Wednesday, August 04, 2010

New Data on Pharmacy Industry Market Share

With little fanfare, NACDS just released its new estimates of 2009 pharmacy revenues and prescriptions. See Industry Facts-at-a-Glance.

Check out the charts below for my summary of prescription revenues and number of prescriptions for the five major drug dispensing formats. The data nicely illustrate key trends that are transforming the pharmacy industry:
  • The shift to high-cost specialty pharmaceuticals

  • The dampening effect of generic drugs on retail revenues

  • The slowdown in mail prescription growth

  • The slow-motion decline of independent pharmacies
Don't just take my word for it. Please post your thoughts and predictions about these newly-released data in the comments below.

The charts below were created from NACDS’ Industry Facts-at-a-Glance as of August 3, 2010. Note that I present the data differently than NACDS to facilitate insights into retail pharmacy industry dynamics. Click each table to enlarge it.

Just so you know:
  • The latest NACDS estimates incorporate IMS’ large restatement of historical sales data. See Latest IMS Data Shrinks Pharma by $26 Billion.
  • These data are not directly comparable to the IMS prescription data that I discuss in Chains Win Big in 2009 because some categories are different. NACDS transfers certain franchise sales, such as pharmacies within Cardinal Health’s Medicine Shoppe franchise, from the independent pharmacy to chain category. NACDS also splits the IMS “chain” category into Chain Pharmacies and Mass merchants with pharmacies.
  • We should all thank Laura Miller, the guru behind NACDS Economics Department, for her dedication to getting the right industry numbers.

Chain pharmacies face a revenue squeeze. Chain pharmacies gained market share of prescriptions (+43 basis points) in 2009 but lost share of prescription revenues (-47 basis points). I attribute this pattern to the ever-increasing generic dispensing rate (GDR)—the percentage of prescriptions dispensed with a generic drug instead of a branded drug. The substitution of less-expensive generic drugs slows top-line pharmacy revenue growth. In theory, the additional profits from generic drugs will cushion the profit impact on chain pharmacies, although I have my doubts.

Specialty drugs are driving mail-order revenues. Prescription growth at mail-order pharmacies lagged the overall market due to increased competition from retail store-based pharmacies and the associated mail-to-retail dispensing shift. However, revenues at mail-order pharmacies grew twice as quickly (+10.7%) as any other format due to growing utilization of specialty pharmaceuticals, leading to a 100 basis point increase in revenue share in 2009. The largest specialty pharmacies are central-fill, mail-order operations, although the level of automation is much lower compared to mail-order dispensing of traditional drugs. I forecast that specialty pharmaceuticals will grow to be at least 30% of total pharmacy revenues by 2015.

Independents lost market share (again). Independents' share of prescription revenues is down 750 basis points over the past 10 years. Independent are a shrinking part of urban and suburban areas, even though they dominate the rural areas that are often uneconomic for chains. On the plus side, the rate of decline in the number of independent pharmacies has slowed in recent years and survivors are bigger in both revenues and scripts per pharmacy. The Big Three drug wholesalers—AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson (NYSE:MCK)—are investing substantial resources in business services designed to support these smaller, more profitable wholesale customers. See pages 19-23 and 37-39 of The 2010-11 Economic Report on Pharmaceutical Wholesalers for more details.

Big boxes beat supermarkets. Among non-pharmacy dependent retailers, mass merchants are winning over supermarkets. Mass merchants with pharmacies gained market share of prescriptions (+40 basis points) while revenue share was flat. Meanwhile, supermarkets lost share of both prescriptions (-2 basis points) and revenues (-17 basis points). Walmart (NYSE:WMT) represents about 70% of total pharmacy revenues for mass merchants with pharmacies.


Depending on your political predilections, you may or may not care to celebrate President Barack Obama’s 49th birthday today. Regrettably, the White House announced that Lady Gaga—the Marilyn Monroe of 2010?—will not be crooning “Happy Birthday, Mr. President” at the party.


  1. Can you comment on the store counts published by NACDS? It appear to me that NACDS counted 16,920 independents in 2009 (NACDS industry profile) and 20,792 in 2009. Did they really go up by almost 4000 stores or did something change in the methodology?

  2. Adam,

    Another solid post. Just a couple observations on your observations:

    First, while chain pharmacy Rx revenues may be down so are their average dispensing costs. This has resulted from tight management of personnel costs while ramping up the deployment of productivity enhancing strategies at both the store-level (e.g., dispensing robots) and the enterprise-level (e.g., central processing and central fill). That segment of the industry seems to have responded to very trying times in a very healthy way.

    Second, the fall in independents' Rx market share is, at least in part, a conscious decision by owners to diversify their business models away from Rx drugs and into higher margin specialty areas such as compounding. Many have simply concluded that they can't out Wal-Mart Wal-Mart. I think we are witnessing a fundamental transformation within independent community pharmacy that will leave it healthier, albeit very different.

  3. Re: Store counts
    Ignore the store counts for now. NACDS will have an updated time series in its forthcoming Industry Profile.

    Re: Margins
    Good point. I agree that low-cost prescription fulfillment will be very important for success in the future. See Walgreen's Future Profit Potential.

    I agree that independents are diversifying away from straight fills, although perhaps not always by choice!


  4. Thanks Adam. Always helpful. I've used the Industry Facts At a Glance for years, but I hadn't seen that they'd been updated.

    The one caveat I would add to the mail analysis is that while it might be driven by specialty it is also driven by a greater likelihood of consumers to move higher cost (i.e., out-of-pocket) drugs (typically brand) to mail order especially with chains and others offering $4 generics and/or $0 antibiotics.

    This has always skewed the analysis and will continue to although with the increased overall GFR (generic fill rate) it should be less of an issue.

    (BTW - Maybe I'm splitting hairs, but GDR is usually used only to represent the percentage of times that a generic is dispensed when a chemically equivalent brand is available. GFR is the metric for overall use of generics with the denominator being total Rxs. Therefore, I think you meant GFR in the post since GDR has been in the 90s for years.)

  5. Hi George,

    Not that I have many hairs to split, but both Medco and Caremark use the term "generic dispensing rate" as the metric for overall use in their respective drug trend reports.

    You say "tomato," I say "tomato." Actually, that doesn't make much sense when you read it...


  6. Maybe I'm off. I guess the better term is generic substitution rate versus GDR (with GDR and GFR being equal). Sorry.

  7. GFR, GDR, GSR...OK, truce. Let's agree that there is no consensus on the best TLA.(Three Letter Acronym).


  8. While I can't argue with Dr. Fein on his succinct and impressive research data - I can tell you that I talk with Independent Pharmacy owners everyday - and the majority of these pharmacy business owners are looking for ways to reinvent community pharmacy and take back their prospective market shares. The Independent Pharmacy owner - who thinks they can run their business as they did 3, 5, 10, and 20 years ago - is fooling themselves. Call me - I'd like to buy your pharmacy.

    The Independent Pharmacy that will survive, thrive, and reinvent community pharmacy is the business owner who understands our changing market-place. Be prepared to:

    Buy your drugs more strategically - (

    Manage your inventory with predictive modeling data ( With Rx YOUR BUSINESS DATA

    Marketing your pharmacy aggressively: (

    Leveraging your existing technology investments: (

    Outsource the unneccesary pieces of your operation's IT Department/ Database/ Network/ Security (

    Think outside the box & develop NEW BUSINESS in your communities: (

    This is WAR! Take these statistics and understand how they apply to the business of Independent Pharmacy and remember every morning you open for business - that YOU MUST CHANGE the status quo - otherwise you are INSANE for believing "it's business as usual". Don't allow CVS/Caremark, Medco, Walmart, or Walgreens to take ONE MORE customer in your community.

    Think Strategically! Plan! Execute! Win!!