We are seeing pressure at the top end of the market with portfolios shrinking dramatically given the cost structure that some organizations have. In contrast, there is growth in the middle of the market with medium-sized businesses being well positioned to pick up products that are being discontinued by larger companies. The generics market is not a single market – some products are highly commoditized while others my see only a single / dual player market.”

Chris Rector

VICE PRESIDENT – SOURCING AND SUPPLIER RELATIONS, CLARUSONE SOURCING SERVICES

January 29, 2019

What were the key motivations behind Walmart and McKesson’s joining forces to form ClarusONE Sourcing Services in 2016?

The key motivation behind the formation of ClarusONE Sourcing Services was to provide strategic services that allow McKesson and Walmart to jointly source generic pharmaceuticals and drive efficiencies whilst also adding scale and value for both companies, as well as manufacturing partners, customers and patients. We leverage McKesson’s demonstrated expertise in the global pharmaceutical industry and Walmart’s proven commitment to delivering leading health and wellness services at an everyday low price to its customers. McKesson and Walmart have been partners through different avenues over the last 20 years, so it made a lot of sense to both sides.

When sourcing generic products, what are the key considerations, apart from cost?

We source roughly 6,000 products from 150+ suppliers from around the world. Products are generic and have been determined by government to be equivalent, and thus cost is a key element when it comes to making decisions around which vendors to work with. Additional factors taken into consideration when selecting a partner include surety of supply, execution capabilities, ease of doing business and the relationships that have been developed over time.

Where are your key markets for sourcing products and how have your distribution channels changed over the past three to five years?

A heavy concentration of our suppliers manufacture in the northeast of the United States. We also have a large base of manufacturers in India, a spread of companies across Europe and a small portion out of China. In terms of distribution, we work with our member companies: we handle the sourcing of products and negotiating aspects such as volume and price, while McKesson and Walmart handle the purchasing, storage and distribution.  

How are current geopolitical dynamics impacting your business and sourcing channels?

The current geopolitical dynamics are creating a higher degree of uncertainty.  The threats of proposed tariffs could have downstream impact on product supply and cost. We have not seen direct impacts from tariffs yet, but many of our supplier partners are thinking of the potential these dynamics could have. There is a lot of talk around tariff impacts in China in chemical categories that form part of the classes of products that may face tariffs in the future.

Changes in the Chinese regulatory requirements due to environmental concerns have had more of an impact because some smaller API manufacturers have closed down leading to increased prices in raw materials. We, as buyers, are trying to become more knowledgeable with regards to the upstream supply chain. Through our private label, Northstar, we are able to mitigate some of this risk.  However, we do not always have full visibility of where raw materials are sourced. This is something we are trying to change in order to better understand our risk when taking sourcing decisions.

The approval rates for generics has been at a record high this year. How has the change in FDA leadership and this trend impacted ClarusONE Sourcing and the generic space in the United States?

The record approval rates for generics has been good for buyers as it puts deflationary pressure on the market and provides more options for supply. We look to purchase products at the lowest possible price.  

Do you foresee some of the larger companies gaining a market monopoly in a particular product area?

We are seeing pressure at the top end of the market with portfolios shrinking dramatically given the cost structure that some organizations have. In contrast, there is growth in the middle of the market with medium-sized businesses being well positioned to pick up products that are being discontinued by larger companies. The generics market is not a single market – some products are highly commoditized while others my see only a single / dual player market.  Products also vary significantly in terms of the cost and effort to manufacture, traditional oral solids being more straightforward where other products can be more specialized and difficult to produce.

What is the growth strategy for the company over the coming two to three years and do you have a final message for our readers?

Our goal is to build upon our world class pharmaceutical sourcing capabilities, focused on the U.S. generics market. We believe we have an opportunity to expand both from a geographical perspective as well as suppling other categories beyond generics.  The generics market is doing great things for the U.S. healthcare market with cost reductions for end users across the board.

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