Caught between rising costs for healthcare and increasing pressure on margins, pharmaceutical distribution companies continue to report increased revenues year after year. The reason lies in providing competitive services to customers, identifying competitive products and leveraging a timely information database. David Yost, president and CEO of Valley Forge, PA-based pharmaceutical distribution company AmerisourceBergen, says, "With margins being so low, it becomes difficult to differentiate yourself on price, so service becomes a crucial issue." With two competitors--Cardinal Health and McKesson--angling for market share, Yost believes that his company can only distinguish itself on prompt service, since the price offered by its peers is more or less the same.
In a business that depends heavily on reliable logistics, having the right information database is essential because inventories carry substantial weight on balance sheets and need to be moved along the supply chain. Yost, a 35-year industry veteran, has watched the pharmaceutical distribution industry roll up into a three-player arena--from 150 or so companies earlier that couldn't survive the cutthroat competition. Together, the three comprise about three-fourths of the distribution business.
Ever since Yost took over as the CEO of AmerisonrceBergen in 2001, after Amerisource Health Corporation merged with California-based Bergen Brunswig in a $7 billion deal, he has concentrated on improving the company's position by bringing new and innovative products and services to its customers and sprucing up efficiencies throughout its distribution network. "When Bob Martini [Bergen's chairman] and I sat down to put this together, it was never about being the biggest; it was always about being the best. And sometimes bigger can help you be the best," he told Drug Store News in 2001.
Starting with operating revenues of $14 billion in 2000 (they were $70 billion in 2008) and a workforce of 10,900 employees, the company now boasts a 20 percent market share of the pharmaceutical distribution business, with 25 facilitating centers and a diverse mix of customers from across the U.S., as well as in Canada and other selected global markets. It serves as many as 27,000 pharmacies and physicians every day.
Industry analysts believe that the emerging trend of preferring generic drugs is mostly complemented by the current economic situation. Additionally, given the stringent state of FDA approvals for drugs, more and more companies are likely to be encouraged to produce generic products. According to Pharmaceutical Commerce, an industry...