Tuesday, March 10, 2009

My Comments on MRK-SCP

Dow Jones interviewed me yesterday about Merck & Co's (MRK) proposed acquisition of Schering-Plough (SCP). See Drug Middlemen May Feel Pharma Consolidation Pressure.

Two quotes:
  • "In general, the consolidation of manufacturers is bad for wholesalers because it's giving the drug makers much more leverage in their fee-for-service negotiations.

  • "This deal is not a game changer for the wholesalers, but it's one more pressure point on their business."
And one paraphrase:
  • "The recently announced Pfizer-Wyeth deal, meanwhile, might have more of a direct effect on the wholesalers because Pfizer is just now adopting fee-for-service contracts with the distributors, and its terms could differ from those of Wyeth, Pembroke Consulting's Fein said. The larger a manufacturer, the more sales volume it controls, and therefore the more power it wields in negotiations, Fein said."

AmerisourceBergen (ABC) and Cardinal Health (CAH) both highlighted their "great relationships" (their words) with manufacturers. McKesson Corporation (MCK) had no comment on their relationships with manufacturers.


Great editorial in the Wall Street Journal this morning on the pharma industry: Mergers & Inquisitions

"Deal-making is fast reshaping the pharmaceutical industry, and we wish we could say it was a sign of creative destruction. More likely it is the industry's way of anticipating, and building insurance against, the coming era of government-run health care."

I agree.


  1. I wonder how much longer the wholesalers will be relevant. the chains and the manufacturers are both getting bigger. Just a matter of time before everyone figures out how sell direct.

  2. I'm not sure selling direct as is typically thought about is viable. Yes, chains are getting bigger but there are still a LOT of non-warehousing chain locations (independents, clinics, hospitals, etc.) that selling direct would make HUGE changes for them and significant cost increase. Now, if manufacturers set up distribution nodes (UPS, etc.) that were used by most/all manufacturers THEN that could be a direct selling option IF the node could handle order processing similar to wholesaler but the product does not change ownership from manufacturer till purchased by pharmacy, etc.

    Adam, you claim this gives manufacturers more leverage but only if there are viable alternatives and I'm not seeing them on the near horizon. Also, isn't some aggregation of manufacturers just a normal shape of the market? After all, most markets have some big players (20-40% or more marketshare) and pharma does not have anyone with that large a percentage.


  3. Some time ago I read about sole distributor arrangement, Pfizer made with UniChem in UK. UniChem handles all distribution functions to all types of pharmacies and processing returns also. I wonder if Pfizer (and others too especially after the mega mergers) might move in this direction?