At a high level, pharmaceutical wholesalers will benefit from overall growth in demand for prescription drugs spurred by the Affordable Care Act, according to Adam Fein, founder and president of Pembroke Consulting Inc. "Between 2012 and 2022, total U.S. expenditures on prescription drugs will grow by about $194 billion to $455 billion by 2022," Fein told MDM.
The finding is one of many in the Drug Channels Institute’s new 2013–14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. Fein, who authored the report, is the institute's CEO.
There may also be some negative effects from the newly effective law, according to Fein. "In particular, one aspect of the law will dramatically reduce retail pharmacies' profits from dispensing generic prescriptions in the Medicaid program, and that will have an indirect effect on wholesalers." As distributors' customers lose money and are under increasing price pressure, Fein says, wholesalers will feel some of that pressure, as well.
Other effects of Obamacare on pharmaceutical distribution, he says, would be indirect and difficult to measure. "In one sub-segment of the market, the oncology products, there could be some other effects, but it's a little hard to tell. There are some factors there that aren't directly related to Obamacare, but the changing healthcare system is affecting wholesalers."
Outside of the Affordable Care Act, here are other factors Fein says are affecting the pharmaceutical supply chain:
The replacement of brand-name drugs with generics. "In the United States, the pharmaceutical industry has been going through what is called a generic wave," Fein says. "The generic dispensing rate – the percent of prescriptions filled with a generic drug instead of a brand name drug – has grown dramatically in the last 10 years." In 2012, 80 percent of prescriptions were filled with a generic drug, he says. The trend is largely due to an increase in expiring patents.
The trend reduces wholesalers' revenues, often dramatically, but Fein says generic drugs are much more profitable for wholesalers than brand-name ones. "The channel has a much more enhanced bargaining position with the generic manufacturers versus a brand-name manufacturer. For a brand-name drug, the company essentially has a government-granted monopoly."
Fein says he expects the current shift to generic to end in a few years, when most of the brand-name drugs with recently expired patents have already gone generic.
Continuing industry consolidation. "Today the five largest dispensing pharmacies are almost two-thirds of the entire retail specialty pharmacy market. So these very large customers can negotiate very deep discounts," Fein says. Continuing consolidation at the customer end is generally not favorable to wholesalers, he says.
The shift from retail to specialty drugs/pharmacies. As the release of specialized drugs treating smaller patient populations with more complex diseases has accelerated, specialty pharmacies are playing a bigger role. "The patients taking those (medications) typically need a lot more disease education and support, and insurance coverage is usually much more complicated," Fein says. So wholesalers looking to keep their roles in the channel are stepping up their level of support.
"Wholesalers are undertaking a number of strategies to try to stay in that channel. They're trying to support the smaller specialty pharmacies, which still purchase through wholesalers. They're trying to work and maintain, to the extent they can, the community oncology market and those physician practices that buy and administer specialty drugs," Fein says. In some cases, though, wholesalers' role may be very limited. "And sometimes the wholesaler cannot really change that," he says.
For more insights on pharmaceutical distribution from Fein, read the 2013–14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors or follow Fein's Drug Channels blog.
