Mail-Order Rx chips away at retail sales

Drug Store News,  May 20, 2002  by Diane West

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Mail-order drug sales are hot on the heels of retail. Of the $174.4 billion in prescription drugs dispensed last year, mail order claimed more than a $27-billion chunk, according to numbers crunched for the National Association of Chain Drug Stores by IMS Health.

While chain drug beat that easily with $67.8 billion, the percentages show a different picture. Chain drug sales accounted for 41.2 percent of the market in 2001; slightly below the 42.4 percent of the market the channel claimed in 2000. Mail order claimed 14.6 percent of the market in 2000, but inched up to almost a 17 percent share of the market last year.

Of the drug-selling channels analyzed here (chain drug, mass market, supermarket, independent drug and mail order), mail order achieved the biggest market-share gain in percentage terms. Where mail order drug sales accounted for $20.6 billion in 2000, its $27.6 billion in 2001 sales represented almost a 25 percent increase for the second year in a row. Comparatively, chain drug stores' $67.8 billion in sales in 2001 represented a 10.6 percent increase from 2000 sales.

"Mail order is still the fastest-growing channel of distribution," said Doug Long, senior vice president of industry relations at IMS Health. "A lot of this is driven by pharmacy benefit managers and employers looking to contain drug costs, where PBM members can fill one or two prescriptions at retail, but then have mandatory mail order after that."

Growth in other channels seemed to level off a bit in 2001, perhaps the most notable being supermarket pharmacy sales. Where food stores made a huge percentage sales leap between 1999 and 2000. increasing sales 25.7 percent in the space of one year, 2001 was not nearly as dramatic. Supermarket prescription drug sales came in at $19.9 billion in 2001, a 14.1 percent increase from 2000's tally of 16.9 billion. That was enough to claim 12 percent of the market in 2001, which is right in line with the channel's 2000 market share. "A lot of supermarkets' past pharmacy growth was due to the opening of new locations," Long said. "I'm not sure whether this growth is temporarily low or not."

With slight differences, mass market and independent pharmacies kept up very closely with last year's numbers. Mass market retailers accounted for $15.2 billion of prescription drug sales in 2001. This was enough to claim a 9.3 percent of the market, a slight dip from the 9.9 percent of the market claimed in 2000. Independent pharmacies continue to bring in drug sales double that of mass merchandisers; they rang up sales of $33.9 billion and claimed 20.7 percent of the market last year.

"A lot of people think the independents are stabilizing, and I think that's good news for them," Long said. "Part of the reason is that fewer are going out of business--there used to be 1,500 a year going out of business--so the players that are still there are the strongest ones." A number of retail drug chains, Long added, also have cut back on expansion plans.

There weren't too many big changes volumewise in terms of the number of prescriptions filled in each channel, save for mail order. The chains filled 1.4 billion prescriptions in 2001, claiming just a whisper more than 47 percent of the market; chains claimed 47 percent of the market in 2000. Mass market, supermarket and mail order prescription volumes all rose. Mail order volume rose almost 11 percent and claimed 5.4 percent of the market.

Generics sales start (slowly) inching up

Perhaps one of the more significant trends is the uptick in generic drug sales, albeit a slight one. But the trend is significant because generic sales have generally been flat--or even down slightly--over the course of the last five years. After peaking in 1999, when new generic drug prescriptions claimed 49.8 percent of the prescription market, they dipped again in 2000 to 48.7 percent. However, last year's tally has them up again to 48.8 percent market share in terms of new prescriptions. "Generics' share was drifting up until the third quarter of last year," Long said. "Then you had Mevacor (lovastatin), Glucophage (metformin HCl) and Prozac (fluoxetine HCl) go generic. With generics, you have to look at the full year effect."

Brand-name drug sales are still strong. Many of the top sellers in 2000 remained on the top 10 list, and a few more joined the ranks. Astra-Zeneca's popular "purple pill" for intestinal disorders, Prilosec (omeprazole), took a bruising, however. AZ's pain may have been both caused (and eased) by the introduction of Prilosec successor, Nexium, (esomeprazole magnesium), which made a strong debut in 2001.

But who is paying for all these drugs? IMS data shows that, in the space of 10 years, third party payors have overtaken cash payers completely. "If there's a Medicare drug benefit, we'll see cash payments continue to erode," Long said. "But it also depends on whether managed care starts excluding coverage for certain products. If they decided not to pay for a drug like Viagra [sildenafil], you'll see people paying again in cash."