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M&A in pharma

Explores the merits of mega-deal in contrast to a more measured portfolio growth strategy

In the US, the pharmaceutical supply chain involves the daily delivery of approximately 13 million prescription products to pharmacies, hospitals, clinics and other healthcare provider locations

In recent years, the US government and interested parties have made increasing efforts to protect the national supply chain for medicines distribution. 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 external threats, including counterfeiting, terrorism and disruption resulting from man-made and natural disasters. Industry challenges include the dominance of 3 wholesalers, growth of mail order and the wave of pharmacy consolidation.

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.

Pharmaceutical Distribution in the US - Current and Future Perspectives from URCH Publishing, delivers a comprehensive and expert overview of the distribution of medicines in the United States. This 40,000 word report will provide the reader with accurate insight into this complex and rapidly changing sector. 

Some key findings from this report include:

• In 2008 the US pharmaceutical wholesale market was worth $275bn
• McKesson, AmerisourceBergen and Cardinal Health Inc, known as the ‘Big Three', account for between 90-95% of revenue within the US pharmaceutical wholesale sector.
• The ‘Big Three' have been responsible for over 100 buyouts since 1980, at least 57 of which have occurred over the past decade.
• It is estimated that US chain drug stores currently account for 41% of all prescription sales, with the dominant players being Walgreens and CVS Caremark.
• A change from wholesale to direct distribution in the US is unlikely. A US wide direct distribution model would cost the pharmaceutical industry $47.9bn to operate. This would be 15.5% increase on current distribution costs.

Use This Report To:

• Understand the environment for medicines distribution in the US.
• Identify where the sector might change in the next few years. Analyse threats and opportunities.
• Spot potential areas of pharmaceutical distribution market growth and opportunities for delivering successful sales growth

This unique report will deliver insight into:

• Efforts to protect the medicines supply chain and disaster plan, in particular to deal with counterfeiting.
• The 3 major wholesalers AmerisourceBergen Corporation, Cardinal Health and McKesson Corporation and the growing concern about their dominance.
• The sophisticated technology that underpins distribution in particular EPoS, Barcoding and RIFD
• The practice of pharmacy and the main players in the pharmacy sector and current issues regarding dispensing including Rx-to-OTC switching, patient compliance and biogeneerics.

Major organisations mentioned in this report include.

American Pharmacists Association
AmeriSource
AmerisourceBergen
Bergen Brunswig
Boehringer Ingelheim
Cardinal Health
Centers for Medicare and Medicaid Services
CVS Caremark
Food and Drug Administration (FDA)
GlaxoSmithKline
Informed Decisions, LLC
K-Mart
Lewin Group
McKesson Distribution Solutions
Nadro
National Association of Chain Drug Stores
National Community Pharmacists Association
Pfizer
Pharmaceutical Research and Manufacturers of America
RxHub
RxUSA
Sanofi-Aventis
SureScripts
Verispan
Walgreens
Wal-Mart Target
Wegmans
Wyeth

Executive Summary

Chapter 1: The US Pharmaceutical Supply Chain
The pharmaceutical supply chain
The US pharmaceutical industry
The role of pharmaceuticals
US pharmaceutical manufacturers
Pharmaceutical Research and Manufacturers of America (PhRMA)
The US biotech industry
The Biotechnology Industry Organization (BIO)
Case study: the pharmaceutical and biotech industries at a state level
The US pharmaceutical market
The US healthcare system
Medicare and Medicaid
State Children’s Health Insurance Program
Pharmaceutical legal obligations
Wholesale distribution
The US wholesale market
Primary wholesalers
Secondary wholesalers
Prescription Drug Marketing Act
PDMA revisions
The pedigree requirement
State-level actions
US pharmacy market
Pricing freedom
US pharmaceutical spending
Pharmaceutical pricing issues in the US
US consumer pricing studies
Outlook for US biopharmaceutical R&D
Average wholesale price and average sales price
Internet trading
Parallel trade

Chapter 2: The US Wholesale Sector
Wholesaling in the US
The Healthcare Distribution Management Association
The National Coalition of Pharmaceutical Distributors
Wholesaler consolidation
Challenges to the dominance of the Big Three
Case study: RxUSA launches legal challenges against the Big Three
Cardinal Health Inc
McKesson Corporation
AmerisourceBergen Corporation
Wholesaler technology solutions
Electronic data interchange
Collaborative planning, forecasting and replenishment
Enterprise resource planning
Order fulfilment packages
Database technology
Electronic point-of-sale technology
Barcoding
Case study: US highlights benefits of barcode and RFID technologies
Costs and benefits of EPC/RFID implementation
Warehouse technology
Dispensing technology
Future systems
The US supply chain and direct distribution
Development of direct distribution in Europe
Rationale behind changes in the supply chain
Challenges to direct distribution in the US
US wholesalers and globalisation

Chapter 3: Pharmacy in the US
The US pharmacy sector
The American Pharmacists Association
Case study: the AphA and medication therapy management
The Academy of Managed Care Pharmacy
Chain drug stores
National Association of Chain Drug Stores
Case study: the National Trust for Historic Preservation responds to chain drug stores
Independent pharmacies
National Community Pharmacists Association
Mail-order pharmacies
Online pharmacies
Case study: PharmacyChecker.com
Pharmacists and parallel trade
OTC products
Rx-to-OTC switching
Pharmacists and OTCs
Case study: US pharmacists and Rx-to-OTC switching of allergy products
Pharmacy benefit managers
The Pharmaceutical Care Management Association
Case study: PBMs force patients to switch medications
The future of US pharmacy
Patient compliance
Pharmacies and retail health clinics
Case study: 2008 survey of patient use of retail health clinics
Case study: Florida tightens pharmacy regulations
Biogenerics
Case study: biogenerics legislation restrictions for pharmacists
Pharmacy groups launch Project Destiny

Chapter 4: Protecting the US Supply Chain
Safeguarding the supply chain
Disaster planning and the supply chain
Alternative strategies for mass distribution of medicines
Case study: US community pharmacies launch Rx History
Case study: ICERx.org
Product shortages in the supply chain
The Food and Drug Administartion (FDA) and drug shortages
Case study: vaccine shortages and the effect on the supply chain
Counterfeiting
Anti-counterfeiting cooperation
Counterfeiting and the pharmaceutical industry
FDA anti-counterfeiting measures
FDA recommendations on combating counterfeits
Case study: the FDA’s Counterfeit Alert Network
Case study: AstraZeneca opts for mass serialisation to prevent counterfeiting
Using nanotechnology to combat counterfeiting
Case study: FDA Nanotechnology Task Force report

References

List of Tables
Table 1.1 Types of manufacturer medicines
Table 1.2 The four parts of Medicare
Table 2.1 Cardinal Health corporate business units
Table 2.2 McKesson corporate business units
Table 2.3 AmerisourceBergen Corporation business segments
Table 2.4 Overall risks of DTP identified by the OFT
Table 2.5 Challenges for a US direct distribution model
Table 3.1 Potential patient benefits of medication therapy management
Table 3.2 Potential competitive advantages of mail-order pharmacies
Table 3.3 PharmacyChecker.com classification of online pharmacies
Table 3.4 Top five major players in the pharmacy/retail clinic sector
Table 3.5 The four components of Project Destiny
Table 4.1 The application of the HIPAA in emergency situations
Table 4.2 Recommendations to improve mass distribution of medicines during an emergency through using the private sector
Table 4.3 ICERx.org partnerships
Table 4.4 Key areas of focus for the International Medical Products Anti-counterfeiting Taskforce (IMPACT)

List of Figures
Figure 1.1 Outline of the traditional supply chain
Figure 1.2 Global R&D expenditure
Figure 1.3 Pharmaceutical revenues for major companies (2007)
Figure 1.4 Pharmaceutical R&D for major companies (2007)
Figure 1.5 Revenues for major biopharmaceutical companies (2007)
Figure 1.6 R&D for major biopharmaceutical companies (2007)
Figure 1.7 US pricing environment compared with Europe and Japan
Figure 1.8 Ongoing US pharmaceutical R&D dominance
Figure 1.9 Share of parallel imports in European pharmacy markets
Figure 2.1 Annual revenues for Cardinal Health and subsidiaries
Figure 2.2 Annual revenues for McKesson Corporation
Figure 2.3 Annual revenues for AmerisourceBergen Corporation
Figure 3.1 Annual revenues for Walgreens
Figure 3.2 Annual revenues for CVS Caremark
Figure 3.3 Average annual sales per US pharmacy location
Figure 3.4 Staff costs as a percentage of US pharmacy operating expenses
Figure 3.5 Online pharmacy price analysis for select brands
Figure 3.6 Online pharmacy price analysis for select generics
Figure 3.7 Flow of goods and payment in the US supply chain
Figure 4.1 Counterfeit drug cases opened by the FDA

Dr Faiz Kermani has over 15 years’ experience in both academia and the pharmaceutical industry. He has worked in pharmaceutical R&D, pricing and reimbursement, marketing and medical education. Dr Kermani holds a PhD in Immunopharmacology from St Thomas’s Hospital, London, and a First Class Honours degree in Pharmacology with Toxicology from King’s College London. He has written extensively on international healthcare issues, and is on the editorial board of a number of publications. In March 2006, he was a delegate on the UK Government’s Trade and Investment Biotech Scoping Mission to China and contributed to the subsequent report.