Generic Drug Price War Ramps Up

Wal-Mart (WMT) started a war in 2006 when it began to offer generic medicines for $4. WSJ:

Big pharmacy chains like CVS Caremark Corp.(CVS), Walgreen Co. (WAG) and Rite Aid Corp. (RAD) have started to aggressively promote their discount drug programs in recent months as the economy declined and competition increased. These moves are among the latest in a market battle that has helped lead to lower prices and greater use of generic drugs.

Walgreen’s says two-thirds of its sales come from pharmacy sales. The company noted margins in that segment had improved because their stores were filling more generic drug prescriptions, which are also more profitable. Increasing use of generic drugs are certainly good for patients. But is it good for drug store chains? WSJ:

Retail pharmacies are waging what some consider a generic-drug price war that is threatening margins in a typically high-profit area and reflects the intense competition that drug-store chains face in attracting and keeping customers.

From Rite-Aid's FQ309 conference call:

On generics:

Sales of Rite Aid brand products which save our customers money while delivering higher margins to us continued to grow.

Generic mix is doing very nicely and… held up the pharmacy margin. Pharmacy sales remain very good although front end sales are soft. In December pharmacy’s actually very strong… So we’re seeing a very nice month right now in pharmacy.

I think it is a little promotional out there but this time of year generally is. We’ve seen a lot of other channels get very aggressive…. It’s a little bit tougher holiday season than I think we’ve seen in a while.

Walgreen’s FQ109 conference call:

On generics:

Comparable prescription sales rose 2.6% in the quarter, the number of prescriptions filled in comp stores was virtually flat compared with a year ago... For the quarter we filled 156 million prescriptions.

Our Prescription Savings Club loyalty program serves the needs of the 46 million Americans who are uninsured as well as the millions who are under insured. We now have more than 1.4 million Prescription Savings Club members an increase of more than 400,000 in just three months and more than 30% of the PSC members are new Walgreen patients.

The overall margin was negatively impacted [but] partially offset by a higher retail margin as a result of the impact of generic drug sales.

Q: As we start thinking about things like electronic prescribing, etc. how will that impact some of the programs that you have in place around your generic programs?

A: On the PSC or RX card… we are seeing a lot of traction and from a financial point of view I think it’s a good thing because there is a fair amount of turn over, churn normally in prescriptions and really this is capturing a lot of that… and [it’s] also a great driver of loyalty.

We had some early markdowns out there across the industry both in the drug channel and throughout retail.

On Wal-Mart:

Q: Where are you taking those customers from, are they coming from the other retailers, are they coming from the supermarkets, from Wal-Mart, where do you think you’re taking them from?

A: We don’t know truly where we’re taking them from. The opportunity of 46 million uninsured folks that didn’t have cash and maybe some folks that weren’t really taking medication or seeking compliance medication… I think the opportunity is huge for the 46 million out there that are uninsured… We track, for instance, the $4 scripts, the generics that fall into that bucket that we have actually gained share in that now year on year after a year ago being tougher.

Since Wal-Mart Stores Inc. introduced $4 generic prescriptions… mass merchandisers and grocery stores responded with their own versions. Walgreen is offering retail medical clinics. Hmm, cheap, standardized and readily available healthcare: Are you listening Hillary?

Another major initiative [is] POWER… it is currently being rolled out across Florida. POWER focuses on 1), eliminating a significant amount of administrative tasks from the community pharmacy which will free up pharmacists to play a greater role as trusted clinicians, 2) reduce overall pharmacy costs, and 3) enable us to increase the breadth and depth of pharmacy services such as flu shots and vaccinations.

We see the opportunity to fill as many as 30% to maybe 40% of our chronic prescription centrally… [We’re moving] the insurance processing to a more efficient platform… and allowing the store pharmacist to spend more time with patients.

We opened four new worksites and 76 new retail clinics in the quarter giving us a total of 661 retail and worksite clinics nationwide. We expect to be operating in about 800 locations by the end of the fiscal year.

Our retail clinics provide cost effective, quality care that’s extremely convenient to customers.

Online:

Our private brand business is one of the strongest in retailing and continues to grow as consumers look for value. We’ve also had tremendous momentum in our online business which reported a 45% increase in traffic to Walgreens.com during November.

Comments

[Tao:]

Those in store clinics won't replace the need for real health care change. They won't help with emergency surgery and long illnesses and heart surgery, etc.

2008 Dec 24 02:09 PM

[Jake Berzon:]

Hillary isn't interested in health care any more - she will have a different job in January. In any case, Obama will surely put health care on the back burner, as he first tries to "save jobs." Interesting how the private sector ingenuity in the end always beats the government zillion $ bureaucracy.

2008 Dec 25 11:34 PM

[Lily:]

Generic medications are a great way to keep your prescription drug costs down. What really gets my goat is these new drugs where they put two generics together and then charge an arm and a leg for it! I’ve seen ads on TV for Caduet. It has two ingredients. One is Amlodipine and the other is Atorvastatin. With my RxDrugCard I can get 30 tablets of Amlodipine for $9 and 30 tablets of Simvastatin for $9. I’ll bet they are charging more than $18 for this! The unthinking public is going to pressure their doctors into giving them something just because it’s new, when something old or generic would do the job for cheaper.

May 12 02:27 PM