With little fanfare, NACDS just released its new estimates of 2009 pharmacy revenues and prescriptions. See Industry Facts-at-a-Glance.Check out the charts below for my summary of prescription revenues and number of prescriptions for the five major drug dispensing formats. The data nicely illustrate key trends that are transforming the pharmacy industry:
- The shift to high-cost specialty pharmaceuticals
- The dampening effect of generic drugs on retail revenues
- The slowdown in mail prescription growth
- The slow-motion decline of independent pharmacies
The charts below were created from NACDS’ Industry Facts-at-a-Glance as of August 3, 2010. Note that I present the data differently than NACDS to facilitate insights into retail pharmacy industry dynamics. Click each table to enlarge it.
Just so you know:- The latest NACDS estimates incorporate IMS’ large restatement of historical sales data. See Latest IMS Data Shrinks Pharma by $26 Billion.
- These data are not directly comparable to the IMS prescription data that I discuss in Chains Win Big in 2009 because some categories are different. NACDS transfers certain franchise sales, such as pharmacies within Cardinal Health’s Medicine Shoppe franchise, from the independent pharmacy to chain category. NACDS also splits the IMS “chain” category into Chain Pharmacies and Mass merchants with pharmacies.
- We should all thank Laura Miller, the guru behind NACDS Economics Department, for her dedication to getting the right industry numbers.
Chain pharmacies face a revenue squeeze. Chain pharmacies gained market share of prescriptions (+43 basis points) in 2009 but lost share of prescription revenues (-47 basis points). I attribute this pattern to the ever-increasing generic dispensing rate (GDR)—the percentage of prescriptions dispensed with a generic drug instead of a branded drug. The substitution of less-expensive generic drugs slows top-line pharmacy revenue growth. In theory, the additional profits from generic drugs will cushion the profit impact on chain pharmacies, although I have my doubts.
Specialty drugs are driving mail-order revenues. Prescription growth at mail-order pharmacies lagged the overall market due to increased competition from retail store-based pharmacies and the associated mail-to-retail dispensing shift. However, revenues at mail-order pharmacies grew twice as quickly (+10.7%) as any other format due to growing utilization of specialty pharmaceuticals, leading to a 100 basis point increase in revenue share in 2009. The largest specialty pharmacies are central-fill, mail-order operations, although the level of automation is much lower compared to mail-order dispensing of traditional drugs. I forecast that specialty pharmaceuticals will grow to be at least 30% of total pharmacy revenues by 2015.
Independents lost market share (again). Independents' share of prescription revenues is down 750 basis points over the past 10 years. Independent are a shrinking part of urban and suburban areas, even though they dominate the rural areas that are often uneconomic for chains. On the plus side, the rate of decline in the number of independent pharmacies has slowed in recent years and survivors are bigger in both revenues and scripts per pharmacy. The Big Three drug wholesalers—AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson (NYSE:MCK)—are investing substantial resources in business services designed to support these smaller, more profitable wholesale customers. See pages 19-23 and 37-39 of The 2010-11 Economic Report on Pharmaceutical Wholesalers for more details.
Big boxes beat supermarkets. Among non-pharmacy dependent retailers, mass merchants are winning over supermarkets. Mass merchants with pharmacies gained market share of prescriptions (+40 basis points) while revenue share was flat. Meanwhile, supermarkets lost share of both prescriptions (-2 basis points) and revenues (-17 basis points). Walmart (NYSE:WMT) represents about 70% of total pharmacy revenues for mass merchants with pharmacies.
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Depending on your political predilections, you may or may not care to celebrate President Barack Obama’s 49th birthday today. Regrettably, the White House announced that Lady Gaga—the Marilyn Monroe of 2010?—will not be crooning “Happy Birthday, Mr. President” at the party.
