Drug manufacturing companies are not the only ones getting pinched by the public outrage, political bashing, and increased scrutiny of rising drug prices.
The stock price of McKesson Corp. (MCK), one of the largest wholesale drug distributors, has dropped 19% this year. And it missed Wall Street earnings estimates for its latest quarter, citing fewer products with price increases and stalled prices on branded pharmaceuticals. (For more, see McKesson Launches Intelligence Hub.)
The San Francisco, California-based company predicted that earnings for the next fiscal year could get hurt, following its 2Q shortfall. (For more, see Analyzing McKesson's Return on Equity.)
“Given our second-quarter performance specific to branded price inflation, we now expect full-year branded pharmaceutical pricing trends to be meaningfully below those experienced in fiscal 2016," said McKesson CEO John Hammergren.
Drug Wholesalers' Role
Drug wholesalers play a pivotal role in the drug supply chain, by stocking large quantities of drugs from different drug makers and providing them to pharmacies.
Their profit comes from a slice of each drug's sale price, so higher prices benefit wholesalers.
As drug price hikes have stalled recently due to closer media, political, and consumer scrutiny, wholesalers are facing the heat.
Graph Courtesy: Google Finance
The three companies collectively hold a whopping 85% market share of the wholesale drug market.
For a long time, the stocks of drug wholesalers have been key constituents of many portfolios due to their defensive nature. They have long been considered a safe bet, thanks to the cut they make from the revenue-based services they provide in the drug-supply chain.
But with drug price inflation getting contained, wholesalers' bottom lines are also getting squeezed. (See also: Bernie Sanders Slams Drug Price Fixing.)