Alliance confident about pharmacy market growth

Healthcare group Alliance UniChem today predicted that growth in the UK pharmacy market would bounce back this year as it prepares to merge with rival Boots.

Alliance looked forward to the market growing by 4% this year after the impact of an agreement between healthcare providers and the Government in November 2004 to lower medicines prices worked its way out.

That agreement – driven by the Government’s desire to lower the NHS drugs bill by around £1.8bn (€2.6bn) over the next five years – capped market growth at 1.5% in 2005.

Alliance, which posted a 9% rise in annual pre-tax profits to £278.9m (€408m), said it was disproportionately hit by the move because many of its pharmacies were located close to doctors’ surgeries and sell more prescription medicines.

Like-for-like sales at Alliance fell 0.2% in value last year, but the company said its UK retail business would have grown by 3.5% if the price cuts had not been made.

Confidence about an acceleration in the growth of the UK pharmacy market will help Alliance with its charm offensive to bring investors and regulators around to the merits of its £6.64bn (€9.7bn) merger with Boots, which was announced in October.

The new company – to be called Alliance Boots – will have more than 2,500 stores in the UK and £13bn (€19bn) of sales as well as becoming the country’s largest wholesaler of drugs.

Despite the fall in like-for-like sales in the UK last year, Alliance said operating margins were lifted by providing more specialist services to patients and manufacturers.

Alliance and Boots are currently working with the Office of Fair Trading (OFT) to agree appropriate undertakings that will allow the landmark merger to proceed.

Discussions revolve around pharmacies in 100 areas of the UK where competition could be damaged and Alliance said it has stopped rebranding and refitting any store that may not form part of the enlarged group.

The deal, which will generate at least £100m (€146m) of savings, has already been cleared by the European Commission.

Today’s statement revealed that revenues across the group rose by 3.1% to £9.17bn (€13.4bn) in 2005, with its wholesale business restraining growth in its European retail operations.

Wholesale revenues rose 1.8% to £8.69bn (€12.7bn) – although they fell by 2.7% in the UK following the implementation of the price cuts for medicines.

Chairman Paolo Scaroni said: “Anticipated growth in the UK market in 2006...should continue to counter the effects on the group of regulatory reviews, particularly in France, as governments continually strive to contain costs at manageable levels.”

Alliance UniChem has around 33,000 staff and supplies 100,000 pharmacies, hospitals and health centres with medicines. It also owns more than 1,200 pharmacies in the UK, Norway, The Netherlands and Italy.