquired the necessary business skills to make use of these changes. These findings, however, do not only apply to the pharmaceutical sector but also to other industries
analysed by the e-Business W@tch. Thus, remarks made in this chapter should be taken
into account for SME policies in general.
Selling and marketing on the Internet is the most obvious case. Setting up websites or writing
e-mail newsletters is no longer a technical challenge in any case there are many companies providing the necessary services, even to SMEs. The challenge, however, is often a
matter of business: doing online sales and marketing is not difficult, but doing it well is (see
case study on Marmosa and the related discussion in sections 2.1.2 and 2.1.3). And doing it
well requires an understanding of how customers behave on the Internet, which Internetbased sales and marketing measures are accepted by which target groups, how e-mails and
newsletters can be used to strengthen customer relationships, how one can distinguish serious and non-serious offers among Internet trading platforms, and so on. SMEs have this
knowledge for their traditional sales and marketing channels but to a lesser extent for the
Internet.
The European e-Skills Forum established by the European Commissions DG Enterprise and
Industry addressed these issues and in its 2004 synthesis report e-Skills in Europe: Towards 2010 and beyond 39 correctly lists e-business skills next to ICT user skills and ICT
practitioner skills and defines them as the capabilities needed to exploit opportunities provided by ICT, notably the Internet, to ensure more efficient and effective performance of different types of organisations, to explore possibilities for new ways of conducting business
and organisational processes, and to establish new businesses.40 The Forum recognised
that beyond the issue of e-skills one of the most important problem is the lack of ICT and ebusiness culture of too many senior managers and business owners. However, even this
report seems to show a slight bias towards technical skills, if judged from the final conclusion
and recommendation section.
39
European e-Skills Forum (2004): "E-Skills in Europe: Towards 2010 and Beyond".
40
Ibid., p. 5.
53
July 2005
This is not to say that technical e-skills are not important; they are. But if policy measures
continue to focus on them, they risk reinforcing the perception by many SMEs that Internet
and e-business are primarily technical issues. The case studies in this report (see, for example, case studies on Marmosa or EGIS Poland) have shown, however, that this is not the
case. E-business is, to a great extent, plain business.
Policy makers should therefore check their e-business support measures with regard to
this41:
Do they overemphasize technical aspects?
Do they help companies to understand the organisational implications of introducing

ICT and e-business solutions?
Do they help companies to acquire the necessary business skills to conduct ebusiness successfully?
As most of these policies are developed and implemented at the level of member states or
regions, it would primarily be the task of the implementing authorities to take these aspects
into account. However, there might be a role for European policy on three levels:
The e-Business Policy Support Network (www.e-bsn.org) as a European metainitiative to share best practice between those involved in national e-business policy,
could well be a suitable forum to increase sensitivity to this aspect among those designing and implementing e-business policies.
The eMarket Services project (www.emarketservices.com),42 which receives support from the European Commissions DG Enterprise and Industry to provide a European portal on Internet trading platforms, might be a good starting point to help SMEs
to distinguish between good and not so good platforms, especially if these platforms
are established in other countries than the SMEs home country. Once established, it
might be useful to extend the services of the platform and its network of supporting
organisations.
The e-Skills Forum (www.eskills2004.org): The European e-Skills Forum aims to

foster an open dialogue between all relevant stakeholders and to catalyse actions in
view of helping to narrow the e-skills gap and to address e-skills mismatches.43 Within
the forum various workshops and conferences have been carried out. In order to further raise the awareness of the discussed issues, it might be useful to organise a
workshop with specific focus on not-technical e-business skills.
Policy challenges of setting up an RFID infrastructure

In section 2.3 it has been shown that several institutions and companies have high expectations of RFID, not only to combat counterfeiting of pharmaceutical products, but also to manage product recalls, avoid medication errors or the usage of expired drugs and otherwise
increase supply chain efficiency in the pharmaceutical industry.
The 2004 report by the US Food and Drug Administration (FDA) on counterfeiting, which
concluded that RFID tagging appeared to be the most promising approach to reliable product
tracking and tracing, has significantly driven the discussion about the usefulness of
RFID/Auto-ID solutions in the pharmaceutical industry during the last year. This also affects
European pharmaceutical enterprises insofar as they are exporting to the USA.
41
42
43
This is also in accordance with the Commissions Communication on Adapting e-business policies in a changing environment: The lessons of the Go Digital initiative and the challenges ahead; COM (2003) 148 final; see
Challenge 1: To improve managerial understanding and workforce skills for e-business, pp. 12-17.
Disclosure: Berlecon Research is research partner in this project.
See http://europa.eu.int/comm/enterprise/ict/policy/ict-skills.htm.
July 2005
54
The current state of knowledge and preparation in pharmaceutical firms can probably best be
described as an early assessment phase. There is not yet an infrastructure in place that
would allow immediate usage of RFID for the purposes indicated, real costs and benefits are
still unknown, and it is even unclear what sort of infrastructure should and might be set up in
Europe.
It would probably be beneficial for the European pharmaceutical industry as a whole to get
an independent assessment of the opportunities and challenges of RFID in the pharmaceutical supply chain. An independent assessment seems necessary, as those organisations already involved in setting up an infrastructure tend to view the opportunities and benefits in a
very positive light and tend to neglect the challenges. Such an assessment could be conducted by establishing an expert group at the appropriate unit(s) and/or by commissioning an
independent study.
Such an assessment could also build the basis for an informed discussion of this topic by
public health and regulation authorities on national as well as on EU level. As many of the
advantages of this technology are for the benefit of the patients, its widespread deployment
(e.g. for combating counterfeiting or reducing medication errors) might be in their interest.
Such an informed discussion is likely to raise the awareness about this new technology, In
addition, it would also help companies of this sector to design appropriate technologies. In
fact, from various talks with pharmaceutical companies and industry associations we got the
impression that clarifying assessments by public authorities are wanted.
However, a qualified discussion of this issue or a recommendation (as by the FDA, see discussion in section 2.3.1) should take into account answers to the following questions:
To what extent can advantages for the patient be reached by alternative technologies
like the conventional barcode technology?
Is a harmonisation of the national rules for product labelling needed? If yes: what are
appropriate ways to reach it?
To what extent are solutions suitable to SMEs?
To what extent are solutions available and functioning today or in the short and medium run?
What is the role of standards and interoperability?
As indicated in section 2.3, it is likely that to begin with there will be competing specifications,
standards and systems based on RFID technology. All of these will promise to provide similar benefits for pharmaceutical enterprises, but they will be backed by different interest
groups. As with many new technologies, there will then be the question of whether public
authorities should vote in favour of one of the standards to end the allegedly suboptimal
situation. However, such an action would go against the currently accepted limits of public
policy. The current general view is that public authorities should not be involved in the standards setting; they should ensure that there is an open, transparent, democratic and inclusive structure in place, allowing stakeholders to reach an agreement.
However, this policy guideline might not always be easy to pursue in the case of RFID networks for the benefit of patient safety. For example, achieving policy goals related to public
health might require the creation of a central IT infrastructure under the supervision of public
authorities.44 Setting up this infrastructure might involve an indirect decision in favour of one
set of standards and technologies. Therefore policy makers should make sure they understand such unintended consequences of policy on the standard-setting process. Mostly such
a problem is likely to occur on the level of member states rather than the European level, as
most public health systems are organised or supervised at the level of member states.
44
The current efforts in Germany to introduce a health card working with every hospital and doctors office are
an example.
55
July 2005
Background information on the sector
5.1
Industry trends and challenges
5.1.1 Challenges due to specific characteristics of the sector

The specific characteristics of the pharmaceutical sector also imply certain challenges for its
companies. The following challenges are of particular importance:
Fulfilment of regulatory requirements,
Management of risks in product development and
Dealing with heterogeneous target groups in marketing and sales.
Regulatory compliance
The pharmaceutical industry is heavily regulated. To describe all the individual regulatory
issues that impact on the pharmaceutical industry would exceed the limits of this report. In
fact, regulations affect all major segments of the pharmaceutical supply chain, research and
development as well as production, marketing and sales.45 Efficient compliance with regulatory requirements is, therefore, a constant key issue in this sector. It becomes even more
challenging as many pharmaceutical players act globally and, therefore, have to take into
account different rules in different countries.
The proper use of ICT and the Internet can help companies to handle these challenges. Examples, where regulatory issues provide a framework for or provide additional incentives for
ICT investments, are:
Recording, filing and retrieving data needed for drug approval procedures,
Tracking and tracing of pharmaceuticals throughout the supply chain, e.g. for providing pedigrees, tackling recall issues or fighting counterfeiting activities,
Monitoring the production process to meet requirements for product quality,
Provision of information to customers and raising customer awareness, e.g. by sponsoring or running health portals on the Internet.
Individual ICT-relevant topics for which regulatory compliance is a main motivation (e.g.
RFID/Auto-ID) will be discussed in greater detail in Chapter 2.
Managing risks of product development
Research and development in the pharmaceutical industry is a complex, time- and moneyconsuming process. The development of a new product involves many steps, including: discovery and pre-clinical testing, clinical trials, the review and approval by regulation authorities, as well as additional post-marketing tests. The time horizon between the laboratory and
approval is often between 10 and 15 years. However, there is no assurance that a new substance will be approved or that it will be economically successful. According to PhRMA
(Pharmaceutical Research and Manufacturers of America), for example, only 1 out of 5000
components is approved as new medicine. Only 3 of 10 marketed drugs produce revenues
that match or exceed average R&D costs.46
45
For a list of legislations, notices to applicants and guidelines for the rules governing medicinal products in the
European Union see: http://pharmacos.eudra.org (February 2005).
46
See PhRMA (2003): Pharmaceutical industry profile 2003, Report, PhRMA 2003 (www.phrma.org).
July 2005
56
Managing these risks is primarily a financial issue. Particularly small and medium sized companies are challenged with financing their research and development activities. In addition,
cash is needed if production capacities have to be enhanced in case of approval and successful launch of a new product. Therefore, an efficient venture capital market is important,
particularly for enabling the foundation of smaller research-based companies in this sector.
Dealing with heterogeneous needs and target groups
Marketing and sales activities in the pharmaceutical sector must address a heterogeneous
group of decision makers. End users are probably the most important group, since they use
the pharmaceuticals and often pay for them at least partially. This is obvious for OTC
(Over-The-Counter) drugs or cosmetics, but consumers may also influence the prescription
of drugs by physicians, e.g. by insisting on certain substances or by requesting vaccinations.
Furthermore, physicians, as well as hospitals, clinics, pharmacies or drugstores are also positioned between pharmaceutical companies and end users. On the one hand, they provide
pharmaceutical companies with access to their final customers, but on the other hand, they
are the trusted partners of consumers and may thus directly influence their choice. Also,
health insurance companies as well as government institutions may directly affect the sales
success of pharmaceutical companies by reimbursement policies for specific medicines and
therapies. And finally, marketing and sale of pharmaceuticals are also subject to regulation.
Regulation authorities, therefore, provide the frame for these activities in the pharmaceutical
sector.
The design of marketing and sales strategies thus becomes a challenge in itself. First of all,
appropriate information has to be prepared and distributed to all the different target groups.
In addition, many pharmaceutical companies have large sales forces that need to be managed and informed. Internet and IT solutions play a crucial role in supporting these tasks.
CRM-systems, for example, may help to coordinate sales and marketing activities; mobile
solutions may support the sales force in the field. Moreover, there is a widespread agreement among marketing professionals in this sector that the web is becoming increasingly
important for relationship marketing, for instance in the context of DTC (Direct-To-Consumer)
advertising strategies.47 Understanding of the opportunities and limits of this medium for marketing and sales activities, as well as its proper deployment, is thus becoming an important
success factor for individual companies.
5.1.2 Current trends and developments

Pharmaceutical companies currently have to manage change in their business environment.
Increasing cost pressure, a changing industry structure and the rising importance of biotechnological applications are important current trends and developments in this context.
Increased cost pressure
Important drivers for an increased cost pressure are:
the so-called blockbuster or R&D innovation crisis
increasing competition due to the rising importance of generics, and
cost-containment measures in order to consolidate public health insurance systems.
The so-called blockbuster crisis is the joint occurrence of expiring patents on the one hand
and the lower efficiency of R&D activities, for instance fewer promising products in the development pipeline, on the other. For example, according to estimates, in the USA alone between 2003 and 2007, patents on 35 drugs with a global market volume of $73bn will expire.
47
Pharmaceutical Executive (2004): Spend Trends: A $20 Billian Bill and Plenty of Change, Article, 01.09.1004
(www.pharmexec.com).
57
July 2005
In comparison, only 14 potential blockbusters are likely to be launched in the same time.48
For the latter, the term innovation crisis is also frequently used. On behalf of the European
Commission, the consulting company CRA (Charles River Associates) has undertaken a
study in order to analyse this situation in detail.49 The authors conclude: There has been a
significant reduction in applications and authorisations of new active substances in Europe,
in the US and in Japan over the last three years. However, the current decline appears to be
rather small in comparison to historic volatility. What does make this a problem for pharmaceutical companies is that they have increased their investments into drug development significantly over recent years without increasing the number of potential new products. This
makes the so-called innovation crisis also a problem of cost.
At the same time that their valuable patents expire, research-based pharmaceutical companies face increased price competition from suppliers of generics. The consulting company
Frost & Sullivan, for instance, expects that the generics and biogenerics market in Europe
will double from $ 10.9 billion in 2003 to $ 21 billion in 2010, where generics show a 20 to
80% price advantage compared to patent-expired brands.50 In several European countries
for example UK (20%) or Germany (27%) the market share of generics is already significant today.51
Finally, driven by increasing budget deficits, government institutions in various countries are
in the process of reforming their public health insurance system. This process is typically
accompanied by so-called cost-containment measures, i.e. measures to stabilise or even
reduce spending. Industry associations argue that many of these measures, for instance
price controls, reimbursement limits or the monitoring of spending efficiency, are to the detriment of research-based companies. Members of the industry frequently assert that the increasing use of cost-containment measures in European countries is responsible for the relocation of R&D activities from the rather price-regulated Europe to the US. However, while
during the last years pharmaceutical R&D investments in the USA have indeed increased
about twice as fast as in Europe,52 other advantages like the higher availability of skilled researchers or the existence of an extensive research and start-up ecosystem might also have
contributed to the higher R&D growth rates in the US.
Changing industry structure
The structure of the pharmaceutical industry is also changing significantly. According to
PWC, the number and volume of mergers and acquisitions (M&A), for instance, was significantly higher in 2003 than in the year before.53 The number of M&A activities also continued
to be high in 2004. An example of these structural changes is the merger of the large players
Sanofi and Aventis to Sanofi-Aventis, the third largest corporation in this sector. Key impulses behind this dynamic are:
consolidation as a consequence of increased cost pressure, as discussed above,
acquisition of biotech companies with the goal of increasing R&D efficiency,
48
IBM (2004): Pharma 2010: The threshold of Innovation, White Paper by IBM Business Consulting Services,
2004.
49
CRA (2004): Innovation in the pharmaceutical sector, Study by Charles River Associates (CRA) undertaken
for the European Commission, November 2004.
50
Frost & Sullivan (2004): Cost cutting measures and patent expiration to propel the European generics and
biogenerics market, Press Release, 19. 10.2004.
51
See EFPIA (2004): The pharmaceutical industry in figures 2004 edition, Report, EFPIA 2004
(www.efpia.org).
52
See industry reports by EFPIA (2004) and EPhRMA (2003).
53
See PWC (2004).
July 2005
58
globalisation of the pharmaceutical market, particularly enlarging the footprint to

growth markets like China.
In addition, outsourcing activities have increased in line with the tendency to focus on core
competencies. The revenues for the CRO (Contract Research Organisations) market, for
instance, have grown steadily over recent years.54 Outsourcing activities, however, cannot
only be found in the R&D environment. The tendency to outsource non-core businesses also
includes production, marketing or sales processes. A typical example of extensive restructuring in the pharmaceutical sector is the current developments at Bayer AG (see Box).
Business example:
Restructuring the pharmaceutical sector: Bayer AG

The Germany-based pharmaceutical company Bayer AG is a global company
active in both the chemical and pharmaceutical industries. In recent years,
Bayer has had to face various problems: the recall of the cholesterol-lowering
drug Lipobay, the expiring patent for the antibiotic Cipro and a lack of promising
medicines in the development pipeline. As a consequence, Bayer has started to
refocus the company.
A large part of the chemical production has been given to its spin-off Lanxess,
which was placed on the stockmarket as an independent company in January
2005. In addition, the marketing and sales of a number of products will be outsourced to the US-based pharmaceutical company Schering-Plough. Finally,
Bayer has bought an OTC subsidiary consumer health division from the Swiss
competitor Roche.
Sources: Euromonitor (2004): Bayer enters top four, Article, 26.07.2004
(www.euromonitor.com);FTD (2004): Bayer schliet Pharma-Allianz mit Schering-Plough, Article, 13.09.2004 (www.ftd.de).
Increased cost pressure, as well as the changing structure of the industry, can be key motivations for ICT and e-business investments in this sector. Specific IT solutions such as SCM
(Supply Chain Management) or PLM (Product Lifecycle Management) systems, for instance,
may help to streamline processes or to exploit the profit potential of existing product lines
better. Mergers and acquisitions also provide new challenges for IT management: Many restructured companies, for instance, have to deal with different ICT infrastructures, databases
or software systems. In this regard, IT integration is an important pre-condition for successful
reorganisation.
Challenges of biotechnological applications
Applications of biotechnology promise many benefits for the pharmaceutical industry. New
substances can be developed that outperform conventional drugs in terms of potency, specificity or side effects. Even more important, biopharmaceutical products can be targeted at
specific diseases and patient subgroups instead of producing one-fits-all drugs for patients
with similar symptoms but different diseases. Thus, biotechnology may well move the pharmaceutical industry from mass-market production towards the supply of targeted treatment
solutions.55
54
Applied Clinical Trials (2004): Clinical trials and CROs in the 21 century, Article at 01.06.2004,
(www.actmagazin.com).
55
IBM (2004): Pharma 2010: The threshold of Innovation, White Paper by IBM Business Consulting Services,
April 2004.
59
July 2005
This development, however, carries its own set of challenges. R&D processes for developing
and testing biopharmaceuticals, for instance, make far more intensive use of computing than
those for conventional drugs. Marketing and sales processes must be able to target specific
customer groups. Supply chain processes need to become more sophisticated, as different
ingredients are needed for different customer groups. In this regard, biopharmaceutical developments are also a key motivation for investments in ICT and e-business technologies.
Dealing with the large amount of data, for example, challenges conventional ICT infrastructures. Therefore significant ICT investments seem to be a basic requirement for companies
who want to jump onto the biopharmaceutical bandwagon.
5.2
Industry statistics
This chapter gives an overview of the size and structure of the pharmaceutical industry, using key economic indicators from the New Cronos database of Eurostat. New Cronos is divided into nine parts (themes). Most of the data used in this chapter are derived from theme
4, Industry, trade, and services, and from the collection sbs (structural business statistics).
All statistics presented were prepared by DIW Berlin, which obtained the most recent data
available from Eurostat in December 2004. Gaps in the official statistics resulting from missing data for individual countries or the respective year in the time-series of a country were
imputed, based on economic calculations and estimates by DIW. The most recent official
statistics available for industry-wide macro-economic indicators are those for 2002 at best.
For the new EU Member States, the most recent national accounts usually date back to
2001.
Size and structure of the industry (EU-25)
Compiling background statistics for all activities that are in any way attributed or related to
the pharma industry would go beyond the purpose of this report. It would require, for example, the inclusion of data on all companies somehow involved in the distribution and sales of
pharmaceuticals. In addition, data on activities in related sectors such as the manufacture of
cosmetics, agrochemicals or medical instruments would have to be included.
Exhibit 5-1: Structure in the pharmaceutical industry (NACE 24.4) in the EU-25 (2001)
Total
(EU-25)
1-9 empl.
10-49 empl.
50-249
empl.
250+ empl.
in % of total EU-25
No. of enterprises
Value added at factor cost (million )
No. of persons employed
3,943
46,4
24,0
18,4
11,2
54,744
0,3
3,0
11,0
85,7
553,600
1,0
4,2
15,9
79,0
Source: Eurostat New Cronos / DIW Berlin
As a compromise, related activities as far as they impact the use of ICT and e-business in
the pharmaceutical industry have been discussed in the analysis and case studies in chapter 2 of this report, whereas the background statistics presented in this chapter focus on the
core of the pharmaceutical industry. The term core pharmaceutical sector refers to all activities subsumed under NACE 24.4, i.e. the manufacture of pharmaceuticals, medicinal chemicals and botanical products.
As displayed in Exhibit 5-1, in 2001 nearly 4,000 companies produced pharmaceuticals, medicinal chemicals or botanical products. They employed roughly a half million people and
generated a value added of more than 50 billion euros. The exhibit also shows the domiJuly 2005
60
nance of big players in this sector: In 2001, large companies (with 250 and more employees)
employed about 80% of the sector workforce and generated more than 85% of the value
added by the manufacture of pharmaceuticals. Nevertheless, it should not be ignored that
roughly 90% of companies active in this sector are SMEs. As has been frequently discussed
in this report, they play a crucial role for a healthy industry structure and in this way for
the innovativeness of the sector.
Production value (EU-25)
The manufacture of pharmaceuticals is concentrated in few countries. This is indicated by
the data presented in Exhibit 5-2: In 2001, more than two thirds of the sectors production
value and value added in todays EU-25 was generated by pharmaceutical companies in the
large EU countries of France, Germany, Italy, and the UK. However, it should be kept in mind
that the statistics displayed in this chapter focus on the core of the pharmaceutical industry.
Thereby, the specific importance of pharmaceutical-related activities in certain countries or
regions might have been neglected. Many pharmaceutical companies in Eastern Europe,
for example, are solely sales and marketing subsidiaries of globally active players. Examples
of this type of company are also discussed in this report (see chapter 3.2), e.g. EGIS Poland
or UCB Pharma Poland. Their activities are most likely not included in these statistics.
Exhibit 5-2: Production value and value added in the pharmaceutical industry (NACE 24.4) in EU-25
countries (2001)
Production Value
BE
Belgium
CZ
Czech Republic
Value Added
million
% of EU-25
million
% of EU-25
7254
5.0
3,184
5.8
468
0.3
186
0.3
DK
Denmark
4524
3.1
1941
3.5
DE
Germany
24,321
16.6
9585
17.5
ES
Spain
9,041
6.2
3000
5.5
FR
France
36,772
25.1
10,362
18.9
IE
Ireland
5,028
3.4
2,292
4.2
IT
Italy
18,495
12.6
6,477
11.8
CY
Cyprus
80
0.1
32
0.1
LV
Latvia
39
0.0
17
0.0
LT
Lithuania
29
0.0
0.0
HU
Hungary
1,177
0.8
596
1.1
MT
Malta
40
0.0
14
0.0
NL
Netherlands
6,416
4.4
1,303
2.4
AT
Austria
1,781
1.2
616
1.1
PL
Poland
1,571
1.1
1,036
1.9
PT
Portugal
904
0.6
331
0.6
SI
Slovenia
663
0.5
264
0.5
SK
Slovak Republic
221
0.2
61
0.1
FI
Finland
914
0.6
420
0.8
SE
Sweden
UK
United Kingdom
6,191
4.2
3,100
5.7
20,118
13.7
9,789
17.9
Others
414
0.3
129
0.2
EU-25
146,459
100
54,744
100
61
July 2005
Employment, productivity and labour cost (EU-25)

In 2001, pharmaceutical manufacturers in France, Germany, and Italy and in the UK also
employed the major share of the sector workforce of todays EU-25 (see Exhibit 5-3). This,
however, does not mean that the pharmaceutical industry is less important as an employer in
all remaining EU countries. On the contrary, the percentage of people employed by pharmaceutical manufacturers as compared to the entire employment in the manufacturing industry
in countries like Belgium (2.7%), Denmark (3.1%), Ireland (3.6%) or Sweden (2.6%) is significantly above the EU-25 average (1.6%).
Exhibit 5-3: Employment, productivity and labour cost in the pharmaceutical industry (NACE 24.4)
in EU-25 countries (2001)
Employment
persons
employed
Productivity
Labour Cost
% of manufacturing
per person
employed
% of manufacturing
Per person
employed
% of manufacturing
18,520
2.7
171,922
263.5
60,112
137.5
6,579
0.5
28,287
264.1
10,124
150.7
BE
Belgium
CZ
Czech Republic
DK
Denmark
15,059
3.1
128,886
240.6
53,554
145.7
DE
Germany
112,753
1.5
85,011
155.3
56,545
133.7
ES
Spain
38,846
1.5
77,238
197.0
47,298
183.2
FR
France
99,380
2.4
104,269
204.8
55,215
146.9
IE
Ireland
9,131
3.6
250,991
191.5
39,776
121.3
IT
Italy
69,241
1.4
93,543
222.9
51,761
178.9
CY
Cyprus
LV
Latvia
739
2.0
43,437
173.6
1,771
1.1
9,486
89.6
5,590
149.5
LT
HU
Lithuania
1,309
0.5
5,959
107.5
6,216
167.5
Hungary
14,081
1.6
42,341
348.2
15,420
221.6
MT
Malta
367
1.2
38,965
163.5
18,306
133.4
NL
Netherlands
AT
Austria
15,162
1.6
85,945
147.3
44,492
116.4
9,194
1.5
66,957
117.5
48,271
123.3
PL
Poland
13,827
179.2
PT
SI
Portugal
6,851
0.8
48,300
245.6
28,917
229.5
Slovenia
31,526
233.2
SK
Slovak Republic
4,067
1.0
14,900
159.5
6,716
131.2
FI
Finland
5,886
1.3
71,407
100.2
36,960
97.8
SE
Sweden
21,002
2.6
147,605
282.7
52,478
132.6
UK
United Kingdom
69,393
1.8
141,072
239.4
58,590
156.1
Others
34,269
1.2
41,699
187.0
EU-25
553,600
1.6
98,887
219.1
49,430
159.1
EU-21
The role of the pharmaceutical industry as a knowledge-intensive industry showing high

productivity and creating jobs with high skill levels is also confirmed by the data displayed
in Exhibit 5-3. In 2001, the productivity per person employed in the pharmaceutical industry
(in todays EU-25) was, for example, more than twice as high as the productivity in the entire
manufacturing sector. In addition, the labour costs per employee in the pharmaceutical industry were about 1.6 times higher than those in manufacturing as a whole. This last figure
indicates that employees in the pharmaceutical industry are better paid than in other manufacturing sectors.
July 2005
62
Differences in the productivity between countries should be considered with caution. There is
typically no single market price for pharmaceuticals throughout Europe. Drug prices, for example, often depend on national reimbursement rules. Even though many pharmaceutical
companies act globally, significant shares of revenue are often earned in the home market.
The productivity may, for example, be influenced by the importance of generics and their
support by national policies within a country. In Germany, for example, the generics market is
quite strong and gets supported by national reimbursement policies, resulting in an increased
price pressure on the German pharmaceutical market. This may partly explain the relatively
low productivity displayed for pharmaceutical companies in this country.
Differences in the labour costs per employee between EU countries seem rather to reflect
the general economic situation of the single countries, than to indicate peculiarities of the
pharmaceutical industries there. The labour costs per employee in Czech pharmaceutical
manufacture, for example, are less than one fifth of those in the UK. However, in both countries the labour costs are about 1.5 times higher than those of manufacturing as whole.
63
July 2005
References
Accenture / HDMA (2004): Annual Economic Benefits of EPC/RFID Total $1.8 Billion for Pharmaceutical Manufacturers, Distributors HDMA Healthcare Foundation Report Quantifies Costs and Benefits of Adoption.,
Press Release, 03.11.2004 (www.accenture.com).
Ascet (2004): RFID: The Pharmaceutical Supply Chains Newest Remedy, Article, Ascet Vol. 6, 15.06.2004
(www.ascet.com).
Auto-ID Center (2003): Securing the Pharmaceutical Supply Chain, June 2003.
Berlecon Research (2004): Prozesse optimieren mit Mobile Solutions, March 2004.
Berlecon Research / BMWA (2003): E-Business-Standards in Deutschland: Bestandsaufnahmen, Probleme,
Perspektiven, Report by Berlecon Research on behalf of the Bundesministerium fr Wirtschaft und Arbeit
(BMWA), April 2003.
Capgemini (2003): Smart & Lean Operations, Report on Perspectives on live science (Vol. 9), Capgemini,
December 2003 (www.us.gapgemini.com).
Capgemini (2003): Capgemini Finds Multi-Billion Dollar Impact Of Radio Frequency Identification Adoption For
The Pharmaceutical Industry, Press Release, 11.12.2003 (www.capgemini.com).
Clinical Trials (2004): Clinical trials and CROs in the 21 century, Article, 01.06.2004 (www.actmagazin.com).
CRA / European Commission (2004): Innovation in the pharmaceutical sector, Study by Charles River Associates undertaken for the European Commission, November 2004 (http://pharmcos.eudra.org).
Datamonitor (2003): IT and Big Pharma Vendor pharmageddon in an economic downturn?, White paper,
January 2003 (www.datamonitor.com).
e-Business W@tch / European Commission (2004): The European E-Business Report 2004. A portrait of ebusiness in 10 sectors of the EU economy, Luxembourg: Office for Official Publications of the European
Communities, 2004; www.ebusiness-watch.org ('resources').
e-Business W@tch / European Commission (2004): Electronic Business in the Chemical industries. Sector
Studies No. 02-I and 02-II, May and August 2004; www.ebusiness-watch.org ('resources').
e-Business W@tch / European Commission (2004): The current state of B2B E-Markets, Special Report, March
2004; www.ebusiness-watch.org ('resources').
EFPIA (2004): The pharmaceutical industry in figures 2004 edition, Report, The European Federation of
Pharmaceutical Industries and Associations 2004 (www.efpia.org).
European Commission / Expert Group on B2B Internet Trading Platforms (2003): Final Report of the Expert
Group on B2B Internet trading platforms, July 2003, (http://europa.eu.int/comm/enterprise/ict/policy/b2b/).
European Commission (2003): Communication on Life Science and Biotechnology A Strategy for Europe Progress Report and Future Orientations, COM (2003) 96 final, Brussels, March 2003.
European Commission (2003): Communication on Adapting e-business policies in a changing environment: The
lessons of the Go Digital initiative and the challenges ahead; COM (2003) 148 final, Brussels, March 2003.
European Commission (2003): Communication on A Stronger European-based Pharmaceutical Industry for the
Benefit of the Patient A Call for Action, COM (2003) 393 final, Brussels, July 2003.
European e-Skills Forum (2004): E-Skills in Europe: Towards 2010 and Beyond, Synthesis Report, September
2004.
Eyeforpharma (2004): Industry experts say marketing ROI critical for the success in the pharmaceutical industry,
Press Release, 12.01.2004 (www.eyeforpharma.com).
FAZ (2001): Novartis glnzt auf dem amerikanischen Markt, Article, 12.10.2001 (www.chemical-newsflash.de).
FDA (2004): Combating Couterfeit Drugs, A report of the U.S. Food and Drug Administration (FDA), February
2004.
July 2005
64
Frost & Sullivan (2004): Cost cutting measures and patent expiration to propel the European generics and biogenerics market, Press release, 19.10.2004.
GXS / VeriSign (2004): Global exchange Services and VeriSign announce partnership to enhance GXS trading
grid with electronic product codes, Press Release, 30.11.2004.
IBM (2004): Pharma 2010: The threshold of Innovation, White Paper by IBM Business Consulting Services, April
2004 (www-5.ibm.com).
IBM (2004): Pharma 2010: Silicon Valley, White Paper by IBM Business Consulting Services, April 2004 (www1.ibm.com).
IBM (2004): Pharma 2010: The value creating supply chain, White Paper by IBM Business Consulting Services,
August 2004 (www-1.ibm.com).
InformationWeek (2004): Watching Out The closer RFID gets to consumers, the hotter privacy issues become,
Article, 16.02. 2005 (www.informationweek.com).
OECD (2001): Competition and regulation issues in the pharmaceutical industry, OECD Directorate for financial,
fiscal and enterprise affairs, February 2001 (www.oecd.org).
PA-Consulting (2004): Combating pharmaceutical fraud. Aegate, the latest venture from PA Consulting Group, to
commence UK pilot in association with BT, Press Release, 03 November 2004 (www.pa-consulting.com).
Pfizer (2004): Pfizer Plans to Incorporate RFID Technology into Viagra Packaging in U.S., Press Release,
30.11.2004 (www.pfizer.com).
Pharmabiz.com (2004): Chronicle Specials: Regulations and labelling for pharma packs, Article, 29.01.2004,
(www.pharmabiz.com).
Pharmaceutical Executive (2004): Spend Trends: A $20 Billion Bill and Plenty of Change, Article, 01.09.2004,
(www.pharmexec.com).
PhRMA (2003): Pharmaceutical industry profile 2003, Report by Pharmaceutical Research and Manufacturers of
America, October 2003 (www.phrma.org).
Philips Semiconductors, Tagsys and Texas Instruments Inc. (2004): Item-level visibility in the pharmaceutical
supply chain, White paper, July 2004 (www.tagsys.net).
PWC (2004): Pharmaceutical Sector - Annual Report 2003, Corporate Finance Insights Analysis & Opinions
on Merger & Acquisition activity, PricewaterhouseCoopers, 2004 (www.pwc.com/pharmainsights).
RFID Journal (2004): EPCglobal must act fast, says BT, Article, 03.11.2004 (www.rfidjournal.com).
RFID Journal (2003): Wal-Mart expands RFID mandate, Article, 18.08.2003, (www.rfidjournal.com).
Zebra Technologies (2004): Track and Trace Solutions for the Life Science Supply Chain2, White paper, 2004
(www.zebra.com).
65
July 2005
Annex: Technical solutions and usage potentials

CRM systems and possibilities for using them (Section 2.2.1)
The term CRM (Customer Relationship Management) solutions stands for integrated software applications that help companies to collect and process information about customers.
The central element of CRM solutions is a database that contains information about its customers, including:
Contact information, e.g. contact person within the customer company and respective contact data etc.
Customer profile, e.g. business activities of the client, (potential) interests in products or services sold;
Contact and customer history, e.g. products acquired, participation at marketing

events or workshops, visits by representatives, calls by sales persons, reactions to
these measures.
There are manifold possibilities for using CRM systems. Typical examples are:
Executing marketing activities: Marketing departments may use CRM systems, for
example, to select the right contacts for marketing activities like mailings or workshop
invitations, according to the contacts interests and the history of the relationship.
Sales force automation: Sales force representatives may use the information provided by the CRM system (e.g. the customer history) as the basis for qualified sales
talks. The systems can also help to manage their sales pipeline, direct them towards
opportunities and generally help them to have the right information available when
needed.
Supervising and organising the work of the sales force: Sales force managers
may use the information stored in the CRM system, for example, to evaluate the work
of the representatives and to plan their deployment.
Supporting the design, the marketing and the sales strategies: Marketing managers
may use the data stored in the CRM-system for analysing the success of past activities, identifying potentials and based on it to plan further activities.
Components of Mobile Solutions (Section 2.2.2)
A mobile solution for connecting fieldworkers to the companys IT typically consists of three
major parts: mobile devices, interfaces for the transmission of data, and mobile software.
Mobile devices: Many pharmaceutical companies (e.g. Queisser Pharma, see business
example) have started early to endow their sales force with mobile devices. Typical mobile
devices used by pharmaceutical representatives today are mobile phones, PDAs (Personal Digital Assistants) and notebook computers. Critical factors for mobile devices suitable
for mobile solutions are, for example, weight, size, boot time, input options optimized for the
specific purpose, as well as the support of powerful data transfer technologies (e.g. GPRS,
EDGE, UMTS).
Interfaces for the direct or indirect transmission of data from the mobile device to the
companys computer system: In the early days of mobile solutions, the focus was often on
browser-based solutions. The idea was that fieldworkers would use their mobile device as a
thin client, by accessing the companies internal applications via a WAP (Wireless Application Protocol)- or similar browser using a wireless radio connection. However, such solutions
July 2005
66
turned out to be slow, unreliable and difficult to integrate in the fieldworkers work routine.
Therefore today only a small fraction of mobile solutions is browser-based.
Instead, most mobile solutions, such as the one presented in the business example on
Queisser Pharma, do not require a permanent wireless connection to the company network.
Rather, mobile devices are equipped with fat clients, i.e. smart applications and databases,
which have all the features needed to be functional offline. They can store the entered data
until the next time a (wireless) connection is established to the company. Thus, the data on
the device can be synchronised from time to time through a fixed-line or wireless connection,
or even when returning to the company. Permanent wireless radio connections are therefore
not required, which makes the solutions more stable and usable in a variety of environments.
Mobile software: The mobile software, which typically consists of a mobile middleware
server installed in the company and of software installed on the devices, is the key component of mobile solutions, particularly of those supporting specific processes. The software
must integrate mobile devices, specific applications and databases installed in the company
backend, as well as data transmission technologies into one complete solution. This includes
the management of access and security issues as well as the synchronisation of data between mobile devices and the companys computer systems. Thus, setting up such a mobile
solution is a typical IT project, not just the usage of yet another telecommunication service.
The main challenges are therefore the same as in many other IT projects involving many
users.
Usage potentials and challenges of mobile solutions (Section 2.2.2)
In general, sales force processes can be optimised with mobile solutions in three ways:
Reduction of redundant process steps: Data recorded in the field e.g. goods in
stock of the pharmacies (see business example) or reports on sales visits can be directly transferred into the central computer systems of the company. In contrast to
traditional data entry processes, no additional manual work is needed. Conversely, information needed by the sales force e.g. the customer history can be accessed directly.
Increasing information quality: In conventional processes media breaks often generate errors. Manually recorded information may be unreadable, or typing errors may
occur when data is transferred from sheets into the computer system. Mobile solutions help to avoid such errors and thus help to reduce costly revisions or inquiries
due to errors. In this way, mobile solutions may also increase the efficiency of CRM
systems, which rely significantly on the quality of information stored in the database.
Access to time- and location-critical data: The possibility of accessing critical information from the field through mobile solutions increases flexibility and enables the
fieldworkers to react promptly to unforeseen changes or client wishes. This decreases
costs, as no second visit due to these changes is needed and at the same time improves customer service and thus customer loyalty.
Technical components of the EPCglobal network (Section 2.3.2)

The EPCglobal network consists mainly of five components, for which specifications must be
developed: an electronic product code (EPC), RFID as an identification system, appropriate
middleware, an EPC information system (EPCIS) as well as an object naming service (ONS).
A central component is the Electronic Product Code (EPC), which can be considered as an
enhanced version of the current product identification standard EAN.UCC. Just like the
EAN.UCC code, the EPC identifies the manufacturer, product, version and serial number. It
uses an extra set of digits to identify unique items. While the EPC might have a good chance
of becoming a global standard in the CPG (Consumer Packaged Goods) industry, this is not
so clear for the pharmaceutical industry. For labelling pharmaceuticals, for example, different
67
July 2005
specifications of article numbers exist, like the PZN (Pharmazentralnummer) in Germany,

IMH in Italy or MSI in Belgium.56 Agreeing on a global common code across industries or
building an infrastructure to relate different codes to each other, are practical obstacles that
may well slow down implementation of the EPC.
EPCglobal favours RFID as the central identification technology for the network, although the
co-existence with the barcode technology over the next few years is acknowledged. However, specifying standards for the deployment of RFID technology in the network is a complex task because of the different components to be harmonized. Specifications are needed,
for example, for the characteristics of RFID tags, for reader protocols managing the information exchange between reader and tag, as well as for communication interfaces and protocols for the radio frequencies used.
Middleware is needed to enable the data exchange between an EPC Reader, or network of
readers, and the information system. The development of middleware components for RFID
systems is challenging in itself. Products passing checkpoints generate a huge amount of
data that has to be filtered, stored and transferred. This is the task of so-called savant servers. Working out savant software specifications is a further task of EPCglobal.
A central idea of the EPCglobal network is the establishment of an Internet of things. According to this approach, each product passing through the supply chain gets its own sort of
Internet site, which contains all information (e.g. pedigree information, expiration date or
price) necessary for related applications. The assignment of products to the website is called
Object Naming Service (ONS). The development of the ONS is delegated to VeriSign, a
provider of infrastructure services that already operates root names servers for the Internet,
which is a similar task.
Finally, the EPC Information Services (EPCIS) enable users to exchange data with trading
partners based on EPCs. On this basis, advanced applications (e.g. electronic pedigrees,
tracking services etc.) can be designed. EPCglobal develops specifications of the XMLbased Physical Markup Language (PML) as a common language for the Information exchange.
56
See for example Pharmabiz.com (2004): Chronicle Specials: Regulations and labelling for pharma packs,
Article, 29.01.2004 (www.pharmabiz.com).
July 2005
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The European e-Business Market Watch

Sector Report No. 04-I (July 2005)

The e-Business W@tch

Berlecon Research GmbH

Fax: (49-30) 285296-29

Fax: (49-228) 98530-12

Fax: (32-2) 2967019

Definition and scope of the study ................................................................... 9

Summary of previous sector studies............................................................ 12

Key application areas of electronic business ......................................14

Conclusions and business implications................................................48

Opportunities and risks for SMEs ................................................................. 48

Outlook on future developments................................................................... 50

Policy implications ................................................................................53

Background information on the sector .................................................56

Industry statistics ........................................................................................... 60

Introduction to the e-Business W@tch

The definition of sectors and the adequate level of aggregation

Interest articulated by the industry in previous years on studies of this type.

1 Food and beverages

3 Publishing and printing

5 Machinery and equipment

55, 62.1+3, 92.3+5

A A User's Guide to ICT Indicators: Definitions, sources, data collection

B International Outlook on E-Business Developments

C E-Business Standards and Interoperability Issues

D ICT Security and Electronic Payments

NACE 24.4: Manufacture of pharmaceuticals, medicinal chemicals and botanical

The use of B2B Internet trading platforms,

Source: Eurostat New Cronos / DIW Berlin, see section 5.2.

Electronic Business in the Pharmaceutical Industry in

Definition and scope of the study

NACE Rev. 1.1

Manufacture of basic pharmaceutical products

Manufacture of pharmaceutical preparations

Manufacture of soap and detergents, cleaning and polishing preparations, perfumes

Manufacture of soap and detergents, cleaning and polishing preparations, perfumes

Manufacture of perfumes and toilet preparations (cosmetics industry)

Manufacturers of medical instruments and providers of healthcare services:

The manufacture of pharmaceuticals is concentrated in only a few countries. In 2001, more

Summary of previous sector studies

Assessment: Manufacturing sector with a

Chemical companies tend to be pragmatic and

Still, in terms of business connectivity and

Max = maximum indexed value for one of the 9 sectors

Source: e-Business W@tch (2003/04)10

Key application areas of electronic business

Title and Purpose

Chapter 2.1: Use

Example of integration platforms that are initiated, financed and supervised by

Potentials for manufacturers of pharmaceutical products and their customers

Insights into e-business related problems faced by medium-sized companies

Chapter 2.2: The

Case Study: Deployment of a new CRM system at EGIS Poland

Example of pharmaceutical manufacturer deploying mobile solutions to streamline

Business example: Authenticating pharmaceuticals at the point of dispensing

Use of B2B Internet trading platforms in the pharmaceutical sector

2.1.1 From e-marketplaces to B2B trading platforms

Results of the e-Business W@tch Survey 2003.