Shares of Walgreens (WBA) have fallen more than 50% this year as the company continues to battle retail headwinds and pivots to an entirely new strategy for its pharmacy chain.
CEO Tim Wentworth, who has been in the role for eight months, laid out an aggressive plan to revamp the company during Thursday’s third-quarter earnings call.
Wentworth envisions a future where pharmacies become local hubs for healthcare access.
The health ecosystem idealizes pharmacies — chain, independent, and online — as a way to maintain patient health. They’re also seen as expert advisors for minor health care needs, ranging from advising on over-the-counter products to helping administer specialty medications on-site.
Wentworth wants to build on this idea by investing in technology that allows pharmacists to automate tasks, freeing them up to focus on patient needs.
“I am confident that WBA will be a leader in the future of healthcare, with pharmacy and retail at its core,” said Wentworth.
However, that strategy has not worked in the past.
Difficult economy
The idea of the friendly neighborhood pharmacist clashes with the economics of running a pharmacy and the way they are paid by pharmacy managers.
It’s a struggle pharmacies of all sizes are facing as reimbursements continue to decline from the three largest pharmacy insurers: CVS Caremark (CVS), UnitedHealth’s Optum Rx (UNH) and Cigna’s Express Scripts (CI), where Wentworth previously served as CEO used to be.
Wentworth said he is fighting “to align incentives and make sure we are paid fairly.”
Pharmacies have already been fighting the pandemic. The impact of consumer trends on front-of-store sales (for beauty and nutrition items), as well as the pressure to be paid fairly for prescriptions, has been the subject of earnings conversations for years — and has been a catalyst for both Walgreens’ strategy as CVS for healthcare services.
COVID provided a brief reprieve for pharmacies, with increased revenue from vaccines, testing and the need for over-the-counter medications.
That has since declined, forcing pharmacies to shorten their hours, close stores and rethink how to best use storefronts to meet changing patient needs.
Long term vision
One area where Walgreens has an edge over its competitors is clinical trials.
The company has converted walk-in clinic spaces into clinical trial spaces and successfully closed a deal with Boehringer Ingelheim.
The U.S. Food and Drug Administration (FDA) recently imposed requirements on pharmaceutical companies to diversify their clinical trial participant pools. Walgreens is now well prepared to meet these requirements.
But that didn’t stop the sell-off on Thursday following news that the company would struggle in the short term. It led to the worst day for the company in nearly four decades, closing 22% lower on Thursday.
Most analysts believe the company has a solid strategy, but that executing it will require patience, especially as PBMs, a key source of revenue, become increasingly competitive.
JPMorgan’s Lisa Gill said in a letter Thursday evening that the process would take time.
“We continue to believe that WBA has the potential to grow over the longer term. If there is a silver lining to this print, we believe the company is taking the necessary steps to stabilize its footprint and working with PBMs and payers to manage reimbursement headwinds,” she wrote.
Bank of America’s Allen Lutz similarly noted, “It is critical that Walgreens more assertively oppose PBMs to achieve a more reasonable return on capital.”
But he added: “It is not entirely clear whether a more aggressive push by retail pharmacies would yield beneficial results. However, the risk of continuing on the current path for WBA could prove greater.”
Walgreens is the largest retail pharmacy chain, with nearly 10,000 locations. Rival CVS has more than 9,000, and RiteAid — now bankrupt even after Walgreens acquired nearly 2,000 locations — has fewer than 2,000.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharmaceuticals, insurance, healthcare services, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.
Click here for an in-depth analysis of the latest healthcare news and events impacting stock prices
Read the latest financial and business news from Yahoo Finance
