By Gianluca Ceci and Sarah Gabriele
In 2021, the total revenue of Italian pharmacies dropped by 4% compared to 2015, despite Italy being the fifth largest country in the EU for pharmaceutical expenditures. The main reasons: the reabsorption of demand and small pharmacy size, as well as the failure to innovate the current business model.
Contrary to what one might expect, given the pandemic, the health emergency, and the rush to ensure health supplies, in 2021 the total revenue of Italian pharmacies came to 24.4 billion Euro, down 4% from 2015. The contraction in revenue was seen in prescription drugs (-9.3%), over-the-counter drugs (-5.3%), and non-pharmaceutical sectors, with the only notable exception being dietary supplements, which marked an increase of 32.9% compared to 2015.
This contraction in total revenue was mainly influenced by the decline in Italian pharmaceutical expenditures over the last decade: compared to the revenue of 18.8 billion in 2011, the reduction in 2021 is equal to -13.3% and is mostly concentrated in declining prescription drug expenditures (-15%). The decline in pharmaceutical expenditures is partially due to the Italian National Healthcare System (NHS)’s policies for the containment of health care expenditures and partially to a fortunate succession of patent deadlines, which led to lower drug prices. In 2010, 41.3% of sales were patented drugs, 41.5% were drugs with expired patents, and the remaining 17.2% were generics. In 2021, patented drugs fell to 24%, those with expired patents rose to 45.2%, while generics reached 30.8% (almost doubling), which then affected the total revenue of Italian pharmacies. However, this factor only has a limited impact on the negative revenue, given that the entry into the market of generic products has not negatively affected pharmacies’ revenue in other European Countries.
The total revenue has decreased further due to the peculiar articulation of the network of pharmacies in Italy. Prior to 2017, only individuals with specific titles were able to obtain the license necessary to open a pharmacy. In 2017 (much later compared to other EU countries), Italy enacted a law (Law n. 124/2017) that allows for corporate ownership of pharmacies, with the only limit being that corporate-owned pharmacies must not exceed 20% of pharmacies in a region. Between 2015 and 2021, the number of pharmacies in Italy has increased by 9.3%. This is due primarily to the growth of private pharmacies (+10%). State-owned pharmacies have grown more slowly (+2.7%).
In accordance with the increase in pharmacies, the number of inhabitants per pharmacy in Italy has gone from 3,340 in 2015 to 2,977 in 2021 (-10.9%), below the EU average of 3,245 inhabitants per pharmacy. The increase of pharmacies in Italy has produced a continuous erosion of the average revenue per pharmacy, which today stands at 1.2 million euros against 1.9 million in France and 3.3 million in Germany and Austria. Only Spain, with 1 million Euro on average, has a smaller revenue per pharmacy.
In fact, other European countries have seen revenue growth, registering a median increase of 29.3% over the last decade, due to an internal reorganization of pharmacies aimed at mitigating the effects of the reabsorption of demand. To give a few examples over the last decade, the total revenue of European pharmacies has shown the resilience of the French system (+0.5%), the growth of the Spanish one (+6.7%), and the marked expansion of the German and Austrian markets, respectively (+53.2%) and (+58.6%).
In Italy, the combination of the above-mentioned factors results in insufficient financial resources to invest in complementary services to the traditional pharmacy (such as telemedicine, private labels and a larger variety of the products offered) that are increasingly being used in Europe. These complementary services often lead to substantial revenues, which make it possible to lessen, if not eliminate, the negative economic trends highlighted above.
Notwithstanding the lack of adequate financial resources, services are exactly what Italian pharmacies should be taking advantage of to become more competitive. Emerging from the pandemic, pharmacies should reconsider their roles: from being mere providers of drugs to providing a vast array of health services, which benefit both the pharmacies in terms of revenue and patients in terms of access and quality of care. In this regard, pharmacies should consider revisiting their business models to offer diagnostic services as well as health screenings.
Currently, it is estimated that almost 42% of Italians enter the pharmacy not to purchase drugs but to use services, such as COVID-19 tests, various screenings, or nutritional advice. While pharmacies cannot replace doctors, they can play a substantial role in patients’ health. Further developing these services could not only help pharmacies increase their revenue but could also enhance the success of preventive activities for patients. In addition to prevention, pharmacies could play a bigger and more important role in the treatment of chronic diseases, as patients often visit pharmacies more often than doctors’ offices. This puts pharmacists in the best position to detect any changes in the health of the patient and to monitor and manage the patient’s treatment plans.
If Italian pharmacies wish to keep up with their European counterparts, they should pay closer attention to new business models and commercial opportunities that could ultimately benefit both their total revenue as well as patients’ care.
Gianluca Ceci is a Trainee Lawyer at Hogan Lovells in their Milan office. He is specialized in corporate law, M&A, and Venture Capital.
Sarah Gabriele is a Student Fellow with the Petrie-Flom Center at Harvard Law School.