Saturday, June 03, 2006

The 3PL vs. Wholesale battle heats up

Some big news yesterday should make drug makers and their wholesalers sit up and take notice.

OTN just announced that UPS Supply Chain Solutions will be handling distribution for their oncology network. This is a MAJOR win for UPS, which opened a new facility for this purpose last year.

I think the UPS agreement also signals some broader risks for wholesalers. As forward-buying profits and other forms of indirect compensation fade away, drug wholesalers will increasingly find themselves on a collision course with logistics companies and large retail chains for control of the pharmaceutical supply chain. Logistics companies offer manufacturers much more control versus a traditional wholesale channel.

This move highlights the further integration of oncology care and specialty products distribution. Wholesalers either have to own their customer or risk disintermediation. Take a look at the intertwined channel arrangements at the top five community oncology GPOs:

Self-distribution, whether by a large chain pharmacy or an oncology GPO, provides greater control along with new opportunities for supply chain integration. (See my September 2005 white paper for a deeper analysis of retail chains.)

Two big unknowns for this channel:

  1. Genentech has narrowed the distribution channel for its blockbuster drugs Avastin, Rituxan, and Herceptin. Will other biotech manufacturers follow?
  2. What will payors do now that specialty drug costs are going up more than 3 times the rate of overall spend?

1 comment:

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