What Price Per Script Do We Pay for a Pharmacy?

The price per script metric, (also known as the cost per script metric) and its close cousin, the percent of revenue, are not useful metrics when valuing a pharmacy.

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I dare say they are irrelevant. Here is an example of why this is the case:

Imagine two pharmacies that are the same in every way. Same number of scripts, same revenue, same gross margin.

Now, imagine that Pharmacy A has three times the rent cost and double the wages of Pharmacy B. With this difference in mind, Pharmacy A could be running at a loss whereas Pharmacy B may be hugely profitable.

These changes are not easy to fix: a landlord is not going to reduce rent by two-thirds and reducing staffing costs by 50% will seriously impact operations. If these problems were easy to fix, the seller will have fixed them already.

If a buyer were to use a price per script or percent of revenue metric, it would completely ignore these differences. Even pharmacies that are losing massive amounts of money with no way to fix the problem would have the same value as a pharmacy that is massively profitable. This is like paying for a car based on the year it was made, with no regard for its condition.

Also, the price per script metric can be manipulated by adding in inventory, accounts receivable, or excluding certain scripts. For example, chains, including CVS, Walgreens, Fred’s, etc. who use these metrics, don’t disclose until much later in the process that they will exclude your delivery, out of network, compounding, single-visit, specialty, and/or out of store (e.g. LTC, assisted living, etc.) scripts, and only pay you the full amount if they retain a certain percentage of the scripts.

For this reason, the key metric buyers look at when valuing a pharmacy is its profitability. This includes chains who make offers and then convert the profitability into a price per script to inflate the number. This is also the metric used by all lenders because a borrower cannot pay a loan based on “price per script”. A borrower can only pay a loan with the profit the pharmacy generates.

At ColonyRX, we will engage in a detailed valuation to determine how much profit the pharmacy is making, and then give the seller a maximum valuation based on this.

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