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The

Generics Pharmacy

BRIEF IDENTIFICATION
Year launched: Franchise operations started in 2007. Key contacts: The Generics Pharmacy, 459 Quezon Ave., Banaue, Quezon City. Tel. 632-732-3333; 632- 712-7777 Brief background or history: The mother company (Pacific Insular Co.) that gave birth to The Generics Pharmacy (TGP) franchise started in 1949 as a family enterprise involved in pharmacy importation and distribution. In 1974, the current TGP President, Mr. Benjamin Liuson, took over the helm from his parents. Some doctors urged their patients to use generics, but since the company was just an importer/wholesaler, it couldnt sell drugs directly to patients. Fortuitously, in 1989, Congress passed the Generics Drug Law (RA 9502), and with the prices of medical and pharmaceutical products soaring, the company decided to sell generic drugs primarily to government hospitals. Generic medicines are finished pharmaceutical products having the same active ingredients, same dosage and form, and same strength as the branded drugs. In 2001, the company opened its first pharmacy to sell generics, a major innovation in the pharmacy business at that time since no drugstore was exclusively selling generics. Generics were still slow-selling because of poor information to patients who would buy more expensive branded drugs instead. Nevertheless, there was a continuous flow of generics clients who were coming from nearby provinces of Bulacan, Tarlac, Pampanga, Laguna and Cavite (Anon, 2011). In 2007, TGP tapped Francorp, the world leader in franchising, to energize its franchise development and growth, and thus became the first generics retail pharmacy to franchise in the Philippines. TGP opened its first franchise drugstore along Taft Ave., Pasay City and within three-and-a-half years, it has reached over 1,000 outlets all over the country. The Enterpreneur Magazine has named TGP one of the Top Ten Businesses of the Decade. Target areas: Nationwide, focusing in locations of heavy traffic. Health service focus: Pharmacy products. Program legal status: The franchisor (TGP) is a duly registered company. Franchisees sign a franchise agreement with TGP. Franchisees need to register with the Department of Trade and Industry (DTI) if it is a single proprietorship, or with the Securities and Exchange Commission if it is a corporation. It also needs to be approved by the Food and Drugs Administration. It must satisfy all the requirements of the local government unit in which it is located, and the Bureau of Internal Revenue. There are over 300 franchisees, or an average of 3-4 outlets per franchisee. Business format: Business franchising. Sponsor or implementing organization: Itself and its franchisees.

PROGRAM MECHANISM
Rationale: Among South and East Asian countries as well as countries of similar development level, the Philippines has one of the highest pharmaceutical price regimes. The goal of The Generics Pharmacy franchise is to make affordable generic medicines more available to a greater number of Filipinos at the soonest possible time. Pharmaceutical franchising is affiancing and delivery system modeled after the very successful franchising schemes in the fast-food industry. It involves a franchisor (in this case, The Generics Pharmacy) developing a brand of high-quality products, offering the right to use the brand plus all its associated business operating routines including training, to franchisees (individual investors) who are assisted in setting up their clinic practices along the same lines as the franchisor (brand name, signage and color scheme, menu of pharmaceutical products, and pricing and marketing) for which they pay a fee on a periodic basis. From the supply side, the key economic principle behind franchising is the standardization of production. Specialization drives down costs, and the franchising arrangement focuses on delivering a few products. For instance, the more popular health-service franchises that have emerged have focused on reproductive health, maternal health, and safe delivery and related health conditions, and pharmaceuticals, often involving the same clientele. A second economic principle at work is economies of scale. By bringing together like-minded (small) entrepreneurs, franchising reduces the costs of product development, training, business development, marketing, and other high-cost activities that the individual investor may find hard to shoulder on his/her own. Indeed, the main reason for the explosion of franchising is that it allows small investors to participate in business development. The standardized training program offered by the franchisor to franchisees also hastens the business development process, because without a franchisor offering these programs on a package-deal basis, the investor will find it unduly expensive to locate or source these various training programs separately. Finally, the supervision that the franchisor offers to franchisees is a benefit that should not be overlooked. In time, franchisees lapse in service quality, and this should be addressed by the franchisor, at the risk of the entire franchise arrangement falling apart, because news of poor quality travels fast under a franchise network arrangement. From the demand side, the standardization of quality and pricing reduces uncertainty in the minds of consumers, which tend to raise utilization of services. Such standardization is further enhanced by marketing and promotional events done on a periodic basis usually by the franchisor, to underscore the fact that services in all franchisees are similarly of high quality and affordable. Franchising is a quintessential form of performance based financing. It involves a contractual arrangement between the franchisor and franchisee, with specific responsibilities and tasks assigned to each, and in exchange for which payments are made. The franchisee has to be able to generate enough customers for it to survive and become sustainable as a business operation. That is why any franchise places high priority on counting customer served and products produced. Program mechanism: The initial term of the franchise agreement is three years, renewable to 2 additional 3-year terms, for a total of nine years. The royalty fee of 1 percent of gross sales is paid every 15th of the month. The franchise arrangement requires that the space for the outlet be not less than 15

square meters; space smaller than this will not be approved by BFAD. The outlet should ideally be located in areas of heavy pedestrian traffic, such as near hospitals and medical clinics, big drugstore chains and health food stores, public markets, supermarkets and groceries, malls and department stores, and cosmetics and convenience stores. The total franchise investment or fee is Php600,000 to Php800,000 (about US$14,000 US$19,000) for one outlet. This includes the franchise fee of Php210,000 as well as the total support system necessary to run the franchise. The fee covers the following rights and services: right to use the trademark, name and logo of the franchisor; startup and pre-operating assistance; site evaluation assistance; architectural/store design and construction assistance; extensive training on pharmacy retailing, business management and operations, and customer service; technical education and guidance on the dispensing of generic drugs; and marketing and advertising support. The franchise arrangement also requires the franchise to contribute 1 percent of gross sales as advertising fee. After signing the franchise agreement, the franchisee will receive a copy of the Confidential Operations Manual containing policies and procedures involved in running the business. The franchisee and three of his staff will be given three-days training. The training is done 15 days before the outlet opens. The franchisor will also provide technical assistance on any matter that the franchisee may encounter in running the business. Refresher training will also be provided, as needed. The franchise does not confer an exclusive territory. However, TGP will see to it that each site will service the population to the fullest to make the business viable. The franchise will not allow the outlet to carry branded medicines, since their gross margin has been estimated to be only between 5-7 percent. However, if the outlet has enough space, it can carry other products like cosmetics, medical and hospital supplies, and convenience-store food products. The franchise decides on its opening hours, depending on market circumstances.

PROGRAM PERFORMANCE AND IMPACT


Access and equity: TGP has 1,154 outlets as of April 2011 (Table 1). The network now covers __ provinces and chartered cities nationwide. By providing inexpensive generic drugs, TGP enhances access to care to millions of poor households. Table 1. Number of The Generics Pharmacy Outlets by Region, as of April 2011 Region Provincies and Cities Number I Ilocos Region Ilocos Norte (5), Ilocos Sur (9), La Union (12), Pangasinan (42) 68 II Cagayan Valley Cagayan (11), Isabela (17), Nueva Vizcaya (4), Sibuyan (1) 33 Cordillera Autonomous Abra (1), Baguio (5), Benguet (2), Ifugao (1), Kalinga-Apayao 11 Region (2), III Central Luzon Aurora (3), Bataan (10), Bulacan (60), Nueva Ecija (29), 169 Pampanga (34), Tarlac (16), Zambales (17) National Capital Region Caloocan (25), Las Pinas (17), Makati (17), Malabon (7), 337 Mandaluyong (13), Manila (61), Marikina (11), Muntinlupa (11), Navotas (5), Paranaque (20), Pasay (1), Pasig (17), Pateros (1), Quezon City (92), San Juan (3), Taguig (19), Valenzuela (17)

IVA Calabarzon IVB Mimaropa V Bicol Region VI Western Visayas VII Central Visayas VIII Eastern Visayas IX Zamboanga Peninsula X Northern Mindanao

Davao Region Caraga Region Soccksargen/Southern Mindanao Region Autonomous Region of Cotabato City (3), Lanao del Sur (1), Maguindanao (1), North 11 Muslim Mindanao Cotabato (3), Sultan Kudarat (2), Tawi-tawi (1) Total 1,154 Source of basic data: The Generics Pharmacy website. Effectiveness: The nationwide extent and continuing growth of the TGP network speaks of its effectiveness in bringing inexpensive generic drugs to a large number of Filipinos. Efficiency: One study compared the selling prices of selected drugs among a range of suppliers, namely: generic, branded generic, innovator drug equivalent, and discounted innovator drug equivalent (Gloor, 2009). The results, shown in Table 2, show that of generic drugs had the lowest prices among the comparator outlets. T ABLE 1. S ELLING P RICE (P HP ) OF S ELECTED D RUGS A MONG B N B, P RIVATE G ENERIC , B RANDED G ENERIC , AND I NNOVATOR D RUGS , 2 009 Selected Drugs BnB Lowest Generic 35.00 15.00 8.00 - 40.00 5.80 1.70 - Branded Generic 40.00 17.50 41.00 56.50 38.75 4.25 4.50 30.75 Innovator Drug 77.25 77.00 71.50 370.00 51.50 8.25 11.00 61.00 Innovator Drug Discount1 38.62 30.80 42.89 - 46.30 - - -

Antipolo (9), Batangas (38), Cavite (78), Laguna (55), Quezon 243 (30), Rizal (30), Tagaytay City (3) Marinduque (2), Occidental Mindoro (4), Oriental Mindoro 29 (12), Palawan (5), Puerto Princesa (1), Romblon (5), Albay (21), Camarines Norte (9), Camarines Sur (17), 66 Catanduanes (3), Masbate (4), Sorsogon City (12), Aklan (9), Antique (6), Bacolod (8), Capiz (4), Iloilo City (21), 62 Negros Occidental (14), Bohol (4), Cebu (31), Dumaguete City (3), Negros Oriental (1), 39 Biliran City (1), Leyte (13), Samar (9), 23 Dipolog (1), Zamboanga City (7) 8 Bukidnon (3), Butuan City (1), Cagayan de Oro (6), Gingoog 17 City (1), Iligan City (3), Misamis Occidental (1), Misamis Oriental (1), Ozamis City (1) Davao (10), Davao del Norte (1), 11 Agusan del Norte (1), Agusan del Sur (3), Surigao (3) 7 Gen. Santos City (9), Saranggani (4), South Cotabato (7), 20

Felodipine 10 mg Amlodipine 10 mg Clindamycin 300 mg Budenoside Montelukast 10 mg Gliclazide 80 mg Metformin 500 mg Tamoxifen
1Price reduction program

39.00 37.00 - - - 11.60 1.62 -

Source: Gloor (2009) Program sustainability: The private franchise arrangement provides a suitable model for sustainability. It enables the establishment of a rural pharmacy with low capitalization, reliable supply of inventory from the franchisor, and provision of training and supervision. The scheme follows all the legal requirements for establishing a small business as well as running a drug retail pharmacy. This formalized structure provides it with sustainable arrangement. Expansion and growth has been rapid, because the business is socially relevant, the products are extremely affordable, the business is deemed very profitable. Running the business is also easy to learn and operate. TGP management expects that the number of outlets will peak at 1,500 over the next 2-3 years (Anon, 2011).

CHALLENGES FOR FULL IMPLEMENTATION OR FURTHER EXPANSION


In the Philippines, the market for generics drugs is still very small, around 15 percent of the total pharmaceutical market. The preference for most Filipinos is still branded drugs. This mentality needs to be altered to further expand the market for generic drugs. Most private retail pharmacies sell 90 percent branded and 10 percent generic drugs, but TGP is 100 percent generics drugstore, which makes it unusual and challenging. An outlet can succeed or fail based on how its surrounding market views generics. The business approach of locating an outlet near a major drugstore is also unique but risky. The premise is that the existing major store enjoys a locational advantage, and some of its existing customers could be persuaded to change their purchasing source with lower prices. Thus, the outlet is poised to take away some of the customers of the existing bigger store. Whether this works or not depends on many factors.