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Pharmacy multiples: how is the sector faring?

pharmacy multiples

By Beth Gault

17 Dec 2021

Major players in the pharmacy multiples have been consolidating their business positions, with speculation that the sector may see significant changes ahead. Where are we, and what might the knock-on effects for independents be, asks Beth Gault

The pharmacy sector is at a crucial moment. Midway through its five-year contractual funding agreement for 2019/20-2023/24 in England, the sector has reached a key point for strategic planning. Contractors are looking towards both year four of the agreement, with PSNC hoping to have completed negotiations with the Department of Health and Social Care and NHS England and Improvement by April, and towards the next contractual framework.

Richard Hough, commercial and healthcare regulatory lawyer at Brabners – and former pharmacist – says: ‘It’s a pivotal point as to whether or not you consider you’re going to get an improved or more flexible funding model, or a worse funding model.’

This determination could have a big impact on contractors’ strategy and whether they choose to divest or acquire assets.

Within this backdrop, there have been rumours circling about moves among the multiples, with some big players having either confirmed their exit from the UK pharmacy market, or rumoured to be selling off their UK business. However, it is yet to be determined how this will impact the sector.

So, what is happening across the UK pharmacy market? What moves are the multiples making, and how could this impact the independent sector?

Operating under pressure

The Covid-19 pandemic has put immense strain on the NHS as a whole, and pharmacy is no different. However, issues around a lack of workforce and funding have been building since before the pandemic, and have only been exacerbated by the pressures brought by Covid-19. In March 2021, this was recognised by the Government when pharmacists were added to the Home Office’s shortage occupation list.

Chief executive of the Company Chemists’ Association (CCA), Malcolm Harrison, says: ‘The number of pharmacists is growing, but not fast enough to match the increased demand caused by the NHS vaccination effort, changes to working habits and of course the recruitment of over 3,000 pharmacists into new roles within Primary Care Networks.’

Alongside this, there has been an ongoing lack of funding.

NPA chair, Andrew Lane, says: ‘There is clearly a chronic shortage of pharmacists that needs urgent attention. A closely related problem is continued underfunding of the pharmacy network –

it falls well short of the investment necessary to guarantee consistently excellent care, successful implementation of new services and long-term improvements.’ While Covid costs have been claimed back by many contractors – to the tune of around £269m, this is not enough to make up for the underfunding, says Mr Lane.

Consolidation

This pressure has likely influenced the decisions made in the boardrooms of the multiples.

Jonathan Board, director of medical at property brokerage Christie & Co, says there has been a trend building over the past few years in the way the multiples have approached their commercial decisions.

‘A lot of the multiples have been a bit inward looking,’ says Mr Board.

‘We’ve seen in the last two or three years they’ve been looking at the consolidation and merge opportunities within their own estate, concentrating on making what they’ve got as good as it can be, rather than throwing cash at buying new pharmacies.

‘We’re not seeing much acquisition work through these big corporates, it’s more insular, like how can they make two underperforming units better.’

This trend can be seen in LloydsPharmacy owner McKesson Corporation’s decisions over the past few months, first with the sale of its European businesses in July, and then its sale of its UK businesses to Aurelius for £477m in November.

These moves, McKesson said at the time, were part of a broader enterprise strategy to fully exit the European region. Expected to close at the end of the financial year, the sale included LloydsPharmacy, LloydsDirect, AAH Pharmaceuticals and a number of other businesses. Also in November, LloydsPharmacy cut the hours of its 100-hour pharmacies operating in Sainsbury’s stores, due to ‘ongoing reviews’ within its pharmacies and ‘workforce challenges and pharmacist shortages’.

McKesson’s chief executive, Toby Anderson, says: ‘While last year the challenges were acute, this year the knock-on effects of the pandemic have come to the fore, including the lack of pharmacists for the increased roles that community pharmacy and the NHS wants to fill. This will continue to be an obstacle in 2022.’ Further consolidation has been seen at the parent company of Boots UK, with it also rumoured to be selling off its UK businesses earlier this month.

At the time, Walgreen Boots Alliance (WBA) told The Pharmacist that while it would not comment on speculation, it was ‘accurate’ that WBA had a ‘renewed set of priorities and strategic direction’, including a more ‘pointed focus on North America’. In November, Boots UK also announced it would be stopping pharmacy provision in 22 locations ‘in the coming months’ due to a ‘need to adapt to a changing market environment’.

Meanwhile, fellow multiple Rowlands Pharmacy made changes to store opening hours and cut contracted hours of work in October 2020, reportedly in response to the ‘level of funding’ in the pharmacy sector.

Mr Board says this insular consolidation is ‘logical’ for the businesses.

‘If you’ve got two pharmacies that are doing 3,000 items each, since the remuneration change and the loss of practice payments, they are potentially either losing money or they’re not profitable at that level,’ says Mr Board.

‘If you’ve got two lots of three, you’re much better off doing one lot of six. The days of having pharmacies for numbers sake are probably gone. People are much more focused on how they can get the best out of what they’ve got.’

Mr Hough adds: ‘Would the multiples be looking to expand their offering at the moment? I wouldn’t say so. I think they’ve got enough problems with staffing and running their current pharmacies profitably at the moment.’

Expansion of online

Beyond pharmacy premises, contractors have been looking to expand their online offering in recent months.

Mr Hough says: ‘I would say there are three main issues that will be at the forefront of contractors’ minds, and that’s workforce issues, funding and the online threat.

‘Since the start of the pandemic, people’s engagement with online service offerings generally has increased. The pandemic has greatly accelerated people’s engagement with online service provision, and healthcare is no different. Those businesses that have a strong online presence are already reaping rewards from that accelerated direction of travel.’

In 2020/21 there were a total of 372 distance selling pharmacies, which is a slight drop from 2019/20 (390) but a large increase from 127 in 2015/16, according to market research company Statista.

McKesson’s chief executive, Mr Anderson, says it was able to ‘fully embrace’ an ‘omni-channel approach’ by offering several digital options this year.

‘Covid-19 accelerated the adoption of digital healthcare solutions and we’ve invested more in our online services, including LloydsDirect, Lloydspharmacy.com, and LloydsPharmacy Online Doctor, to offer patients greater choice in how they access treatment and care,’ says Mr Anderson.

He adds that this has ‘resonated well’ with customers, patients and colleagues. Rowlands Pharmacy, Boots and Well have also all invested in their online services this year, with various moves in the market.

Opportunist independents

What do these moves mean for the independent section of the market?

While some independents may lack the resources of the multiples to invest as heavily online, this trend alongside the consolidation of the multiples opens up potential in the bricks and mortar market.

‘The independent sector as a whole has probably benefited from the past three years of lack of corporate activity’, says Mr Board. ‘The pharmacist who really wants to be part of the community, helping the local population, can really build something that’s got real value in the local community.’

He adds: ‘Years gone by, a lot of the independent sector just wouldn’t have got the opportunity. Now that corporates aren’t buying [property], the opportunities have come.

‘You’ve got these regional groups that have been quite active and quite a lot of them have built estates from not very many to quite a few, and it almost seems like the pharmacy market is coming back towards the independent because there’s just more opportunities for them to look at.’

Mr Hough agrees that there are opportunities for the independents to grow.

‘If you take the view that the multiples have been the hardest hit by the current challenges and are therefore looking to divest some of their portfolio, then there’s definitely opportunities for acquisitive and ambitious independent pharmacy operators to increase their own pharmacy groups,’ he says.

While the challenges are large, there is space for independents to really establish themselves within a community – especially since pharmacy has grown in profile due to the pandemic.

Mr Hough says: ‘Covid has presented opportunities for pharmacists and pharmacy businesses, to put themselves in a far more predominant position in the public’s mindset.

‘As frontline healthcare providers, they have kept their doors open throughout the pandemic, they’ve taken on a huge degree of additional work, and I think their voices have become louder.’

PSNC fighting for the sector

Pharmacies should be proud of their phenomenal achievements in ‘a year of highs and lows’, during which they have been critical to the ongoing response to the Covid-19 pandemic, Zoe Long, head of communications and public affairs at PSNC told The Pharmacist.

‘But we know that they have come at a cost – both to pharmacy contractors, and to their teams. The ongoing financial squeeze being applied to the sector has not been relieved, and

contractors were rightly disheartened by just how reluctant the Government initially seemed to cover contractors’ Covid-19 related-costs from the first year of the pandemic. Costs continue to rise, and unlike many businesses, pharmacies have no option to pass these on to consumers. Workforce issues are also continuing to cause problems for many businesses, with no easy fixes in sight. And after another year of working under extreme pressure on the front line of the NHS response to Covid, most pharmacy teams are simply exhausted.’

Trends in the sector perhaps come as no surprise, they said: ‘We would expect all businesses to be looking for ways to reduce their costs at the moment, and for larger businesses it is no surprise that this could include considering consolidation. All businesses have also been looking to innovate, with many pharmacies looking to provide more digital services to their local communities. This can be helpful in both improving access to services and developing communication channels with patients.’

Can negotiations on the contractual framework bring any optimism for pharmacies in England? The next round of negotiations with the Department of Health and Social Care (DHSC) and NHS England and NHS Improvement (NHSE&I) are expected to resume ‘soon’, says PSNC.

‘PSNC’s position on the issues facing the sector is clear – the sector needs more investment; it needs the promised help from Government to free up capacity; and workforce issues need attention and a collaborative effort both across the sector, and from within NHSE&I and the DHSC. We will continue to press for all of this, and more, through our negotiations. We will be bringing proposals for additional funding and support, particularly around the treatment of ‘walk-in’ patients, to the table, along with a heavy dose of realism for Government and the NHS about the current challenges in the sector.’


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