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Analysis: What does the McKesson-Rexall deal mean for Canada?

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It’s now a space race!

McKesson Corporation, a leading international healthcare services and information technology company, and Katz Group, one of Canada’s largest privately-owned enterprises, on March 2 announced a definitive agreement to acquire Rexall Health from Katz Group for $3 billion CAD. The deal was recently “blessed” by the Competition Bureau of Canada.

by Jim Danahy

How will the deal change the retail pharmacy landscape in Canada?

“In my view this is of tectonic importance to the Canadian pharmacy sector,” says Jim Danahy, CEO of retail consultancy CustomerLAB and partner in a pharmacy specialty firm called AdhereRx Inc., with experts specializing in medication adherence, pharmacy unit profitability, mergers & acquisitions, and retail business valuation.

“It’s far bigger than the size of the deal suggests. In fact, it represents both an opportunity and an obligation for McKesson-Rexall to enter the space race, along with Loblaws-Shoppers Drug Mart, to radically improve community-based primary care and at the same time make a lot more money. It’s one of those rare opportunities for a total win-win of community and industry since they can’t make more money until they deliver better community care.

As Danahy sees it, Loblaws-Shoppers Drug Mart needed a worthy competitor and will now have one. “McKesson is the biggest distribution network in the world. They have steadily grown with deals involving IDA Guardian, Remedy’s, Medicine Shoppe, PROXIM, and have supported independent pharmacies. Now in Rexall they will have 470 large format laboratories for them to figure out the best ways to deliver community-based care.”

McKesson’s major entry into large-scale retail pharmacy comes at a pivotal time in retail pharmacy, as pharmacists assume more responsibilities in offering accessible patient care. The 9,500 pharmacies across Canada are a network of convenient, ready-made, professionally-staffed primary care hubs for patient care in every community.

“The McKesson-Rexall deal could lead to a radical improvement of pharmacy as the primary delivery vehicle for community healthcare in Canada,” adds Danahy. “This move has the potential to be a tipping point. We now have two worthy competitors, both ambitious to do more, both with good track records of recognizing their corporate social responsibility. There is an opportunity and an obligation for these two industry leaders to accelerate the community healthcare reform. The implications reach far beyond the pharmacy industry, into healthcare policy, pharmacare, and increased community delivery of healthcare services.”

Let the space race begin, says Danahy. “A handful of innovative pharmacies have already proven the techniques on a small scale. Now the industry needs healthy competition between large players to ratchet up the pace of delivering more medication-related services in thousands of stores, and helping their existing patients to improve their medication adherence (worth an estimated $12 billion in drug sales while saving the healthcare system up to $20 billion). Doing these two things on a large scale will save more lives, make more money and reduce more overall healthcare costs than anything else the pharmacy sector can do.”

This acquisition isn’t a cost-cutting play, or even a market share play. Since it is about better care for existing patients, it is a major market expansion opportunity for McKesson, Loblaw and every other chain and independent pharmacy that follows in their slipstream.