As pharmacies operate in a highly regulated landscape, it is important to work with a highly experienced attorney with industry knowledge to guide a potential buyer of any pharmacy. In this article, we highlight some of the key areas of focus when purchasing a pharmacy.
Reason for the Sale
Once a buyer identifies a potential pharmacy for purchase, it is important to understand the underlying basis of the sale, particularly as it may affect the ultimate viability of the pharmacy once purchased. For example, if the pharmacy owner is seeking to sell because of decreasing financial profit and the inability to sustain the continued operation, then a buyer should consider how business can be improved after closing before deciding whether, and if so, how to proceed.
In addition, the information obtained by understanding the reason for the sale can help a buyer decide whether to structure the transaction as an asset purchase or an entity purchase. If a pharmacy has solid contracts with third-party payors, an entity purchase may allow the buyer to retain those contracts. However, if the seller has experienced past unfavorable PBM audits or terminations of third-party payor contracts that are affecting the pharmacy’s viability, then the buyer will need to consider the additional liability protection afforded by an asset purchase and plan on a longer process that may require obtaining a new license and negotiating new third-party payor contracts.
Business Model, Inventory, and Store Aesthetics
There are several facial aspects of the pharmacy that buyers should also consider. Specifically, the pharmacy’s classification (i.e. retail, mail order, specialty, etc.), business model, inventory, location, and even its aesthetics, are all important factors that should be considered in the process of looking to purchase a pharmacy. It is also helpful to understand the existing pharmacy’s reputation in the community and amongst its patients, particularly if the buyer expects to continue similar operations after the purchase.
Due Diligence
One of the most important aspects of completing a purchase of the pharmacy is conducting thorough due diligence. Due diligence reviews should include a review of every aspect of the pharmacy’s operations and financial performance. Considering the many legal and regulatory issues impacting pharmacy transactions, a due diligence review should include a deep dive into the pharmacy’s underlying payor contracts and licenses to ensure that they remain in good standing, as well as a review of the pharmacy’s policies and procedures related to day-to-day operations to confirm that the pharmacy operates in a manner consistent with relevant rules and regulations including PBM terms and conditions. By engaging in an extensive legal and financial due diligence review, buyers can avoid unpleasant surprises after closing.
Pharmacy’s Profitability and Growth Potential
In the process of conducting an in-depth review of the pharmacy’s financials, buyers should review the pharmacy’s past financial performance to understand how the pharmacy has operated in the past, and how the pharmacy’s profits are likely to continue absent any significant changes to the business’ operations. When reviewing the pharmacy’s financials, buyers should keep in mind any areas of growth or expansion that can be made upon acquiring the pharmacy. For example, if a buyer is looking to purchase a pharmacy that only services walk-in patients, the buyer may want to consider expanding its services to include delivery of prescriptions to patients’ residences. While a pharmacy might not have tapped into its full potential, buyers should identify such areas of expansion when making a purchase as the buyer as there can be greater return under the same purchase price.
Work With an Experienced Transactional Attorney
Considering the many nuances involved in a pharmacy transaction, it is important for buyers to consult with an experienced pharmacy transaction attorney who can guide them through the structuring of the purchase agreement, assist in the due diligence process, and advise them of any potential risks with proceeding with the transaction and properly documenting the transaction to minimize risks and protect against potential hidden liabilities. Buyers frequently make misguided pharmacy purchases without having conducted sufficient due diligence and consulted adequate legal counsel. This not only affects the pharmacy that was purchased but could also affect any other pharmacies owned by the buyer at the time as well as future acquisitions.
If you are considering the purchase of a pharmacy, the attorneys at Frier Levitt experienced in transactional and regulatory pharmacy law are available to assist you. Contact Frier Levitt to speak to an experienced pharmacy lawyer to discuss your options.