Δείτε εδώ την ειδική έκδοση

US Drugstores: Bitter pill to swallow

Is selling pills a dreadful business? That seems to depend on the way pills are sold. On Thursday, US pharmacy chain Rite Aid cut its earnings view by a fifth, sending its shares down 18 per cent. And last month Walgreen slashed its operating profit outlook also by a fifth. Both cited unexpectedly weak drug reimbursement rates from private and public insurance. Walgreen also called out higher drug costs. But the problems have not rattled CVS, a company that both runs pharmacies and acts as a middle man between insurers, drug companies and consumers.

In 2007 CVS acquired Caremark, a so-called pharmacy benefit manager (PBM), for $27bn. PBMs, by administering drug plans for multiple health insurers, negotiate cheaper prices from Big Pharma. The deal was massive and there were worries about channel conflict (CVS retail pharmacies nominally compete with drugs mailed out by Caremark directly). CVS shares lagged behind in the years after. But since August 2010, its shares are up 170 per cent, double the S&P 500. In its latest earnings, its retail business didn't reveal any of the weakness of its rivals and the PBM business exceeded expectations. It was also confident enough to raise its profit outlook.

With Caremark's two closest PBM peers, Medco and Express Scripts combining in 2012 (its market cap is now $55bn) there isn't a good PBM option for either Walgreen (market cap $60bn) or Rite Aid (market cap of $5bn). Walgreen has tried to build scale both through the acquisition of Alliance Boots and a drug sourcing arrangement with wholesaler AmerisourceBergen (Rite Aid has a similar deal with McKesson). Regardless, just selling pills looks like a bad business. In early summer, an unexpected drop in US medical care spending was driven by a 0.6 per cent fall in prescription drug spending. For the industry's future, look at CVS again. It is now rebranding itself - not as a simple retailer, but as a one-stop consumer healthcare provider.

Tweet the Lex team at @FTLex

© The Financial Times Limited 2014. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation

ΣΧΟΛΙΑ ΧΡΗΣΤΩΝ

blog comments powered by Disqus
v