Bankwest Future of Business: Focus on Pharmacy - 2019 release

 
Bankwest Future of Business: Focus on Pharmacy - 2019 release
Bankwest Future
of Business:
Focus on
Pharmacy
2019 release
Bankwest Future of Business: Focus on Pharmacy - 2019 release
Bankwest Future of Business: Focus on Pharmacy - 2019 release
Contents
Key insights                 4

Industry overview            5

What’s driving               6
industry growth?

Spotlight on Australia       7

Spotlight on Western         8
Australia

What does the future hold?   9

What challenges does         10
the industry face?

Where do the                 11
opportunities lie?

Forecasted industry growth   12
Bankwest Future of Business: Focus on Pharmacy - 2019 release
Key insights
    Foreword
    Understanding factors impacting your industry,           public healthcare costs and increase the level
    and how other businesses in your industry are            of services available to the public by expanding
    performing, can be a great gauge for how your            into more formal roles as healthcare providers.
    business is tracking.                                    Establishing themselves as local healthcare centres
                                                             and focusing on preventive and primary care will
    The Bankwest Future of Business: Focus on
                                                             empower pharmacists to treat patients earlier,
    Pharmacy Services Report is designed to give you a
                                                             relieving pressure on hospitals and other public
    snapshot of the current and expected future state of
                                                             healthcare services.
    your industry, which could help you plan and spark
    ideas. The report covers Australia’s retail pharmacy     Western Australian pharmacies performed
    sector, summarising trends based on statistics from      relatively well in 2018. In October 2018, turnover
    IBIS World, the Australian Bureau of Statistics and      growth returned to positive territory for the first
    other reputable sources.                                 time in 18 months with a record turnover month
                                                             of retailing revenue reaching $153.9 million.2
    Despite a challenging year, the outlook for the
                                                             However, substantial deflationary pressures exist
    pharmaceutical industry in Australia is positive.
                                                             due to intense competition in the market, from both
    Revenue is forecast to grow by 5.1% over the next five
                                                             discount pharmacies and supermarkets providing
    years, reaching $40.1 billion by 2024.1 Pharmaceutical
                                                             cheap generic medicines.
    retailers are expected to grow substantially, adding
    a further 300 establishments during the same             The national pharmaceutical industry is expected
    period. An ageing population and an increasingly         to continue growing, driven by innovation, evolving
    health-conscious society is driving demand for           consumer preferences, changing demographics, and
    pharmaceutical goods and services.                       diversification into formal healthcare roles.
    Australians are seeking more sophistication and
    involvement from their healthcare services. At
    the same time, healthcare expenditure is growing
    exponentially. Pharmacies are poised to reduce

    IBIS 2018
    1

    ABS 8501
    2

4
Bankwest Future of Business: Focus on Pharmacy - 2019 release
Industry overview                                                                                            Pharmaceutical retailing
Pharmaceutical revenue remained subdued in the year to June 2018, however the back end of the year           Pharmacies are focusing on increasing
showed promising signs of growth in the sector. Pharmaceutical retailers’ revenue fell by 1.4% relative to   revenue through general retail sales, as
the previous year, to below $16 billion, as competition remains fierce. However, ABS estimates show that     opposed to prescription medicines sales.
annual pharmacy retailing revenue rose by 3.3% in the year to October 2018.                                  A typical pharmacy derives approximately
                                                                                                             21% of its revenue from general retail.3
Australian pharmaceutical overview by sub-industry, June 2018                                                Discount pharmacies are among the
                                                                                                             strongest performers in the sector, deriving
                                                                                                             approximately two thirds of their revenue
                                                                           Pharmaceutical
                                                       Pharmaceutical                                        from general retail sales.4
                                    Pharmacies                                product              Total
                                                        wholesaling
                                                                           manufacturing
                                                                                                             Pharmacy revenue,
  Revenue                            $15.9 bn               $13.8 bn            $8.5 bn           $38.2 bn   year ending June 2018
  Employees                           64,000                    12,778           13,081           89,859

  Establishments                      5,715                     1,640             782              8,137                                    16%

Source: IBIS 2018

                                                                                                                              63%                 21%
In the five years to June 2018, pharmacy retailing revenue was driven by:*

                30.6%                  increase in Pharmaceutical Benefits Scheme (PBS) revenue
                                                                                                             Source: IBIS 2018

                                                                                                                 Prescription medicines

                10.8%                  decline in real prices
                                                                                                                 General retail

                                                                                                                 Scheduled non-prescription
                                                                                                                 medicines

                 6.0%                  increase in establishments

  *In the five years to June 2018                                                                            IBIS 2018
                                                                                                             3

                                                                                                             Pharmacy Guild of Australia (July 2017)
                                                                                                             4

                                                                                                                                                            5
Bankwest Future of Business: Focus on Pharmacy - 2019 release
What’s driving industry growth?
                                     Lower PBS revenue of 3.0% in the year to June 2018 across Australia was a major contributor to sector
                                     performance. However, retail purchases from other retail goods, such as cosmetics and toiletries, continue
                                     to drive growth. In the year to October 2018, revenue in pharmaceutical, cosmetics and toiletry goods
                                     grew by 3.3%.

                                     Australian pharmaceutical, cosmetics and toiletries goods retailing, 2013 - 2018

                                                       $18,000

                                                       $17,500

                                                       $17,000

                                                       $16,500

                                        Millions ($)
                                                       $16,000

                                                       $15,500

                                                       $15,000

                                                       $14,500

                                                       $14,000

                                                       $13,500
                                                                 2013             2014   2015             2016       2017        2018

    As we live longer, we are more
                                     Source: ABS 8501
    committed to maintaining
    our stock of health. Increased
    health conscientiousness will    Other factors driving industry growth
    provide a basis for long term
    stability and growth in the
                                                             3.3% increase in
    pharmaceuticals sector.                                                                     Technologies such            New product lines
                                                             Australia’s 65 and
                                                                                                as automated                 tailored to local
                                                             over population in
                                                                                                dispensing systems           demographics
                                                             year to June 2018

6
Bankwest Future of Business: Focus on Pharmacy - 2019 release
Spotlight on Australia                                                                                                 Pharmaceutical exports
                                                                                                                       double
Revenue increased across the pharmaceutical retail sector in the year to October 2018. Victoria experienced
the largest growth with annual turnover increasing by 11.7%.5                                                          A weak Australian dollar in 2018 saw exports of
                                                                                                                       medical and pharmaceutical products double
                                                                                                                       across Australia in 2018.
                                                                                                                       Medical and pharmaceutical products in the
                                                                                                                       year to October 2018…

                                                                    NT
                                                                                                                            102.0%                   in exports

                                                                     1.5

                                                                    -10.5%
                                                                                          QLD
                                                                                          3.0
                                                                                                                             11.7%                   in imports7
                                WA
                                                                                           0.2%                        Source: ABS 5368
                                 3.4

                                  0.2%
                                                                           SA
                                                                           3.3              NSW
                                                                           4.8%                 3.4
                                                                                                             ACT
                                                                                                0.8%                       Prescription sales comprise
                                                                                                                2.1        63.0% of a typical pharmacy’s
                                                                                  VIC                           5.3%       retail revenues.8 Uncertainty
                                           Pharmaceutical                         2.9                                      regarding health policy is reducing
            Pharmacies per
             10,000 people
                                          turnover increase                                            TAS                 capital investment throughout
                                                                                  11.7%
                                          (Year to October 2018)6
                                                                                                       3.5
                                                                                                                           the industry. Changes to the
         Source: ABS 8501                                                                                                  Pharmaceutical Benefits Scheme
                                                                                                       -11.1%              and shifting government policy has
Rising competition from both pharmaceutical retailers and grocery retailers has caused the price of                        the potential to create uncertainty
pharmaceutical goods to fall well behind changes in CPI, benefiting the end customer. In the five years to                 in the market and dampen
September 2018, the real price of pharmaceutical goods fell 10.8% compared to other goods.7                                investors’ confidence.

  5
   ABS 8501
  6
   Sector refers to Pharmaceutical, cosmetic and toiletries retailers
                                                                                                                                                                         7
  7
   ABS 6401                                                                                                            IBIS 2018
                                                                                                                       8
Bankwest Future of Business: Focus on Pharmacy - 2019 release
Spotlight on Western Australia
                                          WA’s pharmacy sector showed promising signs in the year to October 2018, with annual pharmaceutical
                                          retailing revenue growth entering positive territory for the first time in 18 months. The month of October
                                          2018 was particularly strong for pharmacies, with retailing revenue reaching $153.9 million, the second
                                          highest ever recorded.

                                          WA pharmacy summary and historical growth, 2013 - 2018*

                                                                                                                           1 year            5 year
                                             WA                                                          2018
                                                                                                                          change            change

                                             No. of community pharmacies                                 623               2.0%              10.5%

                                             Employees                                               18,242                13.4%             19.9%

                                             Annual turnover ($m)                                   $1,777.0               0.2%              9.1%

                                          Source: ABS 8501, Department of Health 2018, ABS 6291
                                          *Latest figures used

                                          In line with the national trend, Perth pharmaceutical prices have not kept up with price rises in the city. In real
                                          terms, pharmaceutical goods are 8.8% cheaper in Perth compared to five years ago.

                                          Perth price changes (CPI), 2013 - 2018

                                                                               Perth Pharmaceutical CPI                Perth CPI
    Western Australia has the                         115.0
    lowest pharmaceutical benefits
                                                      110.0
    government cost of all states at
    just $4329 per capita, more than                  105.0
    $35 less than the national average.
                                                      100.0

                                                       95.0

                                                       90.0
                                                              2013            2014                2015          2016           2017       2018
    Department of Health 2018
    9

8                                         Source: ABS 6401
Bankwest Future of Business: Focus on Pharmacy - 2019 release
What does the future hold?
In the 10 years to 2017, government expenditure on healthcare increased by 57.2%. At current rates, without
change, healthcare expenditure will reach $219 billion by 2023.10 To manage future growth in expenditure,
a greater focus on preventative care, illness management, and the integration of pharmacies into a more
comprehensive primary care model will be required.

Australian healthcare spending, 2007 - 2017

                      240,000
                      220,000
                      200,000
       Millions ($)

                      180,000
                      160,000
                      140,000
                      120,000
                      100,000
                                2007      2009   2011     2013       2015    2017   2019     2021    2023

Source: Australian Institute of Health and Welfare 2018

More than half of healthcare expenditure (59.7%) occurs over the age of 55. Anticipating consumer demands
across age and other demographic factors is critical to the efficient delivery of healthcare goods and services.11
Health spending over life

                                                                                       Under 19
                                                            5.2%
                                                                                       19 to 34                      Technological change and the
                                                          8.0%       16.2%                                           rise of e-health services will
                       59.7%           40.3%                                           35 to 44
                                                                                                                     enable pharmacists to provide
                                                                                       45 to 54                      health services on demand.
                                                             10.9%
                                                                                       Over 55

  Source: Kaiser Family Foundation 2017

   AIHW 2018
  10

   Peterson-Kaiser 2017
  11
                                                                                                                                                      9
Policy change                                What challenges does the
                                                  industry face?
     The pharmacy industry is highly regulated,
     so reform of government policy has a
     considerable impact on the industry.
                                                  Intense competition between traditional and discount pharmacies, as well as supermarkets, will continue to
                                                  drive pharmaceutical product prices lower, constraining profit margins. This trend will be exacerbated by the
                                                  availability of generic and bio-similar products. The number of pharmacies operating in Australia grew by
                                                  6.0% in the five years to 2018.13 Pharmacy establishment numbers are expected to continue increasing in the
                      Changes to the
                                                  next five years.
                      Pharmaceutical Benefits
                      Scheme (PBS) are
                                                  Pharmacy revenue ($) per establishment actual & forecast, 2010 - 2024
                      particularly important,
                      given 63.0% of pharmacy
                      revenues are derived                $5,600,000
                      from prescription sales12           $5,400,000
                                                          $5,200,000
                                                          $5,000,000
                                                          $4,800,000
                      Possible future changes
                                                          $4,600,000
                      in Federal and State
                      governments will likely             $4,400,000
                      bring policy change                 $4,200,000
                                                          $4,000,000
                                                                       2010      2012       2014       2016        2018       2020        2022       2024

                                                  Source: IBIS 2018

                      Policy changes increase
                      the risks of investing in
                      the industry
                                                       The number of employees per establishment in the pharmaceutical industry is falling, reflecting a
                                                       shift towards more sophisticated production which employs greater use of technological resources.14
                                                       To stay competitive the pharmaceutical industry requires investment into new technologies such as
                                                       e-health products, electronic prescriptions, and automations in production.

      IBIS 2018
     12

                                                   IBIS 2018
                                                  13

10                                                 IBIS 2018
                                                  14
Where do the opportunities lie?                                                                                     Other opportunities
An ageing population will create stability in the sector. Reflecting the growing proportion of older Australians,        E-health technologies such as
real healthcare expenditure in Australia is rising, growing by 9.5% annually from 2007 to 2017.15 There is               wearables will enable pharmacists
an opportunity to better employ pharmacy resources as local health centres, with more formal roles as                    to more effectively deliver
preventative and chronic healthcare managers. In 2018, pharmacies were permitted to administer influenza                 preventative healthcare services.
vaccinations. Both the number of cases and deaths fell drastically compared to the previous the year.                    Electronic script exchange and PBS
                                                                                                                         claiming will facilitate more efficient
Influenza deaths and cases, Australia 2017 - 2018                                                                        and higher quality service.
                   300,000                                                 1,200
                                                                                      1,137                              Increasingly health conscious
                              250,000
                   250,000                                                 1,000                                         consumers will demand a greater

                                                       Influenza Deaths
 Influenza Cases

                                                                                                                         variety and sophistication of
                   200,000                                                   800
                                                                                                        2017             health services. Pharmacies should
                   150,000                                                   600                                         establish themselves as preventative
                                                                                                                         and primary healthcare providers to
                   100,000                                                   400                        2018             capitalise on this trend.
                                              52,000
                    50,000                                                   200
                                                                                              73
                         0                                                        0

Source: Australian Journal of Pharmacy 2018

Australia’s ageing population is also driving growth with an expected increase in the proportion of Australians
with chronic disease likely to drive demand for pharmacy services. Over the last 10 years, chronic disease
rates in Australia have risen by 5.0 percentage points to 47.2%, driving demand for prescriptions and other
non-prescription products.
Proportion of Australians 18 years and over with chronic disease, 2008 vs 2018
                       30%                     27.0%
                               25.7%
                       25%
                                                                                      20.2%
                       20%
                                                                          16.5%               2008
                       15%
                       10%
                                                                                              2018
                         5%
                         0%
                                 1 chronic disease           2 or more chronic diseases
      Source: ABS 4634
                                                                                                                                                                   11
      15
             AIHW 2018
Forecasted industry growth
                                                An ageing population, the potential to play a greater role in primary health care and developments in
                                                technology will facilitate growth in the pharmaceuticals industry. In the next five years, revenue is expected to
                                                rise by 5.1%, reaching $40.1 billion by 2024. Employment is also forecast to grow by 3.1% during the period.16

                                               Pharmaceutical industry employment and revenues, 2010 - 2024
                                                                                    Employees (LHS)     Forecast           Revenue (RHS)              Forecast

                                                              95,000                                                                                                 $43,000

                                                                                                                                                                               Revenue (millions)
                                                                                                                                                                     $41,000

                                             Employees
                                                              93,000
                                                                                                                                                                     $39,000
                                                              91,000
                                                                                                                                                                     $37,000

                                                              89,000                                                                                                 $35,000
                                                                       2010       2012          2014   2016        2018        2020        2022             2024
                                               Source: IBIS 2018

                                                Competition within the industry is expected to continue increasing, with 8,500 establishments forecast by
                                                2024. Demand for skilled labour will see increases in the average wage, however growing uptake of labour-
                                                saving technologies, such as electronic scripts, is expected to constrain wage growth to some extent.

                                               Pharmaceutical industry establishment numbers and wages, 2010 - 2024
     Each year 300 million Australians                                        Establishments (LHS)     Forecast           Average Wage (RHS)              Forecast
     visit their local pharmacies. The
                                                               8,600                                                                                                 $60,000
     industry has existing infrastructure,
     trained professionals and extensive                                                                                                                             $58,000
                                             Establishments

     coverage. These factors uniquely                          8,200
                                                                                                                                                                     $56,000

                                                                                                                                                                               Wages
     position pharmacies to alleviate
                                                                                                                                                                     $54,000
     stresses on the healthcare system                         7,800
     by engaging in regular preventive                                                                                                                               $52,000
     medicine and primary care.                                7,400                                                                                                 $50,000
                                                                       2010        2012         2014   2016        2018        2020            2022         2024
                                               Source: IBIS 2018

12                                              16
                                                      IBIS 2018
Sources
Australia Government Department of Health (January      Australian Bureau of Statistics (January 2019), 5368.0    Richardson A. “Pharmaceutical Product
2018), “Expenditure and Prescriptions Report 2017-      - International Trade in Goods and Services, Australia,   Manufacturing in Australia”, IBISWorld, October
2018”. Available at http://www.pbs.gov.au/info/         Nov 2018. Available at http://www.abs.gov.au/             2018.
statistics/expenditure-prescriptions/expenditure-       ausstats/abs@.nsf/mf/5368.0
prescriptions-twelve-months-to-30-june-2018                                                                       Richardson A. “Pharmaceuticals Wholesaling in
                                                        Australian Bureau of Statistics (October 2018), 6401.0    Australia”, IBISWorld, November 2018.
Australian Bureau of Statistics (December 2018),        - Consumer Price Index, Australia, Sep 2018. Available
3101.0 - Australian Demographic Statistics, Jun 2018.   at http://www.abs.gov.au/ausstats/abs@.nsf/               Richardson A. “Pharmacies in Australia”, IBISWorld,
Available at http://www.abs.gov.au/ausstats/abs@.       mf/6401.0                                                 January 2019.
nsf/mf/3101.0
                                                        Australian Institute of Health and Welfare (September     The Pharmacy Guild of Australia (April 2014),
Australian Bureau of Statistics (December 2018),        2018), Health expenditure Australia 2016–17.              “Employment Expectations Report”. Available at
6291.0.55.003 - Labour Force, Australia, Detailed,      Available at https://www.aihw.gov.au/reports/             https://www.guild.org.au/__data/assets/pdf_
Quarterly, Nov 2018. Available at http://www.abs.       health-welfare-expenditure/health-expenditure-            file/0013/6115/employment-expectations-survey-
gov.au/ausstats/abs@.nsf/mf/6291.0.55.003               australia-2016-17/data                                    report_april2014_546786_3.pdf

Australian Bureau of Statistics (December 2018),        Australian Journal of Pharmacy (December 2018),           The Pharmacy Guild of Australia (July 2017), “In
8501.0 - Retail Trade, Australia, Oct 2018. Available   “How pharmacy helped this years flu season”.              Response to the Interim Report on the Review of
at http://www.abs.gov.au/AUSSTATS/abs@.nsf/             Available at https://ajp.com.au/news/how-                 Pharmacy Remuneration and Regulation”. Available
DetailsPage/8501.0Oct%202018?OpenDocument               pharmacy-helped-in-this-years-flu-season/                 at https://www.guild.org.au/__data/assets/pdf_
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Australian Bureau of Statistics (February 2018),        Australian Journal of Pharmacy (November 2018),           Interim-Report-Rem-Reg-Review-July-2017.pdf
8165.0 - Counts of Australian Businesses, including     “Call to expand vaccinations in WA”. Available
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at http://www.abs.gov.au/AUSSTATS/abs@.nsf/             vaccinations-in-wa/
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2017?OpenDocument                                       Peterson-Kaiser Health System Tracker (December
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aspx?DatasetCode=POP_PROJ_2011
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