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Helping retailers seize a major opportunity.

SAN FRANCISCO -- Over the next five years it's estimated that more than $64 billion in branded drugs will lose patent protection, meaning generic drugs could soon account for more than 65% of all prescriptions filled by retail pharmacies across the United States. This is a significant shift from just a couple of years ago when branded drugs still dominated pharmacy shelves.

What's driving this rapid growth of the generic drug market? First, baby boomers--nearly 80 million Americans--are reaching late middle age, leading to an increase in prescription drug usage. For example, from 1993 to 2003 the number of prescriptions purchased increased by 70%, compared to a U.S. population growth of only 13%.

Second, overall U.S. life expectancy is now at at all-time high of nearly 77.9 years, while the average 70-year-old spends four times as much on health care as the average 40-year-old.

Add to this the increasing demand for lower-cost health care solutions and you have a perfect storm of demographic, economic and political factors fueling greater demand for generic drugs. With the implementation last year of the Medicare Part D prescription drug benefit, this storm became even stronger.

In combination with Medicaid and other public health care programs, Medicare Part D propelled the federal government to become the largest health care provider in the nation in 2006, providing coverage to 40% of Americans.

This is up roughly from 25% of Americans in 2005. Given the cost implications of this substantial increase in coverage, the use of affordable generic drugs is expected to continue rising.

It goes without saying that the rise in generics utilization represents a tremendous opportunity to help retail pharmacies grow Rx profits, increase margins and strengthen overall financial performance. As the gap between drug acquisition costs and reimbursement continues to narrow, successful pharmacies are actively promoting and dispensing generics at every opportunity.

In addition to increasing margins, retail pharmacies that promote generics are helping consumers save billions of dollars a year in prescription drug costs. This type of cost savings can go a long way toward strengthening a pharmacy's competitive position in the marketplace.

Taking advantage of the generics opportunity at the retail level isn't as simple as it seems: it requires a well-honed approach and support of a strong partner with deep expertise in the generics market.

As the leading distributor of generic drugs to the retail market, McKesson Corp. has identified proven best practices that are empowering today's leading retail pharmacies to capture and maximize the generics opportunity. These best practices are distilled into the following five ingredients for generics success.

* Understand the pipeline. The generics market is changing rapidly every day. From a steady stream of branded drugs losing patent protection to new generic launches to the market volatility caused by ongoing litigation, it is critically important that retail pharmacies have a clear view of the generics horizon. By understanding the pipeline, retail pharmacies can plan for and fully take advantage of upcoming generic launches. On average, 75% of all prescriptions are converted to generics within six weeks of a generics launch. To help retail pharmacies gain this market insight, pharmaceutical distributors like McKesson provide retail pharmacy customers with the pharmacy systems and market intelligence they need to plan for new launches.

* Be first to market. The expression that "time is money" certainly holds true in the generics market. The difference between receiving a new generics shipment two to three days after launch and receiving it the next day can significantly impact prescription profits for retail pharmacies. In today's highly competitive pharmacy marketplace where consumers have more choices than ever before, retail pharmacies can't afford to lose any time when it comes to receiving new generic shipments. The only solution to this challenge is supply chain excellence--the continuous uninterrupted supply of generics to retail pharmacies immediately upon launch. For example, McKesson helps its retail pharmacies maintain their market share advantage through the McKesson autoship program, designed to provide customers with price-protected autoshipments of new, high-volume generics within 24 hours of launch.

* Offer competitive pricing. Initial competitive pricing is absolutely critical when purchasing generics. If a distributor doesn't hit the bull's-eye with the launch price of a new generic drug, its profits will suffer. This is why McKesson makes substantial investments in personnel, systems and research to ensure that initial pricing is spot-on. However, initial competitive pricing is just the beginning, and retail pharmacies should demand much more from their distributors. For example, what happens if the price of a generic drug drops after launch? A pharmacy can end up with a supply of generics it can only sell for less than what it paid--sometimes significantly less. To ensure that retail pharmacies always receive the most competitive pricings, regardless of often unpredictable market fluctuations, McKesson's proprietary generics program monitors industry pricing to help ensure that pharmacies always receive the most price-competitive generic shipments.

* Educate consumers. Retail pharmacies can benefit from generics if their consumers continue to adopt them into their drug regimens. Retailers need to take a systematic approach to educating consumers on the benefits of generic versus branded drugs. For example, generics can cost 30% to 80% less than their branded counterparts. But cost isn't the only factor for consumers. It's important for many consumers, including the aging senior population, to understand that generics are just as effective as branded drugs. Retail pharmacies that place a high value on the patient/pharmacist relationship, as well as wellness information, can experience an easier time educating patients. Generics distributors can also play a key role in helping their retail pharmacy customers inform consumers about the benefits of generics by supplying easily distributed and consumer-friendly educational materials.

* Continually assess performance. The above four points provide a solid framework for retail pharmacies to follow in maximizing today's growing generics opportunity. However, without some sort of diagnostic tool to determine how well a pharmacy has followed these steps, it's hard to gauge success. This is why McKesson offers customers a generics utilization diagnostic (GUD), which is a store-level assessment tool that helps pharmacies measure generics utilization and ultimately determine where improvements or changes need to be made to enable end-to-end generics success.

As the demand for lower-cost health care across the United States increases, generics will continue to be a significant part of the solution. And, consequently, the role of retail pharmacies will continue to expand. To take full advantage of this opportunity, however, retail pharmacies must ensure they understand the complete picture of today's rapidly evolving generics marketplace.

Although the five ingredients above are critical, each constitutes just one part of the solution. Taken together, they provide a true prescription for generics success.

Saul Factor is responsible for the procurement, pricing and product and program management for McKesson Corp. 's generics programs.
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Title Annotation:Special Report
Comment:Helping retailers seize a major opportunity.(Special Report)
Author:Factor, Saul
Publication:Chain Drug Review
Geographic Code:1USA
Date:Feb 19, 2007
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