Drug Distribution Industry Trends for 2025

It’s not just drugmakers reshaping the pharmaceutical sector; distributors are rapidly transforming, too. While most investors and policymakers focus on rising prescription drug prices or direct-to-consumer offerings, the engine quietly driving the entire pharmaceutical supply chain is gaining strength.  

The full US Drug Distribution Industry report reveals a hyper-concentrated, resilient sector poised for steady growth, even as margins face pressure. Financial advisors tracking healthcare trends will want to know what’s powering this $1 trillion juggernaut. 

The US drug distribution industry is a critical component of the healthcare supply chain, ensuring that medications are safely and efficiently delivered from manufacturers to various healthcare providers, including pharmacies, clinics, and hospitals. By managing logistics at scale, distributors enhance productivity and reduce costs within the drug supply chain, allowing manufacturers and healthcare providers to focus on their core responsibilities. 

The US drug distribution market is effectively an oligopoly. McKesson, Cencora, and Cardinal Health make up over 90% of the market by revenue.  

This concentration grants them massive scale and bargaining power across the pharmaceutical supply chain, from biopharma companies to pharmacies and hospitals. Each has fortified its position by forming joint ventures with major pharmacy partners such as CVS, Walgreens, and Walmart, allowing them to negotiate better prices on generics and lock in key relationships for the foreseeable future.  

Healthcare providers face high switching costs. Switching costs refer to the time, money, and effort required for healthcare providers to change distributors. Combined with tight integration across the supply chain, this makes disruption unlikely.

Morningstar forecasts mid-single-digit sales growth through 2029 for the Big Three, driven by an aging population, rising prescription volumes, and steady demand for specialty drugs. 

Outside of Cardinal, Cencora, and McKesson, the market comprises independent drug distributors specializing in specialty pharmaceuticals on the buy side and small and independent pharmacies and hospitals on the sell side. 

Specialty drugs for rare or complex health conditions now account for over half of US drug spending, despite representing a small fraction of prescription volume. Distributors invest heavily in high-margin services like logistics, revenue cycle management, and data analytics to offset the margin compression from high-priced branded drugs.  

GLP-1s were first approved to treat diabetes but now see stellar growth as novel obesity therapies. They have been one of the main recipients of attention in the biopharma market since 2022, and their impact has trickled down nicely to drug distributors.  

All three big distributors have delivered double-digit growth in their distribution businesses in recent quarters, and we estimate that GLP-1s collectively contributed about one quarter of the growth. This is impressive, given that spending on obesity drugs in 2024 made up less than 10% of US prescription spending.

One downside of GLP-1s is their margin headwinds. Since the largest pharmacies predominantly dispense branded drugs and require special delivery methods like cold-chain handling, they carry lower margins than generics. Segment operating margins have declined sequentially for all three distributors, reaching their lowest level of the past three years.  

However, we still view GLP-1s as a net positive to distributors because they boost the top line and offer opportunities for distributors to sell other high-margin services like prior authorization solutions. 

Generic drugs make up 90% of US prescriptions but less than 20% of spending, and an even smaller portion of revenue for distributors. Despite this, generics are critical to the business model because they deliver the highest margins. That’s largely due to competition among manufacturers, which gives distributors more leverage to negotiate better prices.  

However, as more generics have entered the market, prices have dropped sharply, by about 30% over the past decade—putting pressure on distributors’ profits. 

The next wave of margin support could come from biosimilars. These are near-identical versions of expensive biologic drugs whose patents have expired. Biosimilars tend to offer higher profit potential than traditional branded drugs because distributors can once again play the middleman role, negotiating prices across multiple suppliers. With several high-profile biologics like Stelara and Tysabri losing patent protection, biosimilar uptake could become a meaningful tailwind for both revenue and margins over the next five years. 

Despite margin headwinds, distributors are outpacing the broader healthcare sector, up 40% since early 2024. For financial advisors, this underscores a few takeaways: 

Look for resilient competitive advantages with the Economic Moat Rating.  Drug distributors’ dominance and deep relationships create strong moats. 

• Monitor volatility. The Fair Value uncertainty rating accounts for possible scenarios affecting a company’s future cash flows. The Big Three drug distributors all have uncertainty ratings of Medium. 

• Keep an eye on portfolio exposure to the healthcare sector.  

The bottom line? While headlines fixate on prescription drug prices, long-term trends in drug distribution are quietly rewriting the economics of healthcare delivery and creating opportunities in the process. 

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