2012-13 Economic Report on Pharmaceutical Wholesalers

by Adam J. Fein, Ph.D.
(141 page downloadable PDF file; Released September 2012)

Corporate License: $2,950 (Allows for use of the report by an unlimited number of employees within the same organization or enterprise worldwide. View License Terms.)   Department/Team License: $1,060 (Allows for use of the report by up to 10 employees within the same organization or enterprise. View License Terms.) Single-User License: $370 (Allows for use of the report by one individual person. View License Terms.) Payment can be made with all major credit cards (Visa, MasterCard, American Express, and Discover) or via PayPal. Contact us if you would like to pay by check. License terms, purchaser's name/email, and a unique transaction ID will be added to the secure PDF file upon checkout. All sales are final after download. Please contact us if you would like to upgrade the license. You will pay only the difference in fee. The $300 billion U.S. drug wholesaling industry is evolving faster than ever. The biggest wholesalers are positioning themselves as indispensable intermediaries in the supply chain and staking out a powerful position in high-growth channels for specialty drugs. In 2011, the largest wholesalers grew faster than did manufacturers or retail pharmacies. Understanding wholesalers' strategies and finances has never been more crucial. The completely updated, revised, and expanded 2012–13 Economic Report on Pharmaceutical Wholesalers gives you a comprehensive overview and analysis of the latest financial and industry data. The report was researched and written by Adam J. Fein, Ph.D., one of the world’s leading experts on the industry and author of the influential Drug Channels website. Dr. Fein synthesized a wealth of statistical data (including 62 data-packed exhibits), research studies, financial information, and his own unique business consulting experience into a definitive, nonpartisan resource. After reading the 2012-13 Economic Report on Pharmaceutical Wholesalers, you will be able to: Identify the key participants in the drug wholesaling industry Explain the services provided by wholesalers to pharmacies, hospitals, and manufacturers Distinguish among the different wholesalers’ services provided to larger and smaller pharmacies Describe the evolving sources of wholesaler compensation and profits Delineate the sources and uses of cash generated by wholesalers’ business operations Define the key industry trends affecting the wholesale industry Assess differences among the Big Three wholesalers’ business performance The many new sections in the 2012-13 edition include: an overview of wholesaler key business strategies; a new chapter examining financial stability at the largest companies; information on wholesalers’ role in the 340B discount program; new content regarding pedigree and supply chain enforcement; profit estimates throughout the generic drug lifecycle; additional analysis of top customers; and much more. The report also provides detailed company analysis of the Big Three public wholesalers: AmerisourceBergen, McKesson, and Cardinal Health. The 2012–13 Economic Report on Pharmaceutical Wholesalers is an invaluable planning tool for pharmaceutical manufacturers, wholesalers, pharmacy buyers, benefit managers, managed care executives, healthcare policy analysts, investors—anyone who wants to understand and benefit from the forces reshaping the highly competitive U.S. drug wholesaling industry. No other report on the market today offers the depth, insight and analysis of the 2012-13 Economic Report on Pharmaceutical Wholesalers. Please note that purchase of the 2012-13 Economic Report on Pharmaceutical Wholesalers indicates agreement with the terms and conditions of the End User License Agreement (EULA). License terms, purchaser's name/email, and a unique transaction ID will be added to the secure PDF file upon checkout. You must purchase a Department/Team or Corporate License if you want to share the report with other people in your company. Upon request, we will refund duplicate purchases of a Corporate License from the same organization.

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TABLE OF CONTENTS

Report Summary and Key Definitions

Chapter 1: Industry Overview

• Defining Drug Wholesaling

  • Customer Served by Wholesalers

  • Regulatory Definitions

  • Products Sold by Wholesalers

• Industry Participants

• Revenue Growth Trends

Chapter 2: Channel Role for Pharmacies and Hospitals

• Smaller Retail Community Pharmacies

• Independent Drugstores

  • Wholesaler Services for Independent Pharmacies

  • PSAOs and the Wholesalers’ Role in the Pharmacy-PBM Relationship

  • Wholesaler Relationships with Pharmacy Buying Groups

  • Wholesaler Generic Programs for Retail Pharmacies

• Self-Warehousing Chains and Mail-Order Pharmacies

  • The Importance of Warehouse Deliveries to Wholesaler Revenues

  • Why Large Customers Buy Brand-Name Drugs from Wholesalers

• Healthcare Providers and Other Non-Retail Customers

  • Group Purchasing Organizations

  • Wholesaler Support of 340B Purchases

Chapter 3: Wholesaler Profitability

• Gross Margins

• Components of Buy-Side Gross Margin

  • Buy-Side Margin from Fee-for-Service Agreements

  • Buy-Side Margin from Prompt Payment Discounts

  • Buy-Side Margin from Generic Manufacturers

• Gross Profits of Brand vs. Generic Drugs

  • Lifecycle Profits for Traditional Generic Drugs

  • The Impact of Authorized Generics

• Operating Profit

  • EBIT Margins from Warehouse Deliveries to Large Customers

  • Operating Profit as a Percentage of Gross Profit

• Return on Invested Capital

Chapter 4: Financial Stability and Cash Management

• Debt and Coverage Ratios

• Liquidity

• Inventory Reductions and Working Capital

• Cash Conversion Cycle

• Uses of Cash

Chapter 5: Forces of Change for the Wholesale Industry

• Pharmaceutical Market Growth and Healthcare Reform

  • Summary

  • The Outlook for U.S. Pharmaceutical Spending

  • Shift to Specialty

• Consolidation and Changes in Pharmacy Industry Market Structure

  • Summary

  • Recent Pharmacy Industry Growth Trends

  • Consolidation Outlook

  • Risk That Large Customers Will Bypass Wholesalers

  • The Outlook for Independent Drugstores

  • The Specialty Drug Dispensing Boom

• Risk and Reward from the Generic Wave

  • Summary

  • Wholesaler Profits and the Generic Wave

  • Profit Pressures for Wholesalers from the Generic Wave

  • Medicaid and Average Manufacturer Price

  • Transparency to Wholesaler Selling Prices

• Pedigree Regulations and Supply Chain Enforcement

  • Summary

  • Pedigree Laws and Regulations

  • Controlled Substances

  • Drug Shortages and Gray Market Participation

Chapter 6: Wholesaler Profiles

• Summary of Common Business Strategies

• AmerisourceBergen Corporation

  • Company History

  • Business Mix and Profitability

  • Top Customers

  • Relationship with Express Scripts and Medco Health Solutions

  • Specialty Group Trends

  • ABDC Growth Trends

  • ABCS Growth Trends

• Cardinal Health

  • Company History

  • Business Mix and Profitability

  • Top Customers

  • Growth Trends with Large Customers

  • Growth Trends with Smaller Customers

  • Position in Specialty Business

  • Expansion Into China

• McKesson Corporation

  • Company History

  • Business Mix and Profitability

  • Top Customers

  • Growth Trends with Large Customers

  • Growth in Specialty Business

  • Growth Trends with Smaller Customers

Appendix: History of Inventory Management Agreements and Fee-For-Service Agreements

Endnotes

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LIST OF EXHIBITS

Exhibit 1: Drug Wholesaler Sales by Type of Customer, 2010

Exhibit 2: Drug Distribution and Related Revenues at Big Three Wholesalers, 2011

Exhibit 3: Revenue Growth, Big Three Wholesalers vs. Manufacturers, 2006-2011

Exhibit 4: Drug Wholesale Sales vs. Retail Drugstore Sales, 1999-2012:Q2

Exhibit 5: Estimated Market Share with Independent Pharmacies, by Wholesaler, 2012

Exhibit 6: Pharmacy Franchise and Marketing Programs of Large Drug Wholesalers

Exhibit 7: Ten Largest Pharmacy Services Administration Organizations

Exhibit 8: Pharmacy Buying Groups and Primary/Preferred Wholesaler Relationship

Exhibit 9: Largest U.S. Pharmacies and Their Primary Wholesale Suppliers

Exhibit 10: Big Three Wholesalers, Warehouse Deliveries as Percentage of Drug Distribution Revenues, 2005 vs. 2011

Exhibit 11: Cardinal Health, Share of Bulk vs. Non-Bulk at Top 3 Customers, 2012

Exhibit 12: Hospital Pharmacy Expenses per Staffed Bed, by Surgical Volume, 2010

Exhibit 13: Top Health System GPOs, by Purchasing Volume, 2011

Exhibit 14: Total Number of 340B Contract Pharmacies, 1999-2013

Exhibit 15: Flow of Funds and Product for 340B Contract Pharmacy Network

Exhibit 16: Estimated Buy-Side and Sell-Side Contributions to Gross Margin, 2012

Exhibit 17: Illustrative Value of a Wholesaler Fee Agreement with Pharmaceutical Price Inflation

Exhibit 18: Big Three Wholesalers, Revenues and Gross Profits, Brand vs. Generic Drugs, 2011

Exhibit 19: Typical Path of Wholesaler Gross Profits, Brand vs. Multi-Source Generic

Exhibit 20: Big Three Wholesalers, Drug Distribution EBIT as a Percentage of Revenues, 2008-2012

Exhibit 21: Cardinal Health, Segment Profit for Bulk vs. Non-Bulk Revenues, 2012

Exhibit 22: Factors Affecting Direct-Store vs. Warehouse Delivery EBIT Margins

Exhibit 23: Big Three Wholesalers, EBIT as a Percentage of Gross Profits, 2008 vs. 2012

Exhibit 24: Big Three Wholesalers, Return on Invested Capital, 2008-2012

Exhibit 25: Big Three Wholesalers, Total Debt (Including Interest Payments), 2012

Exhibit 26: Big Three Wholesalers, Debt-to-EBITDA Ratio, FY2010-FY2012

Exhibit 27: Big Three Wholesalers, Composition of Current Assets, 2012

Exhibit 28: Big Three Wholesalers, Liquidity Ratios, FY2012

Exhibit 29: Big Three Wholesalers, Days of Sales in Inventory, 2002 vs. 2012

Exhibit 30: Illustrative Wholesaler Cash Conversion Cycle for Brand-Name Drugs

Exhibit 31: Big Three Wholesalers, Cash Conversion Cycle, 2012

Exhibit 32: Big Three Wholesalers, Dividends and Share Repurchases as Percentage of Operating Cash Flow, FY2010-FY2012

Exhibit 33: Big Three Wholesalers, Earnings per Diluted Shares Outstanding, FY2010-FY2012

Exhibit 34: Projected Growth in National Health and Retail Prescription Drug Expenditures, 2011-2021

Exhibit 35: Impact of Healthcare Reform on U.S. Spending on Retail Prescription Drugs, 2009-2021

Exhibit 36: Number of Prescriptions by Dispensing Format, 2010 vs. 2011

Exhibit 37: Change in Total Prescriptions Dispensed, by Pharmacy Format, 2007- 2011

Exhibit 38: Number of Independent Pharmacies, 1990-2010

Exhibit 39: Projected Brand Revenues Lost Due to Generic Launches, 2011-2021

Exhibit 40: Top 10 Brand-Name Drugs Facing Generic Competition, 2012-2016

Exhibit 41: Big Three Wholesalers, Incremental EBIT from New Generic Launches, 2012-2014

Exhibit 42: AmerisourceBergen, Estimated Revenues and EBIT by Segment, FY 2012

Exhibit 43: AmerisourceBergen, Revenues by Business Segment, 2004 vs. 2012

Exhibit 44: AmerisourceBergen, Profitability Metrics, 2008-2012

Exhibit 45: AmerisourceBergen, Top 15 Pharmaceutical Distribution Customers, 2012

Exhibit 46: Amgen, Gross Product Sales to Big Three Wholesalers, 2007-2011

Exhibit 47: AmerisourceBergen, ABDC, Revenues and Growth, 2008-2012:Q2

Exhibit 48: Cardinal Health, Estimated Revenues and EBIT by Segment, FY 2012

Exhibit 49: Cardinal Health, Profitability Metrics, 2008-2012

Exhibit 50: Cardinal Health, Top 15 Pharmaceutical Distribution Customers, 2012

Exhibit 51: Cardinal Health, Bulk Revenues and Growth, 2009-2012:Q2

Exhibit 52: Cardinal Health, Revenues from CVS Caremark and Walgreen, 2008-2012

Exhibit 53: Cardinal Health, Non-Bulk Revenues and Growth, 2009-2012:Q2

Exhibit 54: McKesson, Estimated Revenues and EBIT by Segment, FY 2012

Exhibit 55: McKesson, Distribution Solutions, Profitability Metrics, 2008-2012

Exhibit 56: McKesson, Top 15 Pharmaceutical Distribution Customers, 2012

Exhibit 57: McKesson, Warehouse Deliveries, Revenues and Growth, 2009-2012:Q2

Exhibit 58: McKesson, Revenues from CVS Caremark and Rite Aid, 2008-2012

Exhibit 59: McKesson, Direct Distribution, Revenues and Growth, 2009-2012:Q2

Exhibit 60: McKesson, Drug Distribution Revenues by Customer Type, 2005 vs. 2012

Exhibit 61: McKesson, OneStop Generic Program, Revenue Growth Rate, 2004-2012

Exhibit 62: Northstar Rx, Total Prescriptions and Sales, 2008-2012 

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