I wonder if we will soon see the merger between a US and a European drug wholesaler. Three large pan-European wholesalers have emerged through consolidation. With Alliance Unichem now tied up with Boots, there are at least two logical large targets. Total share of the Big EU 3 is ~50%, so there is room for further consolidation.
This article (Cardinal puts Europe on its drugs radar) provides the clearest statement that I have seen on Cardinal's intention to move into drug distribution outside of North America. Given the international experience of Cardinal's new CEO, we could be on the verge of a truly global wholesaler.
I also note Michael Long's addition to AmerisourceBergen's Board. Long is a senior executive at Arrow Electronics, an electronic components distributor that moved aggressively into Europe in the early 1990s through a string of acquisitions. The most recent Board member added prior to Long was Henry McGee, who was responsible for HBO's video "... expansion into the international market with the start up of an HBO Video Label in the United Kingdom." Interesting.
For wholesalers, the EU market is more stable than the US market for at least 4 key reasons:
- The EU retail pharmacy industry remains highly fragmented due to legal restrictions and cultural preferences, limiting direct distribution and making wholesalers the preferred channel for pharmacies. For example, pharmacy chains are legally prohibited in Germany, France, and Spain
- Manufacturers have a much smaller influence over EU wholesaler gross margins. Wholesaler sell-side margins (to pharmacy customers) are regulated or set in most EU countries. Some countries, e.g., France, also regulate the discount % from these margins that wholesalers can offer to pharmacy customers.
- Wholesalers own their customers. The Big 3 wholesalers have forward integrated into the more profitable pharmacy business, giving them a guaranteed customer based for the wholesale business. At the large end, Alliance Unichem is in the process of merging with the Boots chain in the UK. Cardinal has done this in a more limited way via Medicine Shoppe.
- Wholesaler can benefit from parallel trade, a legal source of profit in European channels that is virtually impossible for manufacturers to control. Wholesalers absorb most of the price differences between countries.)
Despite these favorable dynamics, I'm not sure that top management at US wholesalers will be willing to jump through all of the regulatory and political hoops required. Nevertheless, the challenging competitive position in the US may leave them no choice.