Big 3 on a Passage to India

The Indian newspaper Business Standard has a fascinating article on the Big 3 wholesalers' search for Indian suppliers. See US big 3 look for new Indian drug suppliers.

The article quotes "informed industry sources" that at least ten tier-II and tier-III Indian pharmaceutical companies with plants in Mumbai, Ahmedabad and Hyderabad are on the radar of AmerisourceBergen (ABC), Cardinal Health (CAH), and McKesson (MCK).

"Over the past few months, McKesson and Cardinal Health have sent executives to India to assess the capabilities of these companies, the sources said."

In a September post, I speculated that wholesalers will be moving closer to production to source generics, possibly even bypassing the generic manufacturers for certain products. The Big 3 are following in the footsteps of wholesalers in other industries and aggressively ramping up their private label programs.

What does this mean?

• More pressure on generic manufacturers -- and more consolidation to come.
• Lower acquisition costs for generic drugs -- and lower AMPs.
• More rapid generic penetration for drugs going off patent.
• Less attention to brands by distribution as the profits from generics grow faster (Wholesalers currently generate more gross profit dollars from generics than brands.)

The Big 6 chain and mail-order pharmacies -- CVS Corp with CareMark (CVS), Express Scripts (ESRX), Medco (MHS), Rite-Aid (RAD), Walgreens (WAG), and Wal-Mart (WMT) -- are the other major customers of generic manufacturers. They currently bypass wholesalers to buy generics except for fill-in and some minimal direct store delivery (DSD).

But as far as I know, the Big 6 are not being as aggressive in looking at India or China. If the Big 3 could source generics cheaply enough, then wholesalers could pick up major generic business from their largest customers.