Walgreen feels pain of falling drug sales

The chain suffers for a fifth straight month after the termination of a contract with a key pharmacy benefits manager.

By Trefis Jun 11, 2012 11:36AM
TrefisImage: Pills (© Sean Justice/Corbis)Walgreen's (WAG) sales continued to decline for the fifth consecutive month after the disruptive discontinuation of Walgreen's contract with pharmacy benefits manager Express Scripts (ESRX) this year. Express accounted for more than 12.7% of Walgreen's business in May 2011, and its exit helped to send same-store sales down by 5.8% in May 2012.

Walgreen walked out of Express Scripts' network last year over a reimbursement-rate dispute. Walgreen's dispute with Express Scripts and its prescription business exodus has significantly benefited its rivals, particularly CVS Caremark (CVS) and Rite Aid (RAD).

Walgreen and Express Scripts have recently dropped the legal claims filed against each other in September, fueling market expectations that there might be a reconciliation between the estranged companies. However, Walgreen has denied any connection between the withdrawal of legal claims and the possibility of a new contract.

Walgreen's sales continue to suffer

Walgreen's May sales decreased by 1.6% compared to May 2011 on reduced pharmacy sales, which were partly offset by the opening of seven new stores and the acquisition of 28 Bioscrip community pharmacies.


As a result, prescriptions filled at its comparable stores declined by 8.5%, leading to 4% lower pharmacy sales. Comparable-store pharmacy sales also were negatively affected by 4 percentage points because of generic drug introductions. Prescriptions processed by Express Scripts composed 12.7% of Walgreen prescriptions in May 2011 and contributed to a 10.8 percentage point decline in comparable-store prescriptions. Decreased footfall due to Express' exit also moderated front-end sales. Overall, 3Q sales for fiscal 2012 were 3.3% lower compared to the same period last year, with 6.5% lower comparable store sales and 9% fewer prescriptions.


Walgreen's biggest competitors, CVS Caremark and Rite Aid, have significantly benefited from the fallout last quarter gaining millions of new prescriptions as Express members looked for non-Walgreen pharmacies to fill their prescriptions, and ended up at CVS or Rite Aid stores. In particular, CVS has raised its full-year guidance, and is trying to make the new customers permanent,  taking advantage of the delays in hammering out a new deal. CVS could tap up to 20 million transferred prescriptions if the impasse continues through 2012.


Walgreen Share of Retail Prescriptions Filled in US

Recently another large PBM Medco folded into Express Scripts, creating the industry's largest pharmacy benefits manager, which has raised concerns about the future of Walgreen's business with Medco, even though both expect to honor the existing contracts. Walgreen has recently renewed a pharmacy-services deal with another major PBM partner, UnitedHealth's OptumRx with a "long-term" agreement.


We value Walgreen with a $35 Trefis price estimate of its stock, 10% ahead of the current market price.

191Comments
Jun 11, 2012 7:09PM
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No wonder.  They NEVER have the drugs my doctor prescribes for me in stock and I usually have to go to Rite Aid or CVS.   Maybe if they'd keep the drugs that docs prescribe IN STOCK and in sufficient quantities  they MIGHT get a little more business?!  Ya think?  Hmmm?
Jun 11, 2012 7:06PM
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I work for Walgreens, and I can't believe myself how high our prices are!! I hate seeing people buy stuff at Walgreens at such high prices. People ask me about SD cards and other various electronic objects and I tell them straight up to go online or go elsewhere. Our prices on everything are high. Went to Walmart the other day and spent $17 on deodorant, a value pack of Crest Pro-Health toothbrushes, and toothpaste...at Walgreens would've cost so much more! And I completely agree it IS all about the numbers. Not about customer service!!
Jun 11, 2012 6:55PM
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Prices are way to high for my limited budget. I tried their pharmacy and was not pleased with their service. I was given the wrong medicine twice in a six month period. One of them could have been very dangerous if I hadn't noticed the medicine was not the same I had been taking. Our local Walgreens allows homeless people to approach customers for handouts, never calling the police to the homeless intruders or requesting them to vacate the premises. This is a 24 hour pharmacy. If other Walgreens allow such conduct, they won't be in business much longer anyway.
Jun 11, 2012 6:50PM
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They bailed on the Gubment contract...the worse mistake they could have made. They felt like they were not making ENOUGH profit........Greed kills....they did not calculate the VOLUME they would lose......now.....CVS goes from a zero to a hero....Walgreens mark it on your calendar...WILL BE GONE in 5 years.......They will try to hang on this time next year....but they going down faster than my Daddy's CADDY going downhill....as Howling wolf used to sing ..." I'm.Going down slow!"

 

Let me put it to you like this...if I dont need a prescription filled ....why do I go into Walgreens? I don't and thats what they miss...folks just buying **** after they pick up their prescription. A Terrible Mis-Calculation.

Jun 11, 2012 6:34PM
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They should feel the pain. Their prices are too high.
Jun 11, 2012 6:30PM
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My wife is an employee at Walgreens. Walgreens pharmacy has always been easy to use and the staff is competent. It is the best place to go in our city. I had that belief long before my wife went to work there.
Jun 11, 2012 6:22PM
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I'm not surprised. I worked for Walgreen as a Pharmacy Technician prior to them loosing Express. We filled lots of scrips from them. Not only that Walgreens is not the best company to work for, or at least the locations in the town I live in aren't. They don't do much at all to take care of their employees at all!
Jun 11, 2012 6:22PM
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I'm not surprised. I worked for Walgreen as a Pharmacy Technician prior to them loosing Express. We filled lots of scrips from them. Not only that Walgreens is not the best company to work for, or at least the locations in the town I live in aren't. They don't do much at all to take care of their employees at all!
Jun 11, 2012 6:07PM
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We had to swap to CVS for my fathers meds due to this deal but... CVS is technically WAY behind Walgreens and they screw up the scripts and they demand my wife needs a POA on file to get medical information No.. that's HIPPA not a Power of Attorney...dufus and they keep refilling scripts he hasn't had for over a year (trying to get $'s for nothing) and then they don't fill the scripts we call in and then they are combative and irritatiing to ...um the customer. 

 

I've met people that went back to Walgreens and paid full price just to stop dealing with CVS. While many have moved on I think if Walgreens fixed their rift they'd pull a lot of folks back.  CVS wasn't prepared to handled all these folks and their lack of technology is pitiful for 2012. 

 

We're just glad my  RX plan is still at Walgreens... and we're transitioning Dad to the VA for his RX's

 

Jun 11, 2012 5:37PM
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I used and like Walgreens. It was convenient to my home. However, I had to follow Express Scripts and now use Walmart. Sometimes I don't file with insurance because Walmart is cheaper than my $20 copay. 
Jun 11, 2012 5:34PM
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walgreens screwed the pooch on that deal...the pharmacy has gone downhill, our local one no longer has a resident Pharmacist.  they rotate people in and out... HELLO Target!
Jun 11, 2012 5:23PM
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I liked shopping at Walgreens but had to start using Safeway for prescriptions. There prices are lower than Walgreens. They shot themselves in the foot.
Jun 11, 2012 5:19PM
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Screwum all thay are all just legal drug pushers for big PHARMA is all they are ;;;;;;  And as long as your here you can buy some china made ready for the trash STUFF ? 
Jun 11, 2012 5:12PM
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Walgreen's pharmacy in Lexington,MA was SOOOOO bad. I called and complained but it did not make a difference. I left. They have work to do to keep their customers....
Jun 11, 2012 5:11PM
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I am a CVS/Caremark employee. First off Walgreens gets what they sow. What I hate about Walgreens is the refusal to bill any prescription plan if they think they are not getting back enough. I work for The Federal Employee program our members calls us all the time and say Walgreens would not take thier insurance. When I call them they say no they will not bill electronically because they are not being reimbursed enough. All they think of is what they make not thier customers. Really it does not make any diffrence what pharmacy you use if you have rx coverage. Your prescriotion management company has an amount they will pay for each drug no matter where you go to have them filled. Pharmacies join thier network to compete for thier bussiness and agree under that contract to accept that price instead of what they would charge anyone else that did not have rx coverage when walkimg in off the street.

Jun 11, 2012 4:38PM
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walgreens sucks i wont even go in the store

Jun 11, 2012 4:29PM
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Being an previous Walgreens Employee, their RX prices are in general more, even with insurance.  Their prices on other items are also more costly, except of course if they are on sale.  If you have had no trouble with Walgreens you are lucky, as I know of several people who got mixed up RX's and bad service.  The biggest problem is their CEO makes a fortune and they pay their employees barely above minimum with very little benefits.  I am not surprised they are losing $$. 
Jun 11, 2012 3:43PM
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Sorry JP118, your loss...I would go back to Walgreens in a heartbeat...and I rely on that med!

 

Jun 11, 2012 3:40PM
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Sorry...should have read ALL the comments below before my comment...because I would have used more "CAPS" to emphasise the fact that I have NEVER had any difficulty with my local Walgreens Pharmacy in Bellevue, NE.  They were ALWAYS on top of everything...even re-adjusting one of my wife's meds to our pay because it was better than the generic, which is all that Express Scripts would pay for. 

 

Truly sorry to have lost Walgreens!

Jun 11, 2012 3:35PM
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My family switched to CVS simply because Walgreens dropped our prescription plan.  We would have stayed with Walgreens if they had continued to honor our plan.  Prescription prices are ridiculous even with a plan.  Without a plan, prescription prices as astronomical for people who need multiple, daily prescriptions.  Since we were forced to go to the hassle of switching to CVS, even if Walgreens does eventually contract with Express-Scripts, we won't switch back our prescription business to them. 
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