NEW CLICKS HOLDINGS LIMITED
Our vision is to elevate our healthcare role to establish
a focused and disciplined network of pharmacies combining
the best of business and pharmacy practices, to the benefit
of pharmacists, healthcare consumers and our shareholders.
Aids, poor nutrition, rampant diseases, high inflation in
the cost of medication, poor delivery in under-serviced areas
and a dearth of resources have placed healthcare in South
Africa in a state of crisis. We believe that consolidating,
modernising and upgrading pharmacy in South Africa will go
a long way towards alleviating the healthcare crises. Government's
stated objective is that healthcare should be affordable and
accessible to all South Africans. We believe that the key
to achieving this is to allow and encourage increased involvement
by responsible corporates such as New Clicks.
Pharmacists in South Africa and world-wide are increasingly
recognising the need to form alliances and groupings to improve
efficiencies and meet the increasing challenges of the profession.
We believe that the ultimate stage of this process is meaningful
corporate participation. As a major retailer with world-class
information, distribution facilities and buying systems, we
are optimally placed to play a pivotal role in addressing
the ever-increasing needs of healthcare delivery in South
An efficient network of pharmacies, drawing on the best of
professional and corporate expertise, knowledge, experience
and facilities would be unique in South Africa, although such
networks are commonplace in North America, the United Kingdom
and many other parts of the world. Other countries, notably
New Zealand, are going through a process of statutory reform
to allow for this. These initiatives are aimed at increasing
pharmacy business efficiencies and restoring the role of the
pharmacist to that of a pivotal healthcare provider. We believe
that pharmacy and healthcare in South Africa have embarked
on this journey and there is no turning back.
New Clicks has been at the forefront of developments to shift
the pharmacy paradigm in South Africa. About two years ago
we made an investment in the Link Investment Trust. We recently
increased our interest to 56 % (fifty six percent). We also
agreed to fund the acquisition of a flagship chain of pharmacies
owned and controlled by Trevor Milton and other entrepreneurial
pharmacists. The recipient of these funds, a company called
Purchase Milton and Associates, has succeeded in acquiring
some of the best pharmacies in South Africa. In the current
legislative environment, New Clicks cannot own Purchase Milton
& Associates. By virtue of the arrangements we have with
that company we are entitled to acquire all or certain of
its pharmacies, subject to certain conditions, when the law
relating to pharmacy ownership changes to allow for this.
There are historic relationships between Purchase Milton &
Associates and Link. Trevor Milton was a founder member and
chief executive officer of Link Investment Trust. In line
with the shared vision of identifying the Link brand as the
differentiator in pharmacy value and service, Purchase Milton
& Associates has joined the Link Organisation. Members
of Trevor Milton's team have been instrumental in the development
of the LinkMax drug store model.
The Link franchise has close to 400 stores with a combined
turnover of about R3 billion. We believe that Link, with the
commitment and backing of Purchase Milton & Associates,
constitutes the ideal base from which to build our envisioned
New Clicks has a state-of-the-art retail offering which would
generate obvious synergies for pharmacy front shop development
New Clicks also has a well established network of Discom stores
in the under-serviced healthcare areas which could be re-deployed
in a structured and co-ordinated effort to extend pharmaceutical
services to those in dire need of improved service. We look
forward to the opportunity to extend our pilot projects of
employing nurses in certain Discom stores in under-serviced
areas to fully fledged pharmaceutical services.
Corporate/Professional pharmacy models - The Canadian
We have studied the pharmacy industry world-wide and have
formed close working relationships with many large drugstore
chains in other countries. For us, a Canadian company called
Shoppers' Drug Mart has developed the most compelling model.
Through the growth and success of Shoppers' Drug Mart, Canada
has experienced a transformation from fragmented to corporatised
pharmacy which has led to improved professional standards,
pharmacist/community relationships, cost savings and efficiencies.
Detailed analyses of the North American statistics clearly
illustrate how this model has benefited all role players in
pharmacy, notably the pharmacist. Access to capital, coupled
with a well developed and well integrated business model,
in an arrangement of co-ownership where the pharmacist has
complete autonomy in respect of the professional aspects of
the pharmacy, gives participating pharmacists a huge advantage
over independent pharmacists. Such business models hold huge
promise for the South African market where new opportunities
need to be created for young pharmacists, particularly from
disadvantaged backgrounds, to join a vibrant, productive and
The simple imperative of the Shoppers' Drug Mart model is
to encourage more direct and useful interaction between the
pharmacist and his or her patient. The objective is to elevate
the role of the pharmacist to focus on healthcare advice,
disease management, drug interaction and utilisation. These
services and facilities are under utilised in South Africa
where pharmacists generally do not have the time or the infrastructural
support to extract and provide this information and advice.
In order to fulfil these roles effectively a centralised computer
database system is critical. In the fragmented pharmacy environment
in which we currently find ourselves, such services and facilities
are beyond the reach of most pharmacists.
The Shoppers' Drug Mart model is based on a co-ownership
/ partnership arrangement, optimising the professional and
We believe that the Clicks or Discom front shop together with
a pharmacy dispensary would be a winning and super-efficient
formula. The combination would result in the dramatic reduction
of wasteful overheads and the presentation of the most compelling
pharmacy offering. We believe that this offering can be effectively
achieved in a number of ways. Firstly, by relocating dispensaries
into Clicks or adding Clicks/Discom front shop products into
pharmacies. Secondly,we are in favour of a co-ownership model
similar to that of Shoppers' Drug Mart which would pave the
way for us to give aspirant pharmacists a meaningful equity
stakeholding in a pharmacy and in Clicks and Discom stores
themselves. Thirdly, we would look at wholly owned models
and entirely independently owned franchised pharmacies.
There can be no exceptions to the rule that the professional
aspects of pharmacy must remain the exclusive domain of the
trained and registered pharmacist.
It is irrefutable that we can add huge value to the profession
through funding, bulk buying of goods and products, as well
as services and retail experience.
Our initiatives with Link and Purchase Milton & Associates
allow us to operate legitimately within the confines of existing
pharmacy legislation, whilst at the same time place us in
an optimal position to benefit from any pharmacy ownership
deregulation. Under the existing legislation we cannot own
pharmacies or derive profits from pharmacies. We are not precluded
from charging fees or returns on arm's length services.
THE STATUS OF DEREGULATION OF PHARMACY OWNERSHIP
The pharmacy environment (ownership and licensing) in South
Africa is controlled through the Pharmacy Act 53 of 1974.
This Act restricted lay ownership of pharmacies and the sharing
of profits of pharmacies with non-pharmacists. The Act was
amended in 1997 although all the provisions included in the
amendments have yet to be published as regulations. The current
situation is that lay ownership would be possible depending
upon the regulations governing the licensing of pharmacies.
Draft regulations were published in November 1999 but have
not as yet been implemented. It is anticipated that the licensing
regulations will be implemented during the course of 2002,
although the precise details are uncertain.
The Draft Regulations opened the door to lay ownership but
unfortunately were withdrawn after vociferous criticism by
independent pharmacists, certain of whom would prefer not
to have to meet the challenges of a more efficient and competitive
Government is committed to introducing statutory reform
to address its national health and drug policies; the
pressing requirement being the need to extend the accessibility
and affordability of pharmacy in South Africa.
We are well placed to contribute towards the delivery of pharmaceutical
services in the under-serviced areas, primarily through our
Discom stores and through leveraging off our existing infrastructure,
resources and capabilities. However, we do not believe that
there is any reasonable prospect of addressing the South African
healthcare challenges by issuing licenses only in under-serviced
areas on an ad hoc or piecemeal basis.
Recent discussions with senior representatives in the Department
of Health suggest that the promulgation of these regulations
is imminent. The debate as to whether or not to deregulate
pharmacy ownership is over. The only question now is how and
We believe that there are more than enough examples of
successful corporatisation of pharmacy in the rest of the
world and that restricting lay ownership curtails economic
activity and service delivery, and has no bearing on professional
independence and integrity.
PHARMACEUTICAL SOCIETY OF SOUTH AFRICA
During the next few weeks we expect pleadings to close in
the review application brought by Van Staden & Stolz and
sponsored by the Pharmaceutical Society of South Africa (PSSA)
against the decisions of the Pharmacy Council to register
Purchase Milton & Associates and other pharmacy companies
funded by us. Our initiatives and advances clearly do not
sit well with the independent pharmacists who control this
organisation and would cling to their vested rights and protections.
These pleadings, once filed, will be a matter of public record
and analysts and investors can draw their own conclusions
on the PSSA attack.
The PSSA has indicated that this matter was to have been disposed
of during February of this year but this was a misreckoning
of the court process. We expect that a date of hearing may
be obtained towards the end of this year at the earliest.
We envision further attacks by the PSSA and similar organisations
against initiatives that threaten vested interests.
Pharmacy success will ultimately turn on who can deliver
the most compelling model for all stakeholders in healthcare
in South Africa and not the protection of vested interests.
PROJECT PROGRESS REPORT
Our major initiatives are:
- We are developing a common information technology platform
and network to which we expect approximately 100 pharmacies
will be connected within the next 3 months. This will allow
for stock replenishment and other management tools (e.g.
category management). This network opens the door to a more
scientific application of data and information and an overall
improvement in the efficiency of the Link operations. A
centralised IT platform will also lead to efficiencies in
accounts payable, accounts receivable, financial reporting,
interfacing to medical aid funds, loyalty / customer response
management programmes (CRM), drug utilisation and review
applications etc. The connecting of the remaining Link stores
- We have sponsored the establishment of a pharmacy training
academy, which is registered with the South African Pharmacy
Council. The academy is currently training 50 pharmacist
assistants and it is envisaged that this training will improve
and enhance professional standards within Link pharmacies
and free up Link pharmacists to conduct more intensive "one
on one" interactions with patients and customers and
to generally perform a more strategic function in the growth
and development of their pharmacies.
- The Link brand is being considerably strengthened through
formative and thought provoking marketing and promotional
campaigns, thus improving its positioning in the pharmacy
market. These emphasise the role of the Link pharmacist
as a healthcare provider.
- A new thrust is to re-instate the high regard for pharmacists
through proactive community initiatives.
- We are currently making know-how and expertise available
to Link in respect of store design and lay out, product
ranges and other retail aspects. These will further enhance
the newly established LinkMax large pharmacy brand and improve
the traditional community pharmacy model.
- With Link, we have a plan to co-sponsor pharmacy ownership
in under-serviced areas with the Industrial Development
- Link is implementing a dedicated drug utilisation and
review (e.g. to prevent harmful drug interactions) and disease
management service in order to support the Link pharmacies
and raise the level of advice given to customers/patients.
- We shall very shortly be in a position to announce agreements
with third parties on pioneering projects for the procurement
of pharmaceuticals and FMCG products that will give Link
franchisees tangible business and professional advantages.
- An alliance has been struck with United Pharmaceutical
Distributors for the distribution of goods to pharmacies.
- We have re-energised the private label and generic programme,
which will result in improvements to Link pharmacies. Generic
drugs will play an important role in bringing down the cost
of medication and a large network such as Link is essential
to this programme.
- GPNet (a network of medical doctors) and Link have agreed
to explore ways to work together to reduce the cost of and
to improve the quality and the accessibility of healthcare
to the South African public. This would include scientific
formularies, implementation of disease management programmes,
generic substitution where appropriate, healthcare screening,
patient education and an increased focus on ethics and professionalism.
Although these are time consuming projects, they are progressing
steadily and these initiatives have and will continue to develop
and consolidate Link as the foremost pharmacy brand synonymous
with efficient business and best pharmaceutical practice.
In this regard, and in order to facilitate the consultations
and commercial initiatives a pioneering group of some one
hundred Link pharmacies have engaged in this process with
a view to leading the way forward for the remaining pharmacists.
BENEFITS TO NEW CLICKS
Our strategy has two major phases:
The first phase is to create the best pharmacy franchise in
South Africa and earn benefits through the following:
Through nearly 400 Link pharmacies and the continued development
of support infrastructure, this objective is progressing rapidly.
- procurement and wholesaling of pharmaceutical and FMCG
products to Link pharmacies
- fees for value added services; and
- interest on funds advanced.
Our strategy has been devised to ensure that in the event
of legislation not being passed, we would still be able to proceed.
Phase one achieves this objective.
The second phase is to add dispensaries to Clicks and Discom
stores in partnership with pharmacists.
With the advent of a change in the law, which now seems imminent,
we could be entitled to operate pharmacies where stores meet
the licence qualification criteria. The right to own would
give us opportunities in respect of co-ownership and partnership
agreements with pharmacists to maximise the benefits of corporate
and professional co-operation.
The objective is to have a nation-wide network of approximately
800 pharmacies that will supply the highest standards of pharmacy
to all South Africans. Different ownership models would apply:
wholly owned; partnership; franchise.
Clicks and Discom operate in Zimbabwe in a franchise arrangement
with the Meikles Group acting as franchisees.
Healthcare provision in Zimbabwe has many similarities to
South Africa. Currently there are two stores that operate
pharmacies in conjunction with the Medix group, a chain of
14 pharmacies. Meikles have taken a significant stake in Medix
in order to provide the finance to further develop synergies
that are apparent between Clicks and Medix in Zimbabwe.
In Australia pharmacy law has similar roots to that in South
Africa and also restricts lay ownership. We believe that we
can, however, extend our business into pharmacy through stores
that are owned by pharmacists but where we supply goods and
services and retail expertise. We have built up a competent
store support infrastructure in Australia. This can be applied
to an increased number of outlets even if we do not own them.
As a transnational organisation, there are major opportunities
for shared learning and leverage that can be brought to this
initiative. We are currently investigating several opportunities.
The Medicines and Related Substances Control Act (MRSA)
Government has indicated to us that it wishes to co-ordinate
the deregulation of pharmacy ownership with changes proposed
to the MRSA. Changes proposed to this legislation (by way
of the MRSA Amendment Act of 1997) contemplate more effective
and transparent pricing systems for medicines and the so called
"single exit" pricing strategy whereby it is contemplated
that a single price will be stipulated for the purchase and
sale of medicines. There are a host of complications around
the legislative proposals to date which will need to be addressed,
including adequate provision for wholesaling, and we do not
expect that these statutory changes will be finalised in the
This legislation also contemplates changes in the controls
of dispensing by professionals other than pharmacists by way
of a licensing process so that professions other than pharmacists
will dispense by exception rather than by a general right.
This proposal has obviously caused consternation amongst dispensing
doctors and we believe that further debate around these issues
will ensue. The amended legislation also makes provision for
pharmacists to apply generic substitution even without endorsement
by the prescribing doctor. Whereas we are obviously following
these developments with interest, we do not expect the resolution
of all of these issues to have a direct bearing on the implementation
of our strategies.
We believe that many opportunities can be unlocked for the
New Clicks group by a direct involvement in the pharmacy retail
sector with benefits to pharmacists and all other stakeholders.
Change is imperative and we believe that through our blue
chip track record and our initiatives in healthcare and pharmacy
support to date, we are best placed to take the opportunities,
which a new statutory regime will provide with benefits for