Case Study Highlights: The Generics Pharmacy

To learn more about The Generics Pharmacy (TGP) case study, I spoke with author Oscar Picazo, of CHMI's hub in the Philippines, about the various challenges and innovations of the program.

What, in your opinion, makes this an innovative program?

TGP is the first hugely successful for-profit pharmacy distribution system organized along the lines of a franchise network that caters to the poor. The combination of the for-profit motive with concern for catering to the needs of the poor makes TGP truly innovative. It means that a sustainable market can be organized along the health care needs of the poor, and that the poor are not always the beneficiaries of dole-outs that conventional wisdom often makes them out to be.

It has always been assumed in many places (wrongly, for the most part) that only subsidized pharmacy supplies from the government can solve the equity problem pharmacy in developing countries. TGP proves this ideology wrong. TGP is a purely-for-profit enterprise that brings affordable drug supplies to poor households in urban and rural areas. It does this far, far better than any government program, or any subsidized program for that matter.

What are the benefits and challenges of operating under this franchise system?

There are three major benefits:

• A pharmacy can be put up with very modest level of investment.

• The franchisee has a ready source of inexpensive drugs for restocking. This is a major problem for pharmacies operating independently, such as family-owned pharmacies and Botika ng Barangay (village pharmacies) which find it extremely expensive to restock drugs because they have to individually source drugs, unlike in a franchise system where the franchisor takes care of that by accumulating all the drug requirements of the franchisees and procuring in bulk.

• The franchisee economizes on marketing and advertising, as well as training and pharmacy systems installation, since these are part of the overall franchisor-franchisee arrangement. Setting up all of these ingredients of a successful business would be very prohibitive if a pharmacy were set up independently.

Building a brand name (TGP) for generics is challenging, because generics have been demonized by big pharmaceutical firms as inferior, of low quality, and meant for the poor. Overcoming these negative-image problems has been a herculean task, requiring lots of marketing and advertising resources.

The major challenge of TGP is the entry of other generics-drugs retailers in the market, many of them utilizing the same business format of drug franchising. Since TGP’s splashing success, other franchise generics pharmacies have come into the scene, chipping away at the market share of TGP.

What questions do the results of the study raise for future, similar programs?

• Can a purely for-profit enterprise actually cater for the health needs of the poor? An unqualified yes in the case of TGP.

• Would governments be willing to abandon or drastically reduce their pharmacy-procurement activities and simply contract these out to private sources like TGP?

The franchise arrangement has much to offer in terms of organizing the delivery of health services and commodities. These principles can be used to underpin new health care businesses in the developing world. However, these principles do not exist in a vacuum; proponents should understand the social context in which these business principles and formats become vibrant before embarking on setting up similar schemes in their own areas.

The Generics Pharmacy is not a project. It is a business enterprise, with business interests behind it, and business incentives that forces its entrepreneurs to be good; otherwise they lose their shirts. If they do succeed, the gains are theirs.

On hindsight, TGP looks like a simple business model that can be pulled off by anybody. It is not; there are facilitating factors that need to be considered. First, there must be a law on the promotion and use of generics drugs. This is not common across developing countries. Second, there must be a competitive (cheap) source of generics drugs, whether through importation or domestic production. Third, the population must learn to appreciate the utility of generics drugs, i.e., that they are just as good as branded drugs. This may be difficult to do in a population that is constantly barraged with well-paid advertising from branded-drugs retailers or manufacturers. Fourth, the franchisor must be a known quantity. It may be necessary to build its reputation as a reputable drug wholesaler or retailer before it can branch out into generics retailing.

To learn more about the Generics Pharmacy, visit its profile page here, and be sure to read the rest of the CHMI case studies under our analysis section.