by Mike Jaczko and Max Beairsto
Undoubtedly the COVID-19 pandemic has changed the way pharmacists practise. The “toilet paper” equivalent of prescription hoarding prompted pharmacists and governments to take radical steps to protect the Canadian pharmaceutical supply. In fact, the CPhA, in a media release dated March 17th, “called on all governments … to support” a 30-day supply of medications. And a good thing it was, since even as late as last night (May 27), Charmin is telegraphing that they will soon be able to supply once again the blue bear, family-loved rolls of softness – a case study of unbridled stockpiling.
We will stay away from any politics associated with this issue and rather look at the impact it has had on pharmacy revenue and margin metrics. We’ve been saying that “March is borrowing from April” when it comes to pharmacy revenues, and this came to fruition. In the latter weeks of March, pharmacists across the country were not only stressed about how to protect themselves but also being required to deal with increased volumes and panicked patients. March prescription volumes and revenues were up, prescriptions were being filled early, and requests were made for lengthier supplies in conflict with government regulations. As much as pharmacists pushed back, it still happened. So what happened to April? The early fills in March should have dropped prescription volume in April – which it did. And the short-fill duration policies should have increased gross margin percent – which they did.
The question everyone had, however, is what the effect was on gross margin dollars after cutting through the noise. Using the pooled data of sample of pharmacies across the country, we have compiled the following “averaged” data. As predicted, prescriptions were down in April (390 prescriptions down from the average of the first three months of 2020 – representing 8.3% decrease). See Chart 1.
And as we suspected, revenue was down (a whopping $29,000 from the average of the first three months of 2020 – representing almost 18% in revenue). And as to be expected, margin percentage was up – moving from an average of 31.8% to 35.4%.) – See Chart 2.
These results were predictable and to be expected. However, what is interesting is that gross margin dollars for April were only down by $4,500, or about 8% gross margin. Despite the bleakness and uncertainty, this may be encouraging news. Gross margin is down, yes, but in light of the prevalence of early fills in late March, April could have had a much worse result (see “March borrowed from April” above). We will follow up once the May numbers have been compiled, and we predict that gross profit dollars will be up from April.
We have a larger issue to deal with in the coming months that will require our collective input – how do we return to 90-day fills once the green light is given? We say in jest, will we have a lottery to determine who gets them, or do we fill prescriptions every three months and take two months’ vacation? We will be circulating a survey for your input on the issue, and until then, thank you for your hard work, and stay safe out there!
Mike Jaczko, BSc. Phm, RPh, CIM®, FEA a pharmacist by background, is a portfolio manager, partner and member of KJ Harrison Investors, a Toronto-based private investment management firm servicing individuals and families across Canada. For more information on this topic, email email@example.com.
Max Beairsto, B.Sc. Pharm., MBA, CVA is an intermediary and valuation analyst with EVCOR (Enterprise Valuators Corporation), a Canadian business advisory firm that focuses on valuations and the sale of healthcare-related companies. You can reach him at firstname.lastname@example.org