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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. Dr. Fein writes the popular and influential Drug Channels website, the go-to source for definitive and comprehensive industry analysis, delivered with a witty edge.

Every year, Pembroke Consulting and Drug Channels Institute publish economic reports with up-to-date, fact-based economic analyses of key drug channel participants. Each report synthesizes a wealth of statistical data, research studies, financial information and our unique business consulting experience into a definitive, nonpartisan resource. Click here to download the 2014-15 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.


Market Leaders


Full-line wholesalers purchase, inventory and sell a manufacturer’s complete pharmaceutical product line unless otherwise designated. These wholesalers sell primarily to pharmacies outside a wholesaler’s ownership control. Full-line drug wholesalers service a diverse set of pharmacy outlets. These include retail pharmacy outlets and such institutional settings as hospitals and clinics. Retail, mail and specialty pharmacies account for 73% of full-line wholesaler sales.

Three companies generate about 85% to 90% of all revenues from drug distribution in the United States: AmerisourceBergen Corp. (NYSE: ABC), Cardinal Health Inc. (NYSE: CAH) and McKesson Corp. (NYSE: MCK). In calendar year 2013, total U.S. revenues from the drug distribution divisions of these Big Three wholesalers were $288.9 billion, a 4% increase from 2012.

In addition to these three companies, there are a number of key industry participants. Here are some other large wholesalers and their estimated annual revenues:

  • Morris & Dickson ($3.6 billion)
  • H.D. Smith ($3.5 billion)
  • Smith Drug ($2.4 billion)
  • Curascript Specialty Distribution ($2.0 billion)
  • Anda Distribution ($1.2 billion)
  • NC Mutual Wholesale Drug ($1.1 billion)
  • Rochester Drug Cooperative ($900 million)


Other regional and specialty wholesalers include: BDI Pharma, Burlington Drug, Dakota Drug, FFF Enterprises, Harvard Drug Group, King Drug, Miami-Luken, Seacoast and Value Drug. There are also thousands of smaller companies that are licensed by U.S. states as wholesalers.


Specialty distributors sell specialty pharmaceuticals primarily to physician-owned/operated clinics, hospitals, and hospital-owned outpatient clinics. Specialty distributors also supply self-administered drugs to specialty pharmacies.

The largest specialty distributors are divisions of full-line wholesalers. These include the distributors in AmerisourceBergen Corp.’s Specialty Group (Oncology Supply, ASD Healthcare and Besse Medical) and McKesson Specialty Health (a business unit of McKesson Corp.). Cardinal Health, the third-largest full-line wholesaler, has a comparatively small business distributing specialty drugs to physician offices and clinics.

Other specialty distributors include Metro Medical Supply, CuraScript SD (a business owned by Express Scripts) and many smaller companies. Other full-line wholesalers are expanding into specialty distribution. H.D. Smith, one of the largest regional full-line wholesalers, launched its Smith Medical Partners division to service this market. Morris & Dickson recently launched M&D Specialty Distribution.


Industry Trends


Here are four significant industry trends that will substantially impact the drug wholesaling industry in the coming years.:


Growing Prescription Demand and Customer Consolidation—Wholesalers will benefit from the expected overall growth in demand for prescription pharmaceuticals and the corresponding increase in drug spending. (See CMS Forecast: Big Drug Spending Growth, But Hospitals and Doctors Will Still Capture Most Healthcare Spending.) U.S. healthcare reform will increase spending on drugs due to such factors as the healthcare coverage expansion, the shrinking Medicare Part D coverage gap, and new requirements for prescription drug coverage.

Large pharmacy customers have restructured their wholesale relationships, shifting from self-warehousing to direct-store deliveries from a wholesaler. (See McKesson, Rite Aid, and the Changing Generic Channel.) However, the pharmacy industry’s ongoing consolidation will continue to pressure wholesaler profit margins from drug distribution. (See 2013’s Top Pharmacies by Rx Revenues: The Big Get Bigger.) Larger chains, which provide much lower profit margins for wholesalers, keep growing faster than other market segments. (See 2013 Pharmacy Market Analysis: Chains Up, Mail Down.)

The Changing Generic Marketplace—Generic drugs now dominate U.S. prescription activity. Wholesalers benefit from this trend, since a majority of their gross profits comes from generic drugs. Wholesalers are also gaining from the unexpected generic inflation windfall. (See Retail Generic Drug Inflation Reaches New Heights and Winners and Losers from Generic Drug Inflation.) Wholesalers are now participating in new organizations that aggregate generic purchasing power, and expanding their own-brand, private label generic products. (See Cardinal and CVS Caremark Form a Generic Power Buyer: Deal Analysis and Hammer Time: McKesson Starts Pressing Generic Drug Makers for Global Savings.)

However, pressure on pharmacy profits from generic drugs is increasing, which will indirectly affect wholesalers that supply pharmacies. These challenges include a retail generic price war, the growth of narrow pharmacy networks, and new pharmacy reimbursement methods.

The Evolving Specialty Market—Wholesalers will generally benefit from the pharmaceutical industry’s shift to specialty drugs. It is projected that by 2020, 9 of the 10 best-selling drugs by revenue will be specialty drugs, compared with 3 drugs in 2010 and 6 in 2013. (See Future Vision: The Top 10 Drugs of 2020.) Wholesalers will gain from the growth of pharmacy-dispensed specialty drugs and the corresponding increase in pharmacies dispensing these medications. (See The Explosion in Accredited Specialty Pharmacies and Seven Trends For Specialty Pharmacy’s Future: Reflections on Armada 2014.) However, wholesalers face risks from limited pharmacy networks and the brand/generic mix at specialty pharmacies.

Wholesalers’ specialty distribution businesses will also benefit from growth in provider- administered specialty products. However, third-party payers are increasing specialty pharmacies’ role in managing and distributing these drugs. (See Payers Want Specialty Drug Distribution to Change.) Distributors will also struggle with the changing community oncology market. (See Unsweet Charity: 340B Abuses When Hospitals Buy Oncology Practices.)

The Era of Global Drug Distribution—The Big Three wholesalers are diversifying outside the U.S., which accounts for only about one-third of the world’s pharmaceutical business. These key transactions illustrate the pace of global expansion:

  • In 2010, Cardinal Health entered China, which now accounts for $2.6 billion of its revenues. (See Cardinal Gets to China First.)
  • As part of its 2012 supply arrangement with Walgreens (page 119), AmerisourceBergen gained the opportunity to expand its specialty and manufacturer services businesses internationally in partnership with Alliance Boots. The new Walgreens-Alliance Boots organization will hold a significant ownership stake in AmerisourceBergen, suggesting future cross-border linkages. (See Walgreens and Alliance Boots Explain Their AmerisourceBergen Relationship.)
  • In 2014, McKesson acquired Celesio, a global retail and wholesale company operating in 13 European countries and Brazil. (See McKesson Finally Snags Celesio: Analyzing the Deal.)

Drug distribution operates very differently in other countries, creating opportunities for wholesalers to bring U.S. best practices to other parts of the world. However, these markets will also create new global risks and challenge wholesalers’ management to think differently about their business.