Saturday, October 26, 2013

McKesson moves into Europe with Celesio acquisition

The US wholesale drug distribution market is saturated with 95% of the market controlled by AmerisourceBergen, Cardinal Health and McKesson. Along with changes in healthcare insurance, government requirements, rise in generics etc. many wholesale drug distributors are following drug manufacturers and expanding globally.

Cardinal Health appears to be focused on China. Since 2010, the company has made over 7 acquisitions in the country, including that of Zuellig Pharma China, all to broaden its geographic reach. Besides serving existing Chinese pharmacies, it has also set up six Cardinal-Health branded specialty pharmacies that sell directly to consumers.

Meanwhile, AmerisourceBergen acquired World Courier, a global specialty transport and logistics provider for drugs, blood samples and medical supplies. Earlier this year, AmerisourceBergen announced a $400bn, 10-year partnership with Walgreen, the largest drug retailing chain in the US and UK’s Alliance Boots. This agreement allowed for AmerisourceBergen to enter the European market.

Now it appears it is McKesson’s turn to announce similar global plans. The company confirmed rumors that it planned to acquire Celesio, a German drug wholesaler that operates in 16 European countries, and also oversees retail pharmacies throughout the region and has a presence in Brazil as well.

Once approved by regulatory bodies, the synergies of this latest acquisition will be great. Among Celesio’s strategies it is pursuing is to expand its pharmacies across Europe and also that of supply chain optimization to provide an end-to-end solution from manufacturer to pharmacies.

McKesson has achieved this by connecting with its Health Mart and its combined Drug Trading and The Medicine Shoppe pharmacies. The company applies a six sigma methodology in its approach to supply chain efficiencies. It invests heavily in IT within its facilities including 28 distribution centers, a primary redistribution center, a strategic redistribution center and two repackaging facilities within its US pharmaceutical distribution business. In Canada, it has 16 distribution centers.

An added bonus to the Celesio acquisition is that of giving McKesson a presence in the growing pharmacuetical market of Brazil. According to McKinsey & Company, Brazil is the second largest pharmaceutical market within the emerging markets, just behind China.

CVS, Walgreen’s largest competitor in the US, may also be keeping a watchful eye on these developments. McKesson is a major supplier to this large pharmacy chain and in order for it to grow and compete effectively against Walgreens it may also be looking for opportunities. Will McKesson be a part of this? We’ll see.

Meanwhile, the big three US wholesale drug distributors will likely continue their expansion plans into global markets. While the strategies of each seem to vary, the underlying reason for these moves are the same – grow the business and take advantage of new emerging markets such as Brazil and China.

Related blog posts: