Medicine distribution involves the process of drug companies bringing their products to their customers. In the pharmaceutical industry there are two channels of distribution. One, which is the more traditional, is where a drug manufacturer distributes their product to a drug wholesaler, who distributes the drug to a pharmacy, who then distributes the drug to the final consumer. So, there are four channels in this example: drug company, drug wholesaler, pharmacy, and consumer. Sometimes, a “pull” method is used whereby a demand at the retail (pharmacy) level will result in the drug wholesaler providing the medicine that is in demand. Other ways a drug company will try to get into the distribution channel will be to offer larger margins and better terms to the wholesaler than they would get with other medicines, and/or develop a relationship with another drug company that already sells a large amount to a wholesaler.

In the case of large pharmacy chains such as CVS or Rite-Aid, they distribute medicines to their retail stores from their own warehouses which eliminate the need for the drug wholesaler. Small, independent pharmacies, clinics and hospitals rely on wholesalers for their medicines. The wholesalers, acting as intermediaries between the manufacturer and the buyer, generate millions in revenue and have used a speculative “buy and hold” method which meant they stored the medicines and then sold them when prices increased.

Newer channels of distribution involve selling direct to the consumer via the Internet or through direct mail drug stores, which eliminates the “middle man” of the wholesaler and pharmacy. These newer methods of distribution do not have as large a market as the more traditional four channel method of distribution, however delivering direct to consumers is an attractive option for manufacturers to streamline distribution and hold down costs.

Profit margins for drug companies range from 15-41% after taxes. Medicine prices in the United States are often twice as high as prices in Canada or Europe. However, the shift from brand name drugs to generic versions has caused revenues to sag. As result, large pharmaceutical companies in order to protect their large profit margins have filed lawsuits to delay generic competition, have petitioned the FDA to stop importation of lower cost medicines and have lobbied for laws to extend their exclusivity rights on their medicines.