Walgreens (WBA) Shares are down more than 50% this year as the company continues to face retail headwinds and pivots toward an entirely new strategy for the drugstore chain.
CEO Tim Wentworth, who has been in the job for eight months, outlined an aggressive plan to reorganize the company during his third-quarter earnings call Thursday.
The future Wentworth envisions is one in which pharmacies are local hubs for access to health care.
The healthcare ecosystem idealizes pharmacies — chain, independent and online — as a means of maintaining patient health. They were also considered expert consultants for minor health needs ranging from advising on over-the-counter products to assisting with the administration of specialty medications on site.
Wentworth wants to make this idea a reality by investing in technology to help automate pharmacists’ tasks, freeing them up to meet patient needs.
“I am confident that WBA will be a leader in the future of healthcare, with pharmacy and retail at its center,” Wentworth said.
However, this strategy has not worked in the past.
A difficult economic situation
The idea of a friendly neighborhood pharmacist conflicts with the economics of running a pharmacy and how they are compensated by pharmacy benefit managers.
It’s the battle facing pharmacies of all sizes with ever-decreasing reimbursements from the three largest pharmacy benefit managers: CVS Caremark (CVS), UnitedHealth Optum Rx (A H) and Cigna Express scripts (THIS), where Wentworth was previously CEO.
Wentworth said he was fighting “to align incentives and ensure we are paid fairly.”
Pharmacies were already struggling before the pandemic. The impact of consumer trends on in-store sales (for beauty and food), as well as the pressure to be paid fairly for prescriptions, have been at the center of earnings calls for years — and was a catalyst for Walgreens and CVS’s health services strategy.
COVID provided a brief reprieve for pharmacies, with increased revenue from vaccines, testing and the need for over-the-counter medications.
Since then, this situation has diminished, forcing pharmacies reduce opening hoursclosing stores and reconsidering how best to use storefronts to meet the changing needs of patients.
Long-term vision
One area where Walgreens is ahead of the competition is in clinical trials.
The company converted walk-in clinic spaces into clinical trial spaces and was successful reached an agreement with Boehringer Ingelheim.
The United States Food and Drug Administration (FDA) recently requirements announced for pharmaceutical companies to diversify its clinical trial participant pool, something Walgreens is now well positioned to do.
But that didn’t stop Thursday’s selloff following news that the company was in short-term trouble. That led to the company’s worst day in nearly four decades, closing down 22% on Thursday.
Most analysts believe the company has a solid strategy, but its implementation will require patience, especially as a key source of revenue, PBMs, are becoming more and more competitive.
JPMorgan’s Lisa Gill said in a note released late Thursday that the process would take time.
“We continue to believe that over the long term, WBA has the potential to grow. While there is a silver lining to this situation, we believe the company is taking the necessary steps to stabilize its footprint and working with PBMs and payers to manage reimbursement headwinds,” she said. writing.
Bank of America’s Allen Lutz also noted: “It is imperative that Walgreens more aggressively oppose PBMs to achieve a more reasonable return on capital.”
But, he added, “it is not entirely clear whether a more aggressive push by retail pharmacies would yield favorable results. However, the risk of continuing on the current path for the WBA could be worse.”
Walgreens is the largest retail pharmacy chain, with nearly 10,000 locations. Its competitor CVS has more than 9,000, and RiteAid, which is currently bankrupt even after Walgreens acquired nearly 2,000 locations – has less than 2,000.
Anjalee Khemlani is the Senior Health Reporter at Yahoo Finance, covering all things pharmaceutical, insurance, healthcare, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.
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