Like all of us, drug manufacturers are having to navigate the constantly shifting and often times confusing healthcare ecosystem that stretches from development through regulatory approval, commercialization and ultimately to the patient. At the core of that ecosystem is a complex yet little understood aspect – distribution.
Traditionally seen as filling the need for pick, pack and ship, the role of pharmaceutical distributors has expanded to both meet manufacturers needs today while anticipating what they will require in the future. Distributors have the ability to forge relationships with manufacturers that give patients and prescribers the choice of a broad range of medicines found in most pharmacies today. And if they’re not there, they can be within 24 hours.
“Without us, the access to medication would be very difficult for patients,” Akin Odutola, President of Strategic Global Sourcing at AmerisourceBergen, said. “Their options would probably decrease, the costs would go up, and I also think you’d have far fewer points of access for product.”
Access is of particular concern in rural areas where there might be only one or two hospitals and where it is unlikely, they are being serviced by a thousand or more different manufacturers across all product categories. The role of distributors like AmerisourceBergen, Odutola said, is to ensure patients can get access to therapies, no matter where they present.
Size and scope driving value
Pharmaceutical distributors account for about 92 percent of drug sales in the U.S. and are charged with connecting 1,300 manufacturers and more than 180,000 distribution locations such as pharmacies and doctor’s offices, according to the Kaiser Family Foundation.
Without distributors like AmerisourceBergen, which is one of the leaders in the industry, making and maintaining those relationships would be daunting from an infrastructure perspective as well as being cost prohibitive.
Combined, North American drug manufacturers represent an estimated half a trillion dollars of revenues a year of which AmerisourceBergen represents about 30 percent, Odutola said.
In addition to the role of the intermediary that ships products from manufacturers to pharmacies and providers, distributors buy and assume legal ownership of pharmaceuticals while also managing inventory and credit risk. The inherent value of this for manufacturers is they can focus on new drug development and manufacturing.
At any given time, AmerisourceBergen is holding $11 billion of inventory in 27 distribution centers. That allows downstream providers like hospitals and community pharmacies to maintain lower inventories.
“Every dollar that is on a pharmacy shelf is cash flow they don’t have to pay staff, pay technicians,” Odutola said. “They don’t really have to worry about taking on economic risk when they do business with us. For manufacturers, it allows them to reinvest dollars into their R&D business without necessarily thinking about whether or not they are going to have too much credit risk.”
A prime example of how that has worked was the launch several years ago of novel hepatitis C virus (HCV) treatments. Although highly effective, they come with a high cost that can run from $400,000 to $800,000 depending on what product is prescribed. Those are dollar amounts most pharmacies can’t afford, and most manufacturers aren’t likely to carry as credit to independent pharmacies. Without a strong distribution partner offering the short-term financing to cover providers between dispense and reimbursement, fewer patients would be treated with novel drugs. That equates to lower sales for manufacturers and, in turn, high healthcare costs due to complications arising from untreated patients.
Across a breadth of services
In addition to buying power, distributors are instrumental in supporting manufacturers pre-launch with services that range from clinical trial logistics to health economics outcomes research. Through its broad commercialization portfolio, AmerisourceBergen offers integrated, scalable and customizable services that improve product access and ultimately ensure patients can start medications sooner and stay on therapy longer.
“Our piece is to do everything we can to enable manufacturers to be focused on patient care as efficiently as possible,’ said Doug Cook, President, Commercialization Services & Animal Health.
Cook, who is responsible for overseeing commercialization and manufacturer support services across AmerisourceBergen, added that both distributors and manufacturers need to be highly efficient and able to flex as quickly as possible given the high cost constraints of the industry.
As a 20-year veteran at the company, Cook has overseen third-party logistics (3PL) that include performance analytics, and end-to-end support that spans product development, clinical trials and patient outcomes. Annually, AmerisourceBergen ships $22 billion in products, manages more than 900 million transactions and supports 100 plus programs over a variety of product lines and disease states.
“The value we bring with all of our commercialization services is a big focus for us,” he said. “We understand that innovative delivery systems, like cell and gene therapies, are requiring new levels of coordination of multiple services. Our services have been at the forefront of nearly every specialty pharmaceutical product that has entered the market over the last 20 years, and we’re going to continue to challenge ourselves to operate with unparalleled excellence while acting as a more integrated and aligned organization to ensure treatment success.
“Our goal is to be the best partner for the manufacturer. It’s more than just a focus its clarity, that’s what makes us a leader in the industry.”
To learn more about how AmerisourceBergen operates as a distributor, moving products from point A to point B, check out how they create value in the supply chain here: https://www.amerisourcebergen.com/without-us