The popular medications are driving big revenue gains, but distributors say the specialized handling requirements eat into profit margins.
The soaring popularity of Ozempic and similar weight-loss drugs is driving big business for some of the largest pharmaceutical distributors in the U.S. But the benefits aren’t necessarily flowing to companies’ bottom lines, partly because of the complicated and costly logistics involved in shipping the refrigerated medications, industry experts say.
AmerisourceBergen, Cardinal Health and McKesson each reported revenue rose in the latest quarter amid skyrocketing demand for the class of diabetes and weight-loss medications known as GLP-1s.
Drugs such as Wegovy and Ozempic cost around $1,000 for a month’s supply and are in hot demand despite being in short supply, generating billions of dollars in revenue for their manufacturer, Denmark-based Novo Nordisk, and bringing in a big payday for their distributors.
“GLP-1s really are a driver of top-line revenue growth, but from an operating income standpoint, they are minimally profitable,” said James Cleary, chief financial officer of Conshohocken, Pa.-based AmerisourceBergen, on an earnings call Aug. 2.
“The gross profit margins on them are low, and then the operating expenses are a little higher because of the cold-chain nature of the product,” he said.
AmerisourceBergen, which is changing its name to Cencora next week, reported its revenue rose to $66.9 billion for the quarter ended June 30, up 11.5% from the prior year, boosted by sales of GLP-1 drugs. Cleary said revenue grew about 8% without those medications.
The medications help patients lose weight by mimicking a gut hormone called GLP-1. They are designed as once-weekly injections that patients administer on themselves using a penlike needle, similar to using an EpiPen, that must be stored between 36 and 46 degrees Fahrenheit to prevent the medication from losing its effectiveness.
That raises the stakes for patients and drug distributors to keep the medications’ temperature stable. For patients, that means sticking the pens in the fridge. But for wholesalers, it means arranging industrial-scale logistics designed to keep the medications cold throughout transport and storage, including protecting the injections from unpredictable events such as a truck breaking down in a heat wave.
That makes handling Wegovy and similar drugs harder than a typical bottle of prescription pills, industry experts say.
“You need to have the product in refrigerated trucks going from your point A to point B and then when it gets into a location, you have a period of time from a material handling standpoint that you would need to collect the product and then store it in a refrigerator,” said Maria Nieradka, an analyst with research firm Gartner.
Shipping refrigerated products such as medicine and food is more expensive than moving dry goods like apparel or appliances. The spot rate for refrigerated trucks was $2.44 a mile in July compared with $2.07 a mile for dry vans, according to the most recent data from online freight marketplace DAT Solutions.
The high price tag of the drugs drives up the costs to transport them beyond that of typical refrigerated products, said Jeff Tucker, chief executive of Haddonfield, N.J.-based freight broker Tucker Company Worldwide.
Drug wholesalers must arrange industrial-scale logistics designed to keep Ozempic cold throughout transport and storage. PHOTO: GEORGE FREY/REUTERS
Trucking companies handle the drugs on specific trucks that keep the shipments in a tightly controlled environment, ensuring temperatures are stable and the goods are also protected from odors that can affect them. The trucks also carry a higher level of insurance and are outfitted to keep the products secure to prevent theft, a particular risk with expensive drugs like Wegovy and Ozempic that are in big demand and have a high street value.
“Thieves know where these drugs are created, so it is very commonplace for thieves to follow these loads,” Tucker said. Trucking companies often require two drivers to move pharmaceutical loads to help make sure at least one person is always with the cargo, he said, doubling the labor costs.
The challenges highlight the complications drug wholesalers face in building out supply chains for medications in high demand.
Pharmaceutical companies during the pandemic rapidly worked to develop, manufacture and distribute highly fragile Covid-19 vaccines around the world, all while keeping the inoculations at ultracold temperatures far beyond the range of conventional refrigeration. That involved designing special packaging to keep the vials at stable temperatures for long distances.
Jason Hollar, CEO of Cardinal Health, said the weight-loss drugs aren’t as complicated to store as ultracold or frozen products.