Untangling the Pharma Supply Chain
The flow of drugs and money along the pharma supply chain can be complicated.
We prefer to view the pharmaceutical supply chain--which includes retail pharmacies, pharmacy benefit managers, or PBMs, pharmaceutical wholesalers (distributors), brand-name and generic drug manufacturers, patients, and payors such as managed care organizations, or MCOs, employers, and governments--holistically. While we don't have any recommendations in this space currently, we think Express Scripts (ESRX) and Medco Health Solutions (MHS) are high-quality companies with expanding economic moats, and are worth keeping an eye on in case a buying opportunity presents itself.
Dispensing: Retail and Mail-order Pharmacies
Patients are the ultimate consumers of pharmaceuticals. In general, patients fill their prescriptions through either a retail pharmacy, or a mail-order pharmacy. Retail pharmacies include independent pharmacies, small chains, large chains such as Walgreens (WAG), CVS (CVS), and Rite Aid (RAD), and pharmacies embedded in other retailers, including grocery stores such as Safeway (SWY) and Kroger (KR), and mass merchandisers such as Wal-Mart (WMT) and Target (TGT). The largest mail-order pharmacies are owned and operated by pharmacy benefit managers such as CVS Caremark, Medco, and Express Scripts.
Matthew Coffina has a position in the following securities mentioned above: ESRX. Find out about Morningstar’s editorial policies.