Wednesday, November 13, 2013

ABC Still Dominates Specialty Distribution, but Competition is Catching Up

AmerisourceBergen (NYSE: ABC) recently reported financial results for its 2013 fiscal year. Read the press release.

Its Oncology Supply specialty distribution business again underperformed, as that distributor's revenues dropped by 10% in 2013. On the earnings call, the company blamed the decline on “reimbursement headwinds,” which I presume refers to the sequester’s impact on government payments.

But that’s only part of the story. As I discuss in DCI’s latest economic report (page 91) and in May’s What’s Behind AmerisourceBergen’s Disappointing Oncology Results?, the community oncology market is undergoing dramatic change, posing risks to specialty distributors. While ABC still accounts for more than 50% of total specialty product distribution revenues to physician offices and clinics, it also faces newly-energized competitors.

Read on for details and our market share estimates.

Just to be clear, specialty distribution is distinct from specialty pharmacy. Unlike a pharmacy, a drug distributor can’t dispense drugs to a consumer or patient.

Oncology products account for almost half of specialty distributors’ sales. Physician offices and outpatient clinics are these distributors’ primary customers. These sites of care are a crucial channel for provider-administered specialty drugs, including biological, injectables, IVIG, immunoglobulins, and other pharmaceuticals. Payment is typically covered by a patient’s medical insurance benefit.

The largest specialty distributors are divisions of full-line wholesalers, including the distribution businesses in AmerisourceBergen Corporation’s Specialty Group (Oncology Supply, ASD Healthcare, and Besse Medical) and McKesson Specialty Health (a business unit of McKesson Corporation). We estimate that these two companies generate more than 75% of total specialty product distribution revenues to physician offices and clinics.

Over the past ten years, McKesson has emerged as a significant participant in all aspects of the specialty drug distribution and services market. The addition of US Oncology in late 2010 was an especially strategic transaction for McKesson. See the discussion starting on page 135 of the wholesaler economic report. Other specialty distributors include Metro Medical Supply, CuraScript SD (a business owned by Express Scripts), and many smaller companies.

Cardinal Health, the third-largest full-line wholesaler, has a comparatively small business distributing specialty drugs to physician offices and clinics. Therefore, its sales are included in the “All Others” category above. (Cardinal is a major distributor for specialty products that hospitals purchase. ) If the price had been right, I’m sure Cardinal would have acquired Metro Medical or Curascript SD by now. Still likely to happen, IMHO.

Other full-line wholesalers are expanding into specialty distribution. H.D. Smith, one of the largest regional full-line wholesalers, recently launched its Smith Medical Partners division to service this market.


As competition increases, the market is changing. Economic pressures are shifting care away from community practices to hospital outpatient departments. Third-party payers are increasing specialty pharmacies’ role in managing and distributing provider-administered specialty pharmaceuticals. (See Payers Want Specialty Drug Distribution to Change.)

For additional information and sources, check out DCI’s new 2013-14 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

1 comment:

  1. You may want to rethink the part about CuraScript. Exciting things are in the works.