Commercial Real Estate News / Buying / A Guide to Buying Pharmacies for Sale

A Guide to Buying Pharmacies for Sale

Published: 09-27-23 Category: Buying

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

The US pharmacy market was valued at a whopping $527 billion as of 2022. As the population ages and more individuals come to rely on medications, experts expect the pharmacy industry to grow at a solid annual rate of 6.3% between 2021 and 2028.

Opening a pharmacy is one way that investors can tap into this potential growth, but opening a pharmacy carries its own set of challenges.

Here, we'll cover the most important things investors should know when buying pharmacies for sale. We'll discuss pharmacy real estate considerations, buying a new or existing pharmacy, pharmacy revenue and profitability, and more.

Let's get started.

Real Estate Considerations for Pharmacies

Whether you want to open your own pharmacy or lease property to a pharmacy, the first step is finding the right commercial space to invest in. Pharmacies are classified as retail real estate and are usually located in high-visibility intersections, pad sites in front of commercial centers, or strip malls.

Below are just a few considerations to keep in mind when you set out to buy a pharmacy for sale.

What's the location? Specifically, how close to densely populated areas is it, and what demographics do you expect to serve most? For instance, buying a pharmacy for sale near an older demographic can be a smart move as seniors are more likely to take medication.
What kind of parking is there? Pharmacies in strip malls, for example, will most likely share customer parking with other retailers.
What kind of competition is in the area? If you're looking to purchase an independent pharmacy, competing with larger pharmacy chains, like CVS or Walgreens, may prove difficult.
Does the building have drive-through service? More patients are embracing drive-through pharmacy services due to convenience and accessibility concerns.

Fortunately, there are experts you can rely on to help you scope out the best properties. Pharmacy real estate brokers provide specialized guidance for owners buying and selling pharmacies for sale.

A good broker on your real estate team can make negotiating contracts easier and help you identify properties with promising financials.

Should I Buy a New or Existing Pharmacy?

Investors have two main options when buying pharmacies for sale: buying commercial property to start a new pharmacy or buying a pre-existing, operational pharmacy. There's also the option to start a franchise pharmacy.

#1 – Buying a New Pharmacy for Sale

The main benefits of buying a property for a brand new pharmacy are that you have complete control over the financial and branding directions you choose to take your business.

Special-purpose commercial real estate tends to be more restrictive with use than other types of commercial property, but you may likely be able to repurpose the building you buy into pharmacy retail space..

Financing may prove especially difficult when starting a pharmacy from scratch. Lenders are more likely to provide loans to businesses that have proven track records than startups, especially in the current rate environment.

#2 – Buying an Existing Pharmacy

If starting a business from scratch isn't your thing, an alternative would then be to purchase an existing pharmarcy for sale to avoid the hurdles that come with starting a business.

Existing pharmacies will most likely already have a local identity and patient records, so it's relatively easier to step into an owner-operator role.

#3 – Buying a Franchise

A third option would be to open a franchise pharmacy. Franchising can make starting your own business easier, as you'll get the support, training, branding, and corporate infrastructure of a larger company.

The trade-off, however, is two-fold: You'll have to give a certain percentage of your profits to your franchisor, and you won't get to enjoy nearly as much freedom in running your own business as you would running an independent pharmacy.

How Does the Pharmacy Industry Work?

Pharmacies are at the end of the drug production and distribution process, serving as a frontline liason between customer and industry. Manufacturers create and ship finished drug products to wholesale distributors. These distributors then sell to local hospitals and pharmacies that make and fill prescriptions for patients.

Also involved in the supply chain are pharmacy benefit managers (PBMs). PBMs work with providers and governments to negotiate prices with manufacturers and manage covered lists of medications. As such, PBMs play a crucial role in regulating drug costs for patients and pharmacies.

How Profitable Is Owning a Pharmacy?

According to a 2021 PBA Health survey, the average independent pharmacy pulled in nearly $3.4 million in sales at a 21.9% profit margin. The average pharmacy pulled in about $75,755 in net profits. In general, pharmacy profit margins have decreased over the last decade from 23% in 2011.

Pharmacy profitability can also depend on the state. For instance, the states with the highest retail pharmacy spending are Texas, California, and Florida, at $35 billion, $32 billion, and $27 billion, respectively.

What's the Greatest Cost of Running a Pharmacy?

The single greatest management and upkeep cost for a pharmacy is inventory. Stocking drug products takes up nearly 70% of a typical pharmacy's operating expenses. The average pharmacy spends a whopping $230,000 on drug products in a single month, at an average cost of $10.79 per prescription.

As such, an extremely important aspect of buying pharmacies for sale is your relationship with wholesale distributors. Pharmacies buy drugs in bulk to lower the cost and make a profit by selling products at a markup. Average pharmacy markups for drugs range between 20% and 25%, but markups can be significantly higher for specific drugs.

What Are the Most Profitable Pharmacy Drugs?

Below is a quick breakdown of the five top pharmaceutical drugs in terms of US sales.

Humira: $13.6 billion;
Harvoni: $10 billion;
Enbrel: $7.4 billion;
Lantus Solostar: $5.7 billion; and
Remicade: $5.3 billion.

Most of the highest revenue-generating drugs in the US are for treating rheumatoid arthritis and diabetes.

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