Table of contents
Key takeaways
This research analyses the pharma distribution market, which includes all activities that follow the research and development as well as the production of medicinal products up to the point of sale to the end-customer. We segmented the European market into: (i) distributors, (ii) wholesalers, (iii) physical pharmacy chains, (iv) online retail & pharmacies and (v) generalists.
The European pharma distribution market is considerably consolidated. The top three players, McKesson (US), Phoenix Group (DE) and Wallgreens Boots Alliance (US), hold a combined market share of >60% in the wholesale segment (Apotheke Adhoc, December 2019). This dominance is driven by the volumes these players move, making it difficult for smaller players to compete if they do not offer value-added services beyond the mere distribution of drugs. However, gradual deregulation in the distribution of pharmaceuticals, with recent changes primarily affecting the online distribution of prescription drugs, is transforming the industry. Over-the-counter (OTC) pharmaceuticals, for example, are gradually moving into the crosshairs of generalist marketplaces. This means that players from unrelated industries (e.g. Amazon) and new entrants with pure-play e-commerce propositions are gradually penetrating the industry. Nonetheless, traditional players are still able to leverage their frontrunning positions through existing relationships along the value chain and extensive in-house knowledge bases.
Investor-led activity in European distributors has been limited, with ~30% of identified players being investor-backed (August 2022). Resilient demand paired with stable health-insurance-backed revenue flows are considered to be the most attractive reasons to invest. Upside from e-commerce activities and increasing discretionary spending on self-medication and nutraceuticals serve as additional investment motives. In fact, identified investors are mostly concentrated in the end-customer-oriented (online) pharmacy segment, thereby evading the intense competition leading to margin pressure in the B2B distribution segments.
ESG topics mainly relate to the environmental footprint of the broader pharmaceutical market. Pharma distributors are increasingly implementing a range of measures aimed at reducing the ecological impact for themselves and their customers. Example measures include greenhouse gas reduction, sustainable packaging and an increasing share of sustainable products in the overall portfolio.
Company benchmarking
Market growth
The global pharma distribution market was estimated to be worth ~$1.4tn in 2021, wherein Europe contributed ~23% (or ~$328bn) of total sales (Statista, August 2022). Between 2019 and 2020, the EU market’s value increased by ~6% YoY (Statista, January 2022)
According to IQVIA (January 2022), the global pharma wholesale and distribution market is projected to grow at a ~3-6% CAGR between 2022 and 2026, reaching a total size of ~$1.8tn by 2026. For illustration, the pharma wholesale segment in Sweden and Finland was worth ~$5bn and ~$3bn respectively in 2021 (Oriola’s annual report 2021).
Online pharmacies represent the fastest growing segment in the European industry, with an estimated CAGR of ~10% (2022-2027). Statista (August 2022) expects the segment to generate ~$5.67bn in sales by 2027
Positive drivers
EU population growth on the back of increasing longevity results in a rising number of chronic diseases (e.g. cancer, diabetes), for which a significant and recurring amount of drugs is needed. This emphasises the rising need for efficiently operating pharma distribution networks (interview by Gain.pro; OECD, December 2021)
Expected increase in demand for higher-margin OTC pharmaceuticals and dietary supplements driven by rising consumer health awareness and an uptick in consumerisation, with self-medication becoming increasingly convenient for end-users (interview by Gain.pro)
Personalised medicine trend benefits pharma distributors in a twofold way: first, they can leverage their medical understanding and customer proximity to contribute to the drug development; second, these more specialised drugs might involve more demanding distribution requirements allowing for better price negotiation terms for distributors (CLN Worldwode, January 2021)
Negative drivers
Dangerous combination of already thin profitability ratios with a highly regulated industry, in which sudden regulatory changes may cause significant cost shake-ups. One example includes the European Good Distribution Practice guidelines, which forced players to significantly invest in quality management systems and upgrade PP&E without any clear upside (Apotheke Adhoc, December 2019)
Reduced maximum medicine prices and cost-saving schemes imposed by governments will pressure top-line growth trajectories. Cases in point include the Dutch government introducing maximum allowable retail prices with the Dutch Medicine Prices Act (per April 2020) and the US government setting the tone with the Inflation Reduction Act (signed August 2022) to lower prescription drug prices (Forbes, August 2022; interview by Gain.pro)
E-commerce giants (e.g. Amazon with Amazon Pharmacy) are establishing their own pharmaceutical retail networks. This development may push scale-disadvantaged players, which are not able to leverage globally established distribution networks, out of the market. This is exacerbated by the fact that these e-commerce giants are able to engage in price wars, operating their pharma activities at a temporary loss financed through other profitable divisions (Healthcare Weekly, August 2021)
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Pharma distribution industry.
With the full report, you have access to…
Detailed assessments of the market outlook
Insights from c-suite industry executives
A clear overview of all active investors in the industry
An in-depth look into 111 private companies, incl. financials, ownership details and more.
A view on all 315 deals in the industry
ESG assessments with highlighted ESG outperformers
And much more!
