Pharmacy Market Share for Specialty Drugs, 2010

In early January, Pembroke Consulting will release the updated 2011-12 Economic Report on Retail and Specialty Pharmacies.

I want to give you a sneak peek at the updated market share computations for specialty pharmaceuticals.

• In 2010, $39.2 billion of specialty drugs were dispensed by retail, mail, and specialty pharmacies.
• Pharmacy dispensing revenues from specialty drugs grew by 15.3% from 2009 to 2010.
• Pharmacy dispensing of specialty drugs remains more concentrated than the overall pharmacy industry.

The company revenues, market shares, and rankings (shown below) have changed since our previous estimates. Below, I explain what's behind these differences.

MARKET SIZE

A majority of specialty drugs dispensed by a pharmacy to a patient are sold via a specialty pharmacy. However, any licensed pharmacy can dispense a specialty drug, as long as the product can be purchased through an authorized wholesale distribution channel. See Who Pays For Specialty Drugs? (And Why It Matters).

In 2010, specialty drugs were 14.7% of total U.S. pharmacy revenues. This estimate is based on the share of pharmacy spending attributed to specialty drugs as reported in 2010 drug trend reports.

In 2010, total revenues of pharmacies were $266.4 billion (per NACDS data). Thus, $39.2 billion (=.147*266.4) of specialty pharmaceuticals were dispensed by retail, mail, and specialty pharmacies. This figure excludes the revenues of wholesalers or specialty distributors that sell specialty pharmaceuticals to pharmacies or non-retail outlets, such a physician offices or hospitals.

Using the same methodology, the 2009 figure was $34.0 billion. In other words, pharmacy dispensing revenues from specialty drugs grew by 15.3% from 2009 to 2010.

MARKET SHARE

Based on public data sources, we estimate the following revenues from dispensing specialty pharmaceuticals by company in the table below. The largest four companies generated 65% of revenues from pharmacy-dispensed specialty drugs in 2010.

Some observations:

• Pharmacy Benefit Managers (PBMs) have become the largest participants in the specialty pharmacy market by acquiring specialty pharmacies and expanding their internal capabilities. The three largest specialty pharmacies—Accredo Health (Medco Health Solutions), CuraScript Pharmacy (Express Scripts), and CVS Caremark—are subsidiaries of a PBM. The combined market share of Express Scripts and Medco Health Solutions was 31% in 2010. This figure will likely decline due to Medco’s significant contract losses.
  

• Walgreens has become the fourth-largest specialty pharmacy in part by acquiring other specialty pharmacies: Cardinal Health’s SpecialtyScripts subsidiary, Medmark, McKesson’s specialty pharmacy, and Schraft’s. Walgreens also dispenses specialty drugs through home infusion, a rapidly growing channel for specialty pharmaceuticals. Walgreen has become one of the largest home healthcare/infusion providers due to a series of acquisitions over the past five years. Its acquisitions include Option Care, CuraScript Infusion (acquired from Express Scripts), IVPCARE, and Home Pharmacy of California.
  

• The projected growth of specialty drugs is encouraging market entry and will increase competition for specialty pharmacy services. Competition will come from community pharmacies, fast-growing specialty pharmacy competitors, and private-equity firms making growth capital investments in specialty pharmacies. As I note in 2010: A Good Year for Independent Pharmacies, the latest data appear to reflect entrepreneurial pharmacy owners going after the specialty market.
  

• Independent retail community pharmacies are organizing into collaborative networks to penetrate the specialty market. Examples include the Armada Specialty Pharmacy Network, the Community Specialty Pharmacy Network, and Specialty First. These networks support retail community pharmacy dispensing of specialty drugs by providing contracting, clinical support, and other services.

WHY DO THESE NUMBERS DIFFER FROM 2009?

There are three key reasons why these market share estimates differ from Pembroke Consulting’s 2009 market share estimates, as published in The 2010-11 Economic Report on Retail and Specialty Pharmacies.

• The 2009 estimate for total market size was too low, artificially inflating the previously-reported market share figures. The 2009 figures did not capture all pharmacy revenues from specialty pharmaceuticals.

• The revenues attributed to CVS Caremark were too low. The 2009 estimate was based on a third-party data source that turned out to be incorrect. The $9.7 billion figure shown for 2010 reflects public disclosures by CVS Caremark regarding its sales of specialty products.

• The revenues attributed to Medco in 2009 were too high. The 2009 data included all reported revenues from Medco’s Specialty Pharmacy financial reporting segment. However, those revenues included specialty drugs sales by network pharmacies, not just Medco specialty pharmacies. A JP Morgan report estimated that Accredo’s net specialty revenues were only 70% of the Specialty Pharmacy total, i.e., 30% represent sales by network pharmacies that were adjudicated by Medco.

Applying the revised methodology, the combined share of Express Scripts and Medco in 2009 should have been reported to be 28%. Additional sources and details on the methodology will appear in the new report.