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February 2012

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Analysts Dim on ‘Traditional’ Pharmacy and Once Mighty SDM

Wednesday, February 1, 2012 @ 02:02 PM

In the wake of pharmacy reform and massive rebates still flowing to retail chains and independent pharmacy buying groups, the one time darling of the pharmacy world SDM’s future as a investor bet is being openly challenged.

The one time SDM “cheerleader”, analyst Perry Caico of CIBC World Markets, who had been referred to by politicians as THE unbridled stock promoter for SDM, has said he is “concerned” for the once great stock investment.

He claims pharmacy reform and government strong-arming has and will compromise the viability of SDM as the perfect investment.

As the former CEO of the largest professional association of pharmacists in Canada and, immodestly, as a go-to resource for government and private sector organizations on drug plan reform and augmentation, I submit that the issue is not government – it’s a flawed business model in pharmacy.

There is a disconnect between what the public wants and what traditional retail pharmacy in Canada is begging to keep.

In fact, the pall on traditional pharmacy in Canada is not the fault of government. Governments across the country have been and remain concerned that rebates to pharmacy from generic manufacturers artificially keep prices for generic medicines the highest in the world. Pharmacy has been slow to react to government reform from the outset, catering to the notion of staying “whole” rather than adjusting their business models.

I make speeches across North America on drug reform. Audiences tell me they become enraged at what they hear about the massive profits being made by pharmacy when costs continue to rise year over year on private sector plans. It doesn’t make sense in my opinion. With demographic increases in numbers of prescriptions being dispensed, the patent cliff making generic drugs more prolific, one would assume prices and costs would decrease. So how does it work that costs are increasing?

In the work we do, we can confirm that the public and government are ahead of the curve on pharmacy reform and will talk and walk with their feet when confronted with high prices for drugs, variable fee structures from one pharmacy organization to the other and an increasing understanding of how this drug system has set pharmacy up as the biggest beneficiary.

The US, UK, Italy, Spain, Australia, New Zealand and even Ireland have undergone real drug reform. One that doesn’t hide the fact that designing a system means realizing lower costs and prices.

With governments leading the charge on making real change in prescription drug plan reviews and retail pharmacy still playing the game of introducing schemes and ‘blueprints’ to maintain their position – little wonder analysts are turning on the once and mighty chains!!

The beneficiaries are undoubtedly the public and plan members who may see new models considered and introduced.

M. Kealey - Economic Club of Canada

Economic Club of Canada

- Marc Kealey

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