Market Size and Forecast
The US pharmacy market was valued at $534.21 billion in 2020. The market is projected to grow at a CAGR of 6.3% from $560 billion in 2021 to $861.67 billion by 2028. The impact of COVID-19 has been unprecedented with the industry witnessing a positive impact on demand across the US amid the pandemic.[1]
Source: Fortune Business Insights
According to a report by Fortune Business Insights, “Increase in prevalence of diseases in the US, aging population, and increasing healthcare expenditures are some of the major factors driving the growth of the industry. The increasing number of prescription drugs being introduced in the market, along with the rising number of outpatient and inpatient admissions in the country is leading to an increasing number of prescriptions being filled by retail pharmacies. This rapid growth in the number of prescriptions is leading to rising in the number of pharmacies in the country for distribution of these drugs.”
Top Players and Market Share The top U.S. pharmacy in 2021 by market share based on prescription drug revenue was CVS Health Corporation, followed by Walgreens Boots Alliance. CVS Health held nearly 25% of the prescription drug market revenue. A significant increase in market share was reported for Cigna achieved through the acquisition of pharmacy benefit manager Express Scripts in August 2018.
Before that, Cigna was mainly active in the insurance business and related products and services.[2]
Source: Fortune Business Insights
The role of Pharmacy benefit managers
Pharmacy benefit managers (PBMs) are companies that manage prescription drug benefits on behalf of health insurers and large employers and negotiate with drug manufacturers and pharmacies to control costs. Three Major Players Control 80% of Total PBM Market Share by Total Adjusted Claims. CVS Caremark leads in PBM market share, representing 34% of total adjusted claims in 2021, followed by Express Scripts (25%), and OptumRx (21%). Together, these three PBMs control about 80% of the total PBM market share.[3]
Mom and Pop Pharmacies
Independent pharmacies remain a major part of the retail pharmacy business, accounting for one-third of brick-and-mortar pharmacies in the U.S. and 6% of retail prescription drug sales. There are currently about 22,500 independent pharmacies in the United States, and these pharmacies dispense nearly half of the nation’s retail prescription medicines. Independent pharmacies are an $81.4 billion marketplace annually[4]. They fill 1.38 billion prescriptions a year—about 201 a day, per pharmacy—and employ 314,000 people on a full or part-time basis.
In some rural and underserved urban areas, independent pharmacies may also be the sole providers of prescription drugs and other services such as vaccinations. Independent pharmacies have been losing overall market share, though total revenues for this dispensing format have been relatively stable. The total number of independent pharmacy locations has held relatively stable over the past 20 years. Over the past five years, however, the number of independent pharmacies has trended downward—along with the total number of U.S. retail pharmacy locations. For 2019, National Community Pharmacists Association reported that there was a total of 21,683 independent pharmacy locations. But by the beginning of 2021, that number reduced to 19,397.[5]
Independent pharmacies have traditionally relied on profits from the sale of generic drugs as their main source of revenue. However, PBM consolidation over the past decade has resulted in lower reimbursements on these generic drug sales to pharmacies. At the same time, experts reported that mass retailers and supermarkets had undercut the market by selling generic drugs at prices lower than what they paid to acquire them, sometimes accepting losses on generic drugs in exchange for drawing more business to their stores. The retailers blamed PBMs and direct and indirect remuneration (DIR) fees that cover any money a Medicare Part D plan may collect to offset member costs. Under Medicare Part D, Medicare makes partially capitated payments to private insurers, also known as Part D sponsors, for delivering prescription drug benefits to Medicare beneficiaries.[6] Pharmacy DIR reduces the revenue of pharmacies and adds financial uncertainty and risks on pharmacies. A major complaint from outpatient pharmacy organizations focuses on the performance-based metrics, claiming that the PDP/PBM communication regarding DIR fees owed lacks clarity, consistency, and transparency.[7] PBMs and DIR fees all contribute to what these pharmacies say is low prescription reimbursement and putting them under severe economic pressure. The other major reason for the shutting of local pharmacies is competition from the larger pharmacy chains and the growth of online prescription services.
A survey by the National Community Pharmacists Association in 2020 found that 10 million consumers lost access to the pharmacy of their choice. The closures represent a loss of nearly $17 billion in annual revenue, 15,000 jobs, and millions in tax revenue. For those retailers that remained open, owners told researchers their store’s financial health was poor.[8]
Independent pharmacies are far more likely than chain pharmacies to operate in traditionally under-served and rural areas where patient accessibility is a deep concern. Independents represent 38% of all retail pharmacies but represent 52% of all rural retail pharmacies. There are just slightly over 1,800 independent pharmacies operating as the only retail pharmacy within their rural community. 91% of all sole community pharmacies are in rural communities and 83% of sole community pharmacists provide important services to other health care organizations.[9]
Acquisitions by Walgreens and CVS
Walgreens acquires Boots Alliance
Walgreens Boots Alliance, Inc. was formed in 2014, after Walgreens purchased the 55% stake in Alliance Boots that it did not already own. Walgreens had previously purchased 45% of the company 2012 with an option to purchase the remaining shares within three years. As of 2021, Walgreens Boots Alliance is ranked 16th on the Fortune 500 rankings of the largest United States corporations by total revenue.
Walgreens Boots Alliance takes majority stake in iA
In 2019, iA (formerly known as Innovation Associates) signed an agreement that saw a consortium of investors led by Greg Wasson, former CEO of Walgreens Boots Alliance, acquire a majority stake in the company.[10] In 2021, Walgreens Boots Alliance announced its majority investment in the company.
“The iA mission to further modernize and automate the prescription fulfillment process aligns with our priority to create the pharmacy of the future, reducing operational costs and enabling pharmacists to spend more time providing valuable healthcare services to patients such as vaccinations, diagnostic testing, and medication management,” said Stefano Pessina, executive vice chairman and CEO, Walgreens Boots Alliance.[11]
CVS Health merges with Aetna in 2018
The $69 billion merger combines CVS pharmacies with Aetna’s insurance business, blurring traditionally distinct lines in hopes of lowering costs. CVS received approval for the deal from state insurance regulators where Aetna sold its coverage and a handful of states opposed the combination, saying it would reduce competition and could leave consumers worse off. However, CVS claimed that the merger would help make health care local and accessible and simplify how consumers access to care, and lowering costs.[12]
Current Valuation Multiples
As shown in the table below, EV/EBITDA multiples range between 6.7x to 12.9x EBITDA. It’s important to note that many of these transactions involve specialty pharmacies.
[1] US Pharmacy Market Report, https://www.fortunebusinessinsights.com/u-s-pharmacy-market-106306
[2] “Top U.S. pharmacies ranked by prescription drugs market share in 2021”, https://www.statista.com/statistics/734171/pharmacies-ranked-by-rx-market-share-in-us/
[3] “Pharmacy Benefit Managers: Market Landscape and Strategic Imperative”, https://www.hirc.com/PBM-market-landscape-and imperatives#:~:text=Three%20Major%20Players%20Control%2080,the%20total%20PBM%20market%20share.
[4] “Independent Pharmacy Overview: Part One”,
[5] “Five Things to Know About the State of Independent Pharmacy Economics”,
[6] “Medicare Part D – Direct and Indirect Remuneration (DIR)”, https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir
[7] “Reforming Pharmacy Direct and Indirect Remuneration In The Medicare Part D Program”,
https://www.healthaffairs.org/do/10.1377/forefront.20210714.70749/full/
[8] “Mom And Pop Pharmacies Dwindle Amid Competition”, https://www.pymnts.com/news/b2b-payments/2020/mastercard-rolls-out-track-business-service-in-us/
[9] “The Key Role of Sole Community Pharmacists in Their Local Healthcare Delivery Systems”, https://www.shepscenter.unc.edu/wp-content/uploads/2014/10/FB88.pdf
[10] “Consortium led by Wasson Enterprise to acquire majority stake in Innovation”, https://drugstorenews.com/consortium-led-wasson-enterprise-acquire-majority-stake-innovation
https://drugstorenews.com/walgreens-boots-alliance-takes-majority-stake-ia
[11] “Walgreens Boots Alliance takes majority stake in iA”,
[12] “CVS creates new health-care giant as $69 billion merger with Aetna officially closes”, https://www.cnbc.com/2018/11/28/cvs-creates-new-health-care-giant-as-69-billion-aetna-merger-closes.html
