Detailed analysis of various business sectors in Uganda

Investing in pharmacy in Uganda? Weep and Reap business?

Outside Looking in

D E Wasake, FCCA

About my guest writer:

Nakayima Beatrice is a pharmacist technician at a prominent pharmacy in town she has been doing that job for three years and she got to learn the different tactics involved in the business. Her knowledge about the business makes you think that given the funding she would start a similar business of her own. Beatrice has a bachelor’s degree in nursing at Makerere University.

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile

Article summary

The opportunity to invest in the pharmacy business in Uganda is driven by the following key factors:

  • A significant shortage of pharmacies per population. Current estimates are 1 pharmacy per 88,000 people, way below the recommended World Health Organisation (WHO) ratio of 1: 2,000.
  • A sector that is not very heavily regulated and Class B and C drugs such as antibiotics and analgesics can be purchased over the counter
  • A growing middle class who have the need and the ability to purchase drugs and related healthy lifestyle options.

Introduction

Prior to putting pen to paper for this article I called up my mother. Shortly after exchanging Christmas holiday pleasantries, I quickly got down to business (she said she was playing Monopoly with the family and so needed to get back to Euston road), and asked her point blank :

Is pharmacy business profitable?”

You see at one point of her entrepreneurial career she run a pharmacy and supported 7 children at the time. Drug names like Magnesium Tricilicate and Penicillin V therefore easily rolled off my tongue from early childhood. I therefore believed she would help me.

Her simple response (in my mother tongue):

“Yes, but the pharmacies are always playing cat and mouse with the authorities and you need to watch for theft of the drugs.”

In her simple lay person terms, and without a pharmacy degree or formal training, she had laid out the key risk factors to look out for if you are to invest in this business. But before I highlight these in detail, why invest in this sector?

Why invest in the pharmacy business in Uganda?

The title of the article highlights the double jeopardy of this sector.

Cat and mouse: Government vs hospitals, where are the drugs?

You cry (or weep) for our beloved country because it would seem that many reports indicate that whereas the Government is constantly allocating money to hospitals for buying medication, when you get to the hospital the doctors tell you there are no drugs in stock and you will have to buy them from somewhere else.

Ugandan hospitals appear to have therefore been transitioned into diagnosis clinics identifying underlying health issues of patients and then sending them out to look for medication. The doctors claim there are no drugs in stock. It’s therefore common for patients in Uganda to go to government hospitals, receive diagnosis for their diseases and leave without even the basic medication of pain killers. The government claims they send the medicine to the hospitals but the hospitals claim they never receive the drugs so the big question is where do the drugs go?

The state of the health sector in Uganda

The health sector in Uganda is underfunded and medicines are no exception. In the budgets for FY 2013/14 and 2012/13, the sector allocation was only 7.2% and 7.6% respectively – both less than Abuja Declaration by African Heads of State to spend 15% of the national budgets on health. With the population growth rate of 3.4% p.a, the medicines needs continue to grow especially among the 10,000,000 (UBOS, 2008) people that live below the poverty line.

The pharmacy sector in Uganda: More weeping

According to the Pharmaceutical society of Uganda, the body responsible for the sector, there are currently 465 qualified pharmacists, of whom 70 are abroad, leaving about 395 practicing within the country.

With a population of approximately 34 million people, this represents a pharmacist to population ratio of 1: 88,000 which is way below the recommended World Health Organisation (WHO) 1: 2,000 ratio.

The chronic shortage is being addressed by the pharmaceutical society in conjunction with Universities to among others increase the number of pharmacists being trained but in the meantime, illegal pharmacies continue coming up, the cat and mouse games with National Drug Authority (NDA), the regulator, continue and meanwhile the population suffers as a result of the imbalance.

Key challenges of this shortage include:

  • Problems getting the right type of medicines to the right people at the right time;
  • There are essential medicines out of stock;
  • documented expiry of large quantities prior to utilization;
  • unqualified personnel at the prescription/dispensing window; and
  • self medication or medication unto others (child) – which has led to consequences of increased or chronic ill health, under-doze or over-doze, treatment failure, emergence of drug resistance, socio-economic consequences, and in some cases death.

A reason to reap?

In the midst of the sorrow of our situation, there is a reason to reap for the investor, who is also conscious of the plight of the Ugandan population and seeks to make a difference – socially and economically.

As per the National Drug Authority, the regulator of the sector, at October 2013 there were only about 414 registered pharmacies. Some press reports say that the total of clinics in the country is over 10,000 which means the majority in the country are illegal. For the ethical acting business person/investor, therein lies an opportunity.

Only 414 pharmacies in Uganda?

We have analyzed these 414 registered pharmacies in the country to assess their makeup and the statistics show the following:

Table: Registered pharmacies in Uganda – regional distribution.

 
Region Number %
Central 320 77%
Eastern 36 9%
Northern 14 3%
Western 44 11%
Total 414 100%

Source: Inachee analysis

P.S Of the 320 pharmacies in Central region, 292 were located in Kampala and suburbs (incl. Entebbe and Wakiso), this alone represents 77% of all pharmacies in Uganda!

Of the pharmacies in the rest of the country, the bulk was in Mbarara, Jinja and Mbale. Furthermore some 22% of all pharmacies are some form of branch network (meaning more than 1 owned).

We have analyzed these clinics in further detail and compared this to the population by region. Ask us for this report on request.

The opportunity in the sector therefore lies perhaps especially in setting up country pharmacies as Kampala appears over saturated, compared to the rest of the country. But even so, there is still a shortage in Kampala.

Trends from other countries (and the future)

In the US and the UK for example, the sector is more regulated and pharmacies only dispense, even antibiotics on prescription from a doctor. In Uganda, this is not the case, antibiotics and a lot of other medication (called Class B and C drugs) can be obtained over the counter from a pharmacy.

It will therefore not surprise me if the larger stores in Uganda, such as the supermarkets move into this sector together with their other offerings just like for example Walgreens in the US and Boots and Tesco in the UK.

It will mean that the current pharmacies particularly the independent ones will need to focus on customer service to survive.

So, with the above in mind, how do you set up a pharmacy business?

FIRST, THE CONS (WHAT MIGHT HOLD YOU BACK)

1. Regulatory matters

A: Drug license

In Uganda every pharmacy must have a drug license and this license is obtained from the National drug authority and renewed every year. The pharmacy can be owned by individuals, partnerships or body corporate. The Individual must hold a pharmacist license and be a Uganda resident while with partnership or body corporate, one partner or director must be a pharmacist and Uganda resident.

You therefore need to ensure that you check that the pharmacist you use is one of the 465 with an up to date annual practicing certificate issued by the Pharmaceutical society.

This can possibly be a selling point for your pharmacy in an industry rife with “fakes” – hence a clear display of the NDA certificate including the pharmacists’ certificate might help instill credibility and hence bring more customers.

Our Advanced tips to manage the drug license regulatory risk

(i) Hiring variation. The cost of a pharmacist, considering the scarcity is therefore bound to be high. Staff costs are therefore the highest costs of a pharmacy after the direct costs. An advanced thinking strategy is therefore to include the following:

  1. hire qualified pharmacy technician to parse out prescription drugs and instruct patients on proper use of each product.
  2. Hire interns (perhaps in the medical field) to act as assistants including for research into trends and breakthroughs, contacts with local drug manufacturers or importers – they could also handle the marketing (see customer care section below).

(ii) Develop manuals and leaflets. One of our recommended strategies is to in conjunction with the pharmacist and the assistants build a profile of the most common drugs needed and to then develop leaflets of information as well as a diagnostic tool such as a flow charts or access to recognized online medical sites.

These tools will help the staff to handle the more routine prescriptions and limit the time the pharmacist spends to the more complex, non routine cases.

Tied to the above, would be to expand the role of technicians. A study published in the "American Journal of Hospital Pharmacy" showed that by allowing pharmacy technicians to enter drug orders into the computer, check other technicians and dispense certain drugs, overall productivity increased.

Alter your training manual and operating methods to include greater responsibilities for the technicians. By increasing productivity, your pharmacy can take on more prescription orders and free valuable time for the pharmacist to talk to patients.

This also reduces the waiting times at pharmacies – something Kampala pharmacies are increasingly becoming notorious for.

(iii) Regulatory checklist. Another key tool that needs to be developed is a regulatory/quality control checklist.  This is needed to ensure compliance with NDA requirements.

We believe all staff will need to be aware of this checklist so as to ensure quality as well as compliance is consistently maintained.  

As the investor/manager of the pharmacy, as this a key risk, you should ensure that you review this checklist or if not, ask your accountant/auditor to specifically check for regulatory compliance as part of their work so as to prevent risk of shut  down of the pharmacy on a technicality e.g sale of expired drugs.

You also need to understand Uganda National Drug Policy

B: Drugs

We have drugs of three categories.

  • Class A – these include but are not limited to Tranclusires e.g. valium, codeine, penovadinton and strong analgesics e.g. morphine. P:S: Pharmacies are not allowed to sell drugs in class A as these are addictive drugs.
  • Class B – which include antibiotics and injectories; and
  • Class C which include the mild analgesics and vitamins.

The pharmacy makes money by selling drugs in Class B and Class C but also supplements those sales by selling over the counter drugs (These also include health facility supplies such as health facility laundry supplies such as liquid soaps , chroral hexidin topicals and skin lubricants) and drugs in the dispensing unit.

In order to manage this CON, you therefore need to have a deliberate strategy on key aspects like:

  • Generic vs branded drugs – where and how do you mix the two considering generic drugs are often cheaper and can be marketed to the rural, who comprise the bulk of Uganda’s population.
  • Suppliers – do you purchase from local wholesalers/manufacturers or apply for an NDA import licence to import the drugs yourself including from online suppliers.

2. Retail business considerations

At its core, a pharmacy is a retail business and so understanding the basics of retail in addition to financial management aspects (sales, cost of sales, gross profits and margins, stocks is critical). In hiring staff therefore for example, affiliated retail experience could help you succeed. Key retail business considerations to look at therefore include:

(a) Stock management. Like my mother alluded to, a stock monitoring system to prevent theft is critical. This includes having regular stock counts to ensure adequate monitoring.

A good stock management system used in conjunction with capturing sales/customer information could help you get unique insights such as to differentiate between:

  • Walk in;
  • Regular customers; and
  • Referrals from hospitals/other clinics/specific doctors

At its simplest, an excel spreadsheet could be used for this. At more complex levels, software solutions are critical. From my simple google search I found the following:

http://www.ascribe.com/solutions-services/Pages/pharmacy.aspx

http://www.omnicell.com/Products/Central_Pharmacy_Automation/WorkflowRx_System.aspx

http://www.cornerstoneautosys.co.uk/pharmacy-inventory-control.htm

(b) Location

Like any retail, it’s about numbers of customers – In choosing the pharmacy location, have you considered the possibility of expansion space including for sales display units and additional storage or a privacy unit?

How about customer parking, local amenities, flow of customers to other businesses (some studies say supermarkets like Tesco in the UK operate their pharmacies as loss leaders – they benefit from the foot flow to other sections). A pharmacy near a supermarket and in a mall is therefore perhaps a good idea.

Likewise the obvious – a pharmacy near a hospital or clinic should be considered.

Note from NDA on location:  In line with “guidelines for equitable distribution for drug outlets “No persons shall open up or transfer any drug outlet anywhere without the prior approval of the location by the National Drug Authority.

An application of the location of the proposed premises should be submitted to NDA prior to any financial of legal commitment to the premises and the approval should be obtained in writing following pre-inspection. This is to avoid loss in case of rejection of application based on these and any other guidelines.

This approval shall be valid for a period of three months and if not implemented or delay not justified in writing thereafter shall be null and NDA may authorize a new applicant in the location.” 

c) Customer care (and marketing considerations)

It would appear that the severe shortage of pharmacies means that the staff might be over burdened, or indeed see no need to be nice to their customers (their illnesses/pain notwithstanding).  After all, they may reason – the customers will come back?

This might work in the short term but with increasing competition, particularly in Kampala, it is key to consider marketing and good customer care.

Is it a crime for pharmacists (and their assistants) to smile and ask patients how they are? Will it diminish the solemnity of the profession (and diminishe their efforts after the extra high cut off points to get to University)?

Don't forget, though, that the patients on the other side of the counter are just like another customer to any retail shop. They want good customer service, friendly conversation and the feeling that the pharmacist is paying attention to their needs. Get to know customers. Address them by their first names. Develop relationships with them that go beyond their direct medical needs.

There are therefore many marketing strategies that can be employed in this area to help the pharmacy stand out. These include:

  • Seasonal campaigns: E.g Anti malarial tablets during the sick season, flu/common cold medication or even health options (e.g slimming pills) during January when people make New Year resolutions to keep fit;
  • Low cost options: Market low cost generic drug options instead of branded products for price sensitive customers, particularly our rural and urban poor;
  • Customer loyalty scheme – Like any business, most customers are probably repeat clients (e.g those suffering from illnesses requiring regular medication). Rewarding them with a scheme that allows them to call in advance for example or to pay in bulk or get discounts amongst others would go a long way in helping.
  • For walk in customers, perhaps ask if they are interested in taking an extra minute or two to get a loyalty card which allows you to provide them more information, discounts and quicker service the next time including e-mail and telephone, late night service?
  • Privacy section any one? For Purchasers of Condoms?  Sexually Transmitted Disease (STD) medication, Emergency contraception? A simple screen to give the customer privacy could boost sales and perhaps such customers may even be willing to pay a premium e.g for home delivery or over the telephone order and simply come and pick up at convenience?
  • Referral scheme. In this industry, as doctors often refer patients to pharmacies, the business needs to identify local clinics/doctors and partner with them in a mutual benefit scheme (an ethical one we hope, if allowed).
  • Website/internet strategy: Ugandan businesses seem to hate websites but with a young population increasingly using the internet, a simple website even with the locations of the pharmacy (using google maps) makes it simple to find.
  • As a start, create an online presence. Add your pharmacy information to as many online business listing sites as you can. Ugandans are transitioning into a web based generation. People have started looking for a pharmacy with Internet search and you want your company to appear in the local listing results. The major location-based search engines include Google Maps, Yahoo Local, Bing Local and AOL Local among others you can try those listed for a start.
  • Tied to this, the website can be used for email marketing, which especially works to sell affiliated products like health and beauty supplements, fitness supplements and other lifestyle medication which are not immediately known when a customer goes to a Ugandan pharmacy.
  • The website is a good option for developing your customer loyalty scheme as well as a remote order system that would significantly increase efficiency and hence reduce waiting times for customers, particularly in busier pharmacies.

THE PROS

1. Pharmacies are protected by the Ugandan law.

The pharmacy business is legal and is guided by the pharmacy and drugs act of 1971. According to the law, all pharmacy businesses should be registered as we highlighted in the introduction.

This is therefore is also a PRO as we mentioned in one of the CONS that a clear display of the NDA certificate including the pharmacists’ certificate might help instill credibility and hence bring customers who might otherwise be afraid of going to a “fake pharmacy.”

2. Availability of customers and middle class growth

The lack of drugs in hospitals combined with the clear pharmacy imbalance of 1: 88,000 means that this is a blessing in disguise. In addition competition is not a major issue and hence there is little need for marketing.

While it is recognized that the majority of Uganda’s population (about 88%) is rural and hence cannot afford drugs, this is changing. In 2010, Uganda’s middle class was estimated to be 32.6% of the population. An increase from 28.7% in 2006. This represents almost a 1% growth per year. Assuming this constant growth, the middle class is estimated to be almost 36% in 2013.

A similar trend is at play in Africa. The African Development bank report titled the middle of the pyramid stated that by 2010, the continent's middle class had risen to an estimated 34% of its population, up from about 27 per cent in 1980.

This middle class in addition to having the money to buy prescription medication, can buy over the counter health related items like vitamin and nutrition supplements (the like of which are making forever living products and swissgarde household names)

3. Good return on investment

In this article, we estimate that pharmacies can give total revenue of about Shs. 184 million per year and a net profit of about Shs. 19 million which gives a return on investment of 0.87 years (hence less than 1 year!).

In our model, we assume that the return on investment will be achieved on the following basis

  • The pharmacy will have four sources of revenue i.e selling of drugs of Class B (Under wholesale ) Class C, Over the counter and dispensing Unit
  • The start up costs are 43m of which 30m relates to working capital for drug purchase.

Our model is below

Pharmacy ROI model

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register.

My Guest writer weighs in.

"I got this job when I knew little about medical prescription but along the way I got to learn most of the things that are involved in it. Like how to fill prescriptions, doctors handwritings, what medicines are most required by patients and the like. One thing I can tell you is that it’s a profitable business. I have seen the business bring in stock and clearing it within a short period of time and our attachments to the different doctors have not disappointed us so all in all business is good."

Now the basics you must get right:

1) Drug License. You need to comply with NDA requirements at the start and on an ongoing basis. Contact them prior to starting to ensure you get it right.

2) Stock management. Drugs and medicines can be notoriously many and small. You must therefore have a good stock management system. It will also help in segmenting customers.

3) Location. At its core, a pharmacy is a retail business and so you need to consider location considerations e.g space for expansion, nearby amenities and customer flow.

Final word

In a country characterized with limited availability of medicine in the government hospitals, more and more pharmacists and businessmen have seen an opportunity to open independent pharmacies. They do this because of the unsatisfied demand for medication by the patients who don’t get it in the hospitals.

It is a business where we all weep for the state of our country, and then those who see the opportunity to help create change (while making money) reap (perhaps with little gnashing of teeth).

END

Share the article! Did you like this article and know someone else who might benefit from it? Please share it, simply click the link of the article, copy and paste it to an email and send!

Join advanced thinking. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page and the website is via email.

In addition we regularly provide tips on marketing, corporate governance; accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business. Please click here to join the email subscription list.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions.

You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

10 thoughts on “Investing in pharmacy in Uganda? Weep and Reap business?

  1. Hi. I came across your article whle doing research on pen v and the brands available in the Ugandan Market. I am a  mother of a child with Sickle cell disease who has been prescribed pen v as a deterent to infections. However the brand we hqve come across is bitter to the taste making its administration to the child difficult. Can you please let me know if there r sugar coated or film coated brands on the market. Thank u.

     

    Maureen

  2. Hello there I am so glad I found your weblog, I really found you by mistake, while
    I was looking on Digg for something else, Anyhow I am here now and
    would just like to say thanks for a remarkable
    post and a all round enjoyable blog (I also love the theme/design), I
    don’t have time to go through it all at the moment but I have
    bookmarked it and also added in your RSS feeds, so when I have time I will be back to read more, Please do keep up the excellent
    jo.

  3. Hi, I find this web full of info but what I'm worring is if I decide to invest this bussines yes ugandan authorities will give me the perment resident papers but unfortunatley I'm not a pharmacist how do I open the bussiness? Thanks.

    • Thank You, Do Get In Touch With Us To Assst You With Setting Up In Uganda. Don’t Allow To Be Left Behind, Make Sure You Subscribe To Our Newsletter By Following This Link

  4. Inachee, i am  very happy your article has solved my problem. I only know need to customize  , But good here you have don

    thnaks

Leave a Reply

Your email address will not be published. Required fields are marked *