RE:Sales QuestionsI think focus on the net sales numbers can be misleading. Q3 we know was limited shipments late in the quarter to a few pharmacies (probably London drugs and affiliates). Q4 is where molecules started being stocked/listed by lawtons, pharmachoice, uniprix, jean coutu, loblaws, costco, medecine shoppe (all of this validated by previous DD on this board). To be able to sell your product through this distribution network (approx. 2700 pharmacies I think) you need to pay upfronts and ongoings. I think we have seen the results of that in this quarter. We will likely never know the exact breakdown between upfront and ongoings so in a sense this is an exercise in trust that Arun knows what he is doing (I'm betting he does!). [As an aside I have worked in businesses before where you charge new suppliers for setting them up as a supplier, for every new SKU that is added, testing etc., is this happening here as well?]
From a business perspective I think the strategy makes sense. Leverage your relationships to do some deals with large chains initially to drive some volumes and then cross-sell other products including OTC's. Thats part one. Part two we are starting to see develop, which is build out your direct sales capability to independents. Independents have less purchasing power than the chains with consequent margin improvement for Vanc. I saw some DD originally on this board that in BC and Alberta, non chain pharmacy's were around 55% of the total. If that ratio is nationwide then I think we will still see good margins in generics.
When you look at Q4 in isolation, and exclude the customer marketing incentives, I think underlying GM% on generics is around 70-80%. Calculate this by looking at change in inventory over the quarter and gross sales. Again when all the costs associated with buying your way in, starts to phase out, I still think we will see a very respectable generics business.
Good luck all. I am really looking forward to Q1 and beyond. A great start!