10 July 2009
Consolidation and online pharmacy are the key trends in the medicines distribution in the United States
The US pharmaceutical wholesale and pharmacy sector has witnessed a rapid wave of consolidation to reach its current concentrated form meaning that 80% of all drugs sold are handled by three just companies. There has been terrific growth in online pharmacy driven by consumer demand for cheaper products notes a report from URCH Publishing.
The U.S. wholesale sector is now dominated by Cardinal Health Inc., McKesson Corporation and AmerisourceBergen Corporation, known collectively as the ‘Big Three. These companies account for between 90% and 95% of revenue within the sector. Over 100 buyouts have taken place since 1980, and at least 57 have occurred over the past decade. Despite their dominance of the market, the Big Three continue to look for further acquisitions, and market conditions favour a trend towards further consolidation. Some believe that new regulations will restrict the activities of smaller distributors, thereby making them easier targets for the Big Three.
The dominance of the Big Three has persuaded the Federal Trade Commission to re-examine their activities. What appears to have prompted regulators to act is that the scale of dominance of these companies has far outgrown their expectations. Although there is no evidence of any gross violations, there is the potential for the $275 billion-plus market to be distorted as a result of the activities of these companies, since four out of every five drugs sold in the US are said to pass through the hands of the Big Three. Furthermore, their influence appears to be growing as they branch out into other activities such as the distribution of medical devices.
There is also a concern that the activities of the Big Three are contributing to higher drug prices, since these companies tend to deal in bulk purchases and deliveries. There has been speculation that smaller facilities will be unable to gain a supply of medicines at a reasonable price from these companies. Because pharmaceutical manufacturers prefer to deal with the Big Three, smaller distributors have no choice but to deal with these companies and accept their business conditions.
Pharmacy is also consolidating
Like the wholesale sector, the US pharmacy market has been transformed by a wave of consolidation, to be dominated by Walgreens and CVS Caremark. Independent pharmacies are under pressure as chain drug stores expand across the country. It is estimated that chain drug stores now account for 41% of all U.S. prescription sales. Walgreens is estimated to open a new store every 19 hours and has set itself a target of 7,000 stores by 2010. CVS Caremark, the product of a 2007 merger between CVS Corporation and Caremark Rx Inc., has become the largest provider of prescriptions in the US and is primed to expand further. This trend is forcing independent pharmacies to offer additional services so that they can remain competitive and show direct value to the consumers in their communities.
Online comes of age
Another feature of the US is the growth of mail-order and online pharmacies consumer demand for cheaper products. Most mail-order pharmacies are owned and operated by PBMs, but several of the large retail pharmacy chains also own mail-order pharmacies. “The growth of these pharmacies has been fuelled by employers, unions and other plan sponsors who believe they can reduce drug benefit costs. These health plans typically rely on economic incentives to encourage mail-order use, but many are now mandating mail-order provisions,” notes Dr Faiz Kermani, author of the report Pharmaceutical Distribution in the US: Current and Future Perspectives.
Regulators have become increasingly worried at this trend, since some websites offer prescription products without requiring a doctor’s prescription, a practice that is illegal in the US. The existence of online pharmacies has also contributed to the debate over re-importation. While importing prescription medication into the US by individuals for personal use is technically illegal, there is a degree of ambiguity in how this area is regulated. A number of manufacturers have stopped distributing their products to Canadian wholesalers and pharmacies that they suspected of selling their products to US consumers over the Internet. The pharmaceutical industry is firmly opposed to parallel trade as a concept because it feels that the practice will allow counterfeit products to enter the US supply chain, thereby putting consumers at risk.
In recent years, the US government and all the parties involved in pharmaceutical distribution have made increasing efforts to protect the national supply chain. Since it represents the means for medicines to reach patients, any breaches in the system would be catastrophic and could affect millions of people. The system faces numerous threats, including counterfeiting, terrorism and disruption resulting from man-made and natural disasters. New technologies combined with effective planning are needed to prepare for even the worst eventualities.
The US supply chain is set to undergo great changes in the next decade. Although a number of external factors will have an impact, the complex relationship between each of the parties in the supply chain will be the most important. Although they all depend on each other for maintaining the supply chain, they all wish to have greater control of the process of delivering medicines to patients. Pharmaceutical manufacturers and pharmacists all have their own opinions regarding the structure of the supply chain, and their actions to reinforce their views will shape the future of the system.
