Pharmacy is “Sexy”? Maybe But Challenges Exist.

Within the M&A landscape, “people keep returning to pharmacy. Pharmacy has always had long-term investment [interest] … and opportunities for growth and expansion are not difficult to imagine…. Pharmacy is sexy; it always has been, and, for the near future, it will continue to be.” — Dexter Braff, president of The Braff Group, a health care M&A company, told AIS’s Specialty Pharmacy News.

This was an interesting quote for me. While I agree that the fundamentals of pharmacy are good, there are lots of challenges.

From a positive perspective:

  • People are living longer
  • People are taking more medications
  • More and more traditional medications are available as generics which have higher margins as a percentage
  • There are more and more infant drugs and other high cost injectables
  • Adherence is becoming more and more important
  • Health reform will give millions prescription coverage (if not repealed)
  • BUT, from a negative perspective:

  • The economy is still tough which impacts overall utilization
  • The costs of healthcare and prescriptions in terms of out-of-pocket costs as a percentage of their earnings can’t continue to rise
  • You make less in real dollars per generic dispensed in many cases
  • Margins are under significant pressure in the traditional business (just look at Walgreens dispute with Express Scripts)
  • Margin compression is (and has been) moving into specialty
  • Consolidation in the PBM, pharmacy, pharma, and specialty world will continue
  • Pharma innovation and pipelines are not very robust with a few exceptions in some specialty categories
  • So…on the one hand, I agree. Pharmacy is very interesting and ripe for innovation. On the other land, there are lots of big, established players fighting for the same margin dollar. I’m still betting money on the industry, but I know lots of companies are trying to sell out so that tells me there are some challenges.

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