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Top Pharmaceuticals Distributors

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This report provides an in-depth look at key trends in distribution in 2012, including sector trends. It is available to suscribers to MDM Premium. Access this report now.

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Trends and top distributors in the pharmaceuticals sector:

Editor's note: This article was provided by Adam J. Fein, Ph.D., founder and president of Pembroke Consulting, Inc., and one of the country's foremost experts on pharmaceutical economics and channel strategy. He also writes the writes the popular and influential Drug Channels website and publishes an annual report on the pharmaceutical wholesaling industry.

Click here to download the 2012-13 Economic Report on Pharmaceutical Wholesalers.

MARKET LEADERS

Three companies generate about 85% of all revenues from pharmaceutical wholesaling in the United States: AmerisourceBergen Corporation (NYSE:ABC), Cardinal Health, Inc. (NYSE:CAH), and McKesson Corporation (NYSE:MCK). Total U.S. revenues from the drug distribution divisions of these Big Three wholesalers were $290 billion in calendar year 2011.

In addition to these three companies, there are a number of smaller primary and secondary drug wholesalers. Here are some of the larger wholesalers and their estimated annual revenues:

  • Morris & Dickson ($3.7 billion)
  • H.D. Smith ($3.4 billion)
  • Smith Drug ($2.3 billion)
  • NC Mutual Wholesale Drug ($1.1 billion)
  • Anda Distribution ($831 million)
  • Value Drug Company ($750 million)
  • Harvard Drug Group ($360 million)

Other regional and specialty wholesalers include: Burlington Drug, Dakota Drug, FFF Enterprises, King Drug, Miami-Luken, MMS Rochester Drug Co., and Seacoast.

The non-Big Three drug wholesalers play important roles in the industry.

  • They are the primary wholesale suppliers for smaller retail and non-retail customers.
  • They provide a secondary source of supply for customers of the Big Three wholesalers, especially independent retail pharmacies and small chains.
  • They often focus on a subset of the market, such as a geographic region or a specific product category (generic or specialty drugs).

INDUSTRY TRENDS

Here are five significant trends affecting the drug wholesaling industry:

Pharmaceutical Market Growth - Revenues of drug wholesalers are linked not to overall economic cycles but to growth in prescription drug spending. Wholesalers will benefit from projected growth in this spending, which has recently been revised upward due to U.S. health care reform. (See CMS' Bright Future for Drug Spending in 2020.) Revenues in the pharmaceutical industry will shift from traditional brand-name drugs to specialty drugs over the next few years. (See Top Ten Drugs of 2016.) Specialty distributors will benefit from growth in specialty products administered in physician offices and clinics. Full-line wholesalers will benefit most from specialty drugs administered by healthcare providers in hospitals, clinics, and physician offices

Pharmacy Industry Consolidation - The ongoing consolidation of the pharmacy industry will continue to pressure wholesaler profit margins from drug distribution. In 2011, the top six dispensing retail and specialty pharmacies - CVS Caremark, Walgreens, Medco Health Solutions, Walmart, Rite Aid, and Express Scripts - accounted for 64% of U.S. pharmacy dispensing revenues. (See 2011 Market Share of Top Pharmacies.) Larger chains and mail-order pharmacies, which have much lower profit margins on brand-name drugs for wholesalers, continue to grow faster than other segments of the market. (See How the Pharmacy Industry Changed in 2011.) Consolidation also hurts wholesalers, because large, self-warehousing customers bypass wholesalers to purchase more-profitable generic drugs. In the future, these large customers may also attempt to bypass wholesalers to buy brand-name drugs directly from manufacturers.

The Outlook for Independent Drugstores - Independent pharmacies remain a viable channel. (See 2010: A Good Year for Independent Pharmacies.) This dispensing format, which is strategically important to wholesalers, is losing overall prescription market share but still growing in absolute size. Entrepreneurial pharmacy owners are also going after the growing specialty pharmacy opportunity. (See 7 Reasons Why Specialty Drug Dispensing Will Boom and Armada 2012: Reflections on the Evolving Specialty Marketplace.)

The Generic Wave - An unprecedented volume of brand-name drugs will lose exclusivity and face generic competition over the next five years. (See Medco's Latest Update on the Generic Wave.) The substitution of brand-name drugs for generic drugs will reduce drug wholesalers' revenue growth. Wholesalers will still benefit from this wave, since a majority of their profits come from generic drugs. (See Wholesaler Profits in the Generic Wave.) However, pressure on channel profits from generic drugs is rising, which will indirectly affect wholesalers by altering the pharmacy industry. (See Retail and Mail Pharmacy Economics Start Converging and New York's Anti-Mail Bill and the Coming Generic Price War.)

The Battle for Control of Specialty Drugs - Third-party payers are increasingly dissatisfied with the buy-and-bill process for specialty pharmaceuticals covered under a patient's medical benefit. (See The Future of Buy-and-Bill According to Payers and Oncology Practices.) In response, some pharmacy benefit managers (PBMs) are developing services that shift payment for specialty drug management from the medical benefit to the pharmacy benefit. (See New Data on Specialty Pharmacy's Challenge to Buy-and-Bill.) This shift corresponds to the substitution of the specialty distributor-to-provider distribution channel for a specialty pharmacy-to-provider distribution channel. The specialty product is dispensed to the patient by a specialty pharmacy but drop-shipped directly to the provider, a process often called white bagging. If successful, the shift from medical to pharmacy benefit coverage will diminish the role of specialty distributors in the channel.