Drug Wholesalers Share of Market Increasing

Pharmaceutical distributors or drug wholesalers act as the connection in the drug distribution chain. These companies buy pharmaceuticals directly from the large pharma companies, warehouse and then distribute them to pharmacies throughout the United States.

Drug Wholesalers are basically protected from economic cycles. Drugs are usually non-discretionary for patients, and the wholesalers are not subject to some of the same issues that pharma manufacturers face including price and patent risk. Profit margins are small, but the industry has high barriers to entry due to the distribution networks and relationships needed.

Drug Wholesalers face a number of challenges including the increasing impact large pharmacies and PBMs have in the market. These companies have the capability to negotiate with pharma companies and have distribution networks to individual locations.

The drug wholesaler industry is controlled by the three large players: AmerisourceBergen, Cardinal Health, and McKesson. Although these three companies control approximately 75% of the market, there are numerous regional and local drug wholesalers competing in the market. Pharmaceutical Commerce recently reported that 87% of all prescription drug sales revenue was handled by distributors in 2010, up from 82% in 2007.

Some wholesalers sell to a broad range of potential clients while others specialize in sales of particular products (e.g., biologic products) or sales to particular types of customers (e.g., nursing homes).

In the past, wholesalers limited their operations to a traditional distribution function. They provided the link between manufacturers and pharmacies (and other entities, e.g., government sites and physicians) by warehousing products and managing inventory. While “traditional” distribution services remain the cornerstone of the business, the industry has developed a more comprehensive list of services in response to the evolving marketplace.

Today, wholesale distributors provide a number of specialized services, including specialty drug distribution, drug repackaging, electronic order services, reimbursement support, and drug buy-back programs.

Additional information available