Thursday, October 20, 2016

The Top Specialty Drug Distributors in 2015

The Big Three wholesalers—AmerisourceBergen, Cardinal Health, and McKesson—will soon report their latest quarterly earnings. Expect specialty drugs to be a hot topic.

About $134 billion in specialty drugs was sold via wholesale distribution in 2015. The chart below presents our estimates of market share by parent company and, where relevant, the division of that company. I also explain wholesalers’ three major customer groups for specialty drugs.

Like specialty dispensing, the distribution market is highly concentrated. But wholesalers face significant challenges in capturing the value and profits from the booming specialty drug market, particularly for patient-administered, pharmacy-dispensed specialty drugs. Specialty’s rapid growth will prevent the market from going to the dogs, but it’s certainly getting ruff.

FETCHING THE MARKET DATA

The chart below appears as Exhibit 9 in our The 2016–17 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. The revenue data and market shares come from our estimates, not from data reported by the companies.

[Click to Enlarge]

Note that wholesale distribution is distinct from pharmacy. Unlike a pharmacy, a wholesale distributor doesn’t dispense drugs to a consumer or patient. The large pharmaceutical wholesale companies have separate businesses that operate specialty pharmacies, which are excluded from the chart below.

Specialty drugs sold directly by manufacturers to specialty and hospital pharmacies are excluded from this chart. We estimate that direct sales by manufacturers accounted for more than 10% of the market in 2015. Most of the direct volume came from sales to specialty pharmacies.

CUSTOMER BREEDS

The specialty product distribution figures include three primary customer groups:

1) Retail, mail, and specialty pharmacies

The distribution channel’s role for patient-administered specialty drugs is much more complex and diverse than it is for traditional drugs. The channel’s role depends significantly on manufacturer and payer strategies for these products.

Many manufacturers limit and manage the specialty pharmacies eligible to dispense these expensive medications. PBMs and health plans often further limit the number of specialty pharmacies available to a beneficiary. Most sales of patient-administered specialty drugs therefore occur via the central-fill specialty pharmacies owned by PBMs and payers. (See The Top 10 Specialty Pharmacies of 2015.) Smaller pharmacies, which have historically been wholesalers’ most profitable customer group, are struggling to access specialty medications within payer and manufacturer networks.

Narrow network strategies are also reducing the value of—and, in some cases, displacing—the wholesale distribution channel. Consequently, some specialty pharmacies purchase products directly from the manufacturers of a specialty drug, bypassing specialty distributors and full-line wholesalers.

2) Physician Offices/Clinics

Independent physician offices and outpatient clinics are specialty distributors’ largest customer group. The biggest specialty distributors serving these customers are divisions of the Big Three wholesalers. These include the distributors in AmerisourceBergen Corporation’s Specialty Group (Oncology Supply, ASD Healthcare, and Besse Medical), Specialty Solutions (a business unit of Cardinal Health), and McKesson Specialty Health (a business unit of McKesson Corporation).

We estimate that the specialty distribution businesses of AmerisourceBergen and McKesson still account for a majority of specialty drug distribution revenues to physician offices and clinics. Cardinal Health is the third-largest specialty distributor in 2014. Since its 2015 acquisition of Metro Medical and its 2016 acquisition of Raintree Oncology, Cardinal has become a much larger participant in specialty distribution.

For provider-administered drugs, specialty distributors have been facing hospital acquisitions of physician practices and care that is shifting to hospital outpatient departments. (See The Decline and Fall of Physician Buy-and-Bill For Specialty Drugs.) Proposed changes to the buy-and-bill model could accelerate these consolidation and practice acquisition trends.

3) Hospitals

Some provider-administered specialty drugs are administered in hospital outpatient departments. These sites are owned and operated by a hospital or health system but can be located at the hospital facility or at a different location. Hospital outpatient clinics and hospital-based practices typically receive products from a hospital pharmacy, which purchases drugs from a full-line pharmaceutical wholesaler under a preferred vendor contract. (For data on oncology sourcing by provider type, see How Specialty Pharmacy Is Penetrating Buy-and-Bill Oncology Channels.)

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As I note in Sections 6.24. and 6.3.4. of my new wholesaler report, biosimilars won't fix the specialty challenges and seem poised to deliver only minimal near-term benefits to wholesalers.

But that's why you should keep reading Drug Channels and asking: Who let the blogs out?

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