Ernst & Young report forecasts more difficult M&A environment for pharma companies
SAN FRANCISCO — While pressure to grow will drive more large drug makers to pursue mergers and acquisitions, diminished resources and competition from biotech and specialty pharmaceutical companies will challenge their ability to do so, according to a new report.
The report, by Ernst & Young, looked at the 16 largest drug companies based in the United States, Europe and Japan, as measured by revenue, finding that a slowdown in emerging markets inhibiting their ability to pursue sales there would widen what it called the "growth gap." Comparing IMS Health’s forecast for the global drug maker and industry analysts’ estimates over the next five years, the Ernst & Young report found that the growth gap would reach about $100 billion by 2015, meaning that it would need an additional $100 billion in revenue that year to keep up with overall market growth.
Slowing growth in developed markets has put sources of organic growth under pressure, the report found, which will likely prompt acceleration in M&A activity this year, but such deals will become harder due to less available operating cash because of slower sales growth — the result of pressure on drug pricing — and increased borrowing to fund higher dividends, stock repurchases and other expenses. E&Y found that the financial capacity for large drug companies to conduct such deals declined by 23% between 2006 and 2012. Meanwhile, the capacity of biotech and specialty pharmaceutical companies — including generic drug makers — has increased by 61% and 20%, respectively. All the while, big drug makers’ share of the combined acquisition capacity among the three industry segments has fallen from 85% to 75% over the past six years.
The report predicts more divestitures of various assets by drug companies and more deals offshore and in emerging markets.
More adoption of technology could drive retail pharmacy customer loyalty, report finds
TORONTO — More than half of U.S. consumers would not recommend a particular pharmacy to family and friends, according to a new report by a Canadian customer experience management firm.
According to the report, by Empathica, scheduled for release later this week, the 60% of consumers who would not recommend a pharmacy indicate that most consumers do not have a loyal relationship with any one chain or mass retail pharmacy despite what the firm called a "promising future" for the industry, with more than three-fifths of surveyed consumers saying they would not cut pharmacy spending regardless of the economy.
The report attributed the lack of customer engagement to a slow adoption of technology by pharmacies. Empathica said online prescription drug sales are expected to grow at a faster rate than in-store sales, but 40% of pharmacies don’t have an online presence, and among those that do, half of customers are unaware of web offerings, while less than 20% have received information or offers promoting them.
"Three-in-four customers still place and fill their prescription orders in-store," Empathica CEO Gary Edwards said. "This highlights both the lack of online pharmacy services and a low level of awareness among customers about existing services. There is no doubt that consumers are performing an increasing number of activities online — pharmacies need to get there and take advantage of digital rewards and online marketing to attract and retain customers."
Baby boomers were more likely to take advantage of online prescription services, accounting for 36% of those who manage prescriptions online, compared with 20% who are Millennials. Of the 25% of consumers who fill and manage prescriptions online, most use mobile health applications and said their pharmacies should use similar apps, but 75% of all customers reported not knowing whether such apps were available.
Empathica also found loyalty programs represented an area of improvement as core pharmacy services become commoditized. The report found that only 40% of customers were "highly committed" subscribers to loyalty programs at their primary pharmacy, with an even lower rate of 32% in mass-retail settings; 30% of consumers indicated they were always aware of coupons at pharmacies and mass retailers.
"Our research shows that customers that always use loyalty programs are almost twice as likely to advocate their primary pharmacy to friends and family when compared to non-loyalty program subscribers," Edwards said, citing respective figures of 64% and 36%. "Pharmacies that do not offer loyalty programs or targeted promotions miss an opportunity to turn customers into loyal customers and advocates."
Edwards suggested that mass retailers with pharmacies should offer "compelling" promotions and use marketing tactics like in-store coupons to take advantage of their price advantage.
"For bargain-hunting customers, promotions really help drive behavioral loyalty," Edwards said. "For chain pharmacies that cannot compete on price alone, loyalty programs give customers an incentive for returning and set them apart from other pharmacy chains that, according to our research, are often not leveraging these programs and promotions with consumers. These programs provide a powerful reason for price-conscious consumers to keep coming back."
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Mass. governor proposes new compounding pharmacy legislation
BOSTON — Massachusetts Gov. Deval Patrick has introduced legislation that would give the state government broader power over compounding pharmacies, the governor’s office announced.
Patrick’s legislation would reform the board of pharmacy by requiring special licensing for sterile compounding; authorizing the pharmacy board to assess fines against pharmacies that violate policies while creating whistleblower protections for pharmacists and other staff; requiring licensing for pharmacies out of state that deliver and dispense medications within Massachusetts; and establishing a clear process to restructure and reorganize the board’s membership to include four pharmacists, as well as several non-pharmacists, including one nurse, one physician, one pharmacy technician, one quality-improvement expert and three public members.
The legislation is based on recommendations from the state Commission on Pharmacy Compounding, which Patrick established in October 2012 amid a nationwide outbreak of fungal meningitis traced to contaminated injectable steroids prepared at the Framingham, Mass.-based New England Compounding Center. That epidemic has sickened 656 people and killed 39 in 19 states as of Monday, according to the Centers for Disease Control and Prevention.
"There is no action that we in government can take to prevent all abuses in all industries, but we must do what we can," Patrick said. "This legislation makes patient safety paramount and will help fill the gaps in compounding pharmacy monitoring that allowed NECC to operate in the shadows. Together, these changes can ensure that the tragic events of last fall never happen again."
In addition, Patrick will direct the Department of Public Health to increase inspection staff at the Board of Pharmacy and require that all inspectors be pharmacists with at least five years’ clinical experience, as well as additional training for inspectors working in sterile compounding. Another rule will require sterile compounding pharmacies to report volume and distribution, alerting the Board of Pharmacy when a pharmacy is acting like a manufacturer, which requires a Food and Drug Administration license.