There was significant news this week related to generic pharmaceutical drug distribution, one directly related to further consolidation of the distribution side of pharmaceutical supply chains.

Three pharmaceutical firms, Alliance Boots GmbH, AmerisourceBergen and Walgreen Co., are forming a 10 year distribution partnership to sell and distribute prescription drugs globally. The implication is an entity with considerable buying and influence power and perhaps, a change in the competitive dynamics of generic drug distribution.

According to a published report in The Wall Street Journal, this deal could provide Walgreen with a significant advantage over drug chain rivals. The deal can enhance the capability for both Walgreen and Alliance Boots to expand their presence in Europe, Asia and African markets. Walgreen had already taken a $6.7 billion stake in Alliance Boots in June of last year. It provides an added $28 billion in revenues to thrust global drugs distributor AmerisourceBergen from the third largest to the second largest national distributor, behind industry leader McKesson.  Over time, the distributor will increasingly assume the distribution of generic drugs that Walgreens has self-distributed. In this deal, both Walgreen and Alliance Boots have the right to purchase up to 23 percent of AmerisourceBergen.

It is further reported that Walgreen will most likely not renew its existing brand name drug supply contract with Cardinal Health which expires in August of this year. The Walgreen contract represented over 20 percent of Cardinal’s revenues.

The WSJ indicates that the implication of the shifting landscape of this deal could motivate companies like Cardinal Health and Rite Aid Corp. to partner. It further provides Walgreen the leverage to become less dependent on pharmacy-benefit management firms and bypass insurance co-pays.

Supply Chain Matters adds another implication related to this deal, which is added pricing pressure on both generic and branded pharmaceutical producers. While some would argue that there is little room for bargaining with generic manufacturers, aggregated purchasing and volume power is always a compelling influence, especially if health insurance providers join in that influence.

Obviously, existing pharmaceutical drug distribution players can anticipate more changes and announcements in the months to come as industry balance has now shifted.

Bob Ferrari