The partnership between Walgreen Co., Alliance Boots and AmerisourceBergen Corp. could have a dramatic impact on pharmaceutical distribution around the globe, according to analysts and others familiar with the agreement.


Walgreens, Alliance Boots, AmerisourceBergen, pharmaceutical distribution, generic drug, pharmacy benefits managers, Express Scripts, Adam Fein, Pembroke Consulting, drug chain, Vishnu Lekraj, Morningstar, Lisa Gill, JPMorgan Chase, Goldman Sachs, Matthew Fassler, independent pharmacies, Cardinal Health




























































































































































































































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Landmark deal could transform Rx distribution

April 8th, 2013

NEW YORK – The partnership between Walgreen Co., Alliance Boots and AmerisourceBergen Corp. could have a dramatic impact on pharmaceutical distribution around the globe, according to analysts and others familiar with the agreement.

In addition, they note, it is likely to benefit the bottom lines of all three players.
One of the biggest advantages of the deal for Walgreens, analysts stress, will be its ability to acquire generic drugs at a lower cost than its competitors.

Generics are increasingly driving traffic into pharmacies, they note. Industry data shows that in the late 1990s fewer than four of every 10 prescriptions were filled with a generic drug. By 2017 nine of 10 prescriptions are expected to be filled with generics, a trend that most feel will see more cash-paying ­customers.

Raising the number of cash-paying customers, analysts note, would make Walgreens less dependent on pharmacy benefits managers and help bring back some of the business that the company lost in last year’s dispute with Express Scripts Inc.

“Walgreens will be able to buy generics cheaper than anyone else and, if they choose to do so, can also sell them for cheaper than anyone else,” Adam Fein, president of Philadelphia-based pharmaceutical consultancy Pembroke Consulting Inc., told Crain’s Chicago Business.

Fein said the end result will be that Walgreens will be well positioned to win what he called “the pharmacy industry’s race to the price bottom” that began in 2008 when Walmart started offering generic prescriptions at $4 for a 30-day supply.

Other analysts say that it remains to be seen whether Walgreens can make the low-price generics and the deal’s global potential work to its advantage.

They note that Walgreens has a limited track record of operating outside the United States and suggest that it mismanaged its partnership with Express Scripts, a move that cost the drug chain an estimated $4 billion in revenue.

“This is a direct tactical response to make sure something like that doesn’t happen again,” Vishnu Lekraj, an analyst at Chicago-based Morningstar Inc., told Crain’s. “They’re trying to build their negotiating power and scale.”

Still, most on Wall Street are confident that the AmerisourceBergen deal will pay off.
After the partnership was announced on March 19, industry analyst Lisa Gill of JPMorgan Chase & Co. raised her year-end target price for Walgreens stock from $41 to $55, saying that the deal should produce “incremental earnings” from lower costs.

Goldman Sachs analyst Matthew Fassler showed similar enthusiasm for the pact, raising his 12-month target price from $46 to $50.

In the three days following the announcement of the partnership formed by Walgreens, Alliance Boots and AmerisourceBergen, Walgreens shares rose more than 9% to hit a new 52-week high.

Analysts say that the agreement could prove riskier for AmerisourceBergen. The distributor supplies thousands of independent pharmacies across the United States. Because these stores typically pay more for drugs than national chains do, some have suggested that AmerisourceBergen risks alienating these customers.

An AmerisourceBergen spokeswoman told The Wall Street Journal late last month that the partnership will create efficiencies that “will benefit all of our customers, including ­independents.”

Perhaps the company that will be the most affected by the Walgreens/Alliance Boots/AmerisourceBergen pact is Cardinal Health Inc.

On the same day that Walgreens announced it was teaming up with AmerisourceBergen, it also said it would not renew its contract with Cardinal, which derived more than 20% of its annual revenue from the drug chain.

“The news is exceptionally disappointing, given Cardinal’s highly concentrated revenue base,” remarked analysts at the online stock-pricing site trefis.com.

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