The Big Three Wholesalers: Revenues and Channel Share Up, Profits Down

Next week, Drug Channels Institute will release our 2019–20 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. It’s the 10th edition of our comprehensive and highly-regarded examination of U.S. prescription drug distribution channels. It will be released on October 8, but is available now for preorder at discounted pricing.

The exhibits below—2 of the 136 in our new report—provide a look at the revenues and market share of the Big Three wholesalers: AmerisourceBergen Corporation, Cardinal Health, Inc., and McKesson Corporation.

As you will see below, the Big Three wholesalers’ revenues continue to grow faster than those of the overall pharmaceutical industry. This growth has increased the wholesale share of the U.S. drug distribution channel and enabled the big to get even bigger. In the report, we document that gross profits have not kept pace with revenues.

For a sneak peek at the complete report, click here to download a free pre-publication draft overview (including the table of contents and a list of exhibits).

BIGGER

The chart below shows total revenues since 2015 for the Big Three wholesalers’ U.S. drug distribution businesses. We estimate that in calendar year 2018, U.S. revenues from the drug distribution divisions of the Big Three wholesalers reached $457.8 billion, a 7.8% increase over the 2018 figure. We project that the companies’ combined drug distribution revenues will reach $481.7 billion in 2019. Note that these figures include sales of traditional, specialty, and generic drugs.

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Since 2015, revenue growth rates have been slowing, due to:

• Higher generic dispensing
• Deflation in generic drug prices
• Lower inflation in brand-name drug list prices
• Lower spending for drugs that treat hepatitis C
• Declining use of prescription opioids

These factors have been counterbalanced by drivers of increased revenues:

• Acquisitions of smaller wholesale distribution companies
• Ongoing growth in pharmaceutical spending
• Greater utilization of more-expensive specialty drugs
• Economic growth that has boosted employer-sponsored health insurance

We estimate that wholesalers’ gross margin peaked in 2015 and has since declined. Revenues at the Big Three wholesalers grew by more than $100 billion from 2015 to 2019. However, total gross profit dollars have declined by 12% during this period. See Section 4.4. of our forthcoming report.

MORE

We estimate that these wholesalers’ combined share of the channel has grown in recent years, from 87% in 2013 to 95% in 2018. This share growth occurred due to acquisitions of smaller companies and a shift by large retailers to purchasing generic drugs via wholesale distribution. AmerisourceBergen experienced the greatest market share growth, due to its relationships with Walgreens Boots Alliance and Express Scripts.

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In our 2019–20 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors, we analyze these and many other developments concerning the pharmaceutical distribution industry’s economics, market structure, growth rates, forces of change, and interactions with the U.S. healthcare system. Look for more details about the report here next week.