Pharmacy chains: Can't have fewer pharmacies, don't need more

Pharmacy reform press conference on Monday. December 16, 2019. Source: Siim Lõvi/ERR

The pharmacy market is currently ruled by drug wholesalers, and pharmacy chains are defending the status quo as well as the new Medicinal Products Act perpetuating it, finding that both developments — both the addition of new wholesalers and pharmacies as well as a reduction in the current number of pharmacies — would be harmful to the market.

Speaking at a press conference on Monday, Estonian Pharmacies Association (EAÜ) chairman Timo Danilov set the boundaries early on: the association has always been against the liberalization of the pharmacy system, but on the other hand, the number of pharmacies being reduced is also a risk.

"The only right move is to avoid a mass closure of pharmacies," he stressed.

From the patients' standpoint, however, the most optimal option is vertical integration, i.e. wholesalers owning pharmacy chains.

"The efficiency of scale maintains both the wholesale and retail sale of drugs," Danilov explained, adding that if the wholesale and retail sale of drugs were to be broken up, that would lead to market pressure that would drive up drug costs.

Danilov was backed up by Leon Jankelevitsh, managing director of drug wholesaler Tamro Baltics, who said that having wholesalers and retail pharmacies in one chain ensures efficiency of scale which is the result of an integrated chain.

Besides, he added, pharmacy chains are more efficient in fixed cost-sharing than independent pharmacist-owned pharmacies.

"Dismantling this [system] certainly wouldn't be efficient," Jankelevitsh said.

Nonetheless, it was highlighted that another new wholesaler and connected slew of pharmacies entering the market would also be bad news.

"We currently have healthy competition, but if we were to see a mass opening of new pharmacies, they would start converging in towns and cities, and tend to disappear from the countryside," Danilov warned. "Professional workforce also tends to concentrate in cities."

"This is business with very low margins; that is why there can't be many wholesalers on the market," Jankelevitsh said.

The Tamro Baltics managing director also warned that if the Lithuanian and German investors in drug wholesalers were forced to exit the retail pharmacy market, not only would this be a blow to Estonia's reputation, but it would also bring with it an increase in legal expenses, as Estonia and Germany, for example, have signed a bilateral investment protection agreement which protects businesspeople for 20 years following the termination of a contract. He encouraged Estonia to hang on to the foreign investors who have contributed to drug wholesale. 


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Editor: Aili Vahtla

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