The reach and capabilities of the Walgreens (WAG-NYSE) network is unmatched in the healthcare industry and has positioned the pharmacy chain to capitalize on several macro events that are currently understated in consensus Wall Street estimates.
Walgreen Company is the largest retail pharmacy chain that largely competes against other national retail pharmacy chains such as CVS Caremark (CVS-NYSE) and Rite Aid (RAD-NYSE), pharmacies embedded in retail stores such as Wal-Mart (WMT-NYSE), Target (TGT-NYSE) and Kmart (SHLD-NASDAQ) and grocery store chains such as Kroger (KR-NYSE) and Safeway (SWY-NYSE) as well as mail-order Pharmacies such as Medco Health Systems (MHS-NYSE) and regional chains.
The Walgreens facility network is currently comprised of 8,067 pharmacies, 368 health and wellness centers / worksite pharmacies, 80 home medical centers and other medical-related facilities, in addition to 368 Take Care Clinics.
Though several metrics stand out, the less obvious volume of vaccinations should be underscored. It is here where one facet of the upside potential of Walgreens revenue generating opportunity resides. The report indicates that Walgreen pharmacists had administered 6.9 million influenza vaccinations season-to-date. Not only does this represent a 25.5% increase over the 5.5 million administered over the same period last year and a critical ongoing seasonal traffic catalyst, but it also signifies an additional patient touch point.
The CDC first allowed pharmacists to administer vaccinations in 2009 following the wake of the H1N1 outbreak. This event should be noted in that it represented an admission that the domestic health system was inadequate to support a significant CDC preventative program and expanded the role of the pharmacist in patient care (link to a related report here).
The CDC was compelled to identify alternatives largely due to a well-documented shortage of primary care physicians. This trend has not reversed since the change in responsibilities was permitted and more states have since adopted the practice (an American Pharmacist table provided here). What's more is that a report by Association of American Medical Colleges (AMMC) continues to project that physician shortage will soar to 124,000 by 2025.
Further stressing the system has been the deep Medicare cuts in recent years. Though the 2014 US budget figures have yet to be submitted to Congress, additional cuts in excess of the 27% 2013 total are certain to be proposed. The reimbursement issue has led to primary care and other physicians leaving the practice, refusing to take on new and/or turn away existing Medicare patients, which further restricts access to healthcare for millions of Americans.
These developments, when taken in conjunction with the approximate 50 million uninsured patients to be infused into the system as a result of the Patient Protection and Affordable Care Act, further heighten demands on the highly stressed PCP model.
We believe that pharmacists again represent a highly plausible alternative for offloading further non-critical care patient activities from the physician setting in the face of this crisis. Given the previous actions of the CDC to explore such alternatives and heightened calls for enhanced healthcare access and improved patient outcomes under the Obamacare initiative, we feel that such moves are likely over the intermediate term.
The opportunity for Walgreens extends well beyond the mass of its pharmacy network. While clearly any changes to the PC model will serve to elevate in-store patient traffic, the full WAG platform comes increasingly into play as a competitive advantage.
The ability of the firm to successfully administer significant vaccine volume serves as a basis for future patient interactions. The company's additional service offerings provided via the +700 clinics, home medical centers and worksite pharmacies play neatly into this investment thesis as the list of service offerings currently being administered include the following from the company's 10k.
Walgreens will be providing a webcast of their 2013 Analyst Day tomorrow and will be reporting fiscal 2Q 2013 in mid-March and I plan to provide my full forecast prior to this announcement.
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"We offer customers infusion therapy services including the administration of intravenous (IV) medications for cancer treatments, chronic pain, heart failure, and other infections and disorders which must be treated by IV. Walgreens provides these infusion services at home, at the workplace, in a physician's office or at a Walgreens alternate treatment site. We also provide clinical services such as laboratory monitoring, medication profile review, nutritional assessments and patient and caregiver education."
We feel that these type of offerings serve to enhance the overall patient relationship and provide the company with a significant first mover advantage as market dynamics continue to evolve. We feel that this corporate foresight will greatly benefit the company as millions of patients and billions of dollars in medical fees come into play over the next several years.
It is also critical to note that the above-provided analysis does not fully take into consideration the expanded international reach of Walgreens that has greatly expanded in the past 12 months and will be the focus of my next Walgreens research piece later this week.