Drug Stores

By pjain      Published July 18, 2020, 6:36 a.m. in blog Invest   

Drug Store Industry

Front of store products not selling in EC

Most of the products I used to buy at Walgreen's, I now buy on ebay or amzn for one third less

Plenty of competition

Now, everywhere I look I see a pharmacy, and to many stores

Amazon/Walmart - EC, Pillpack Competition vs Delivery in Covid-19

  • Walgreens Boots Alliance Partners DoorDash for Delivery - pilot start in Atlanta,Denver,Chicago - 2300 convenience items to 5000
  • AMZN to hurt => Mail pharma discount

X Avoid pharmacy stocks like the plague

  • Rapidly health care pharmacy is shifting away from retail to mail order
  • CVS/Aetna will force Cigna, Anthem/Blue cross to jump
  • Pillpack by Amazon may take a few years but will force PBMs, Retailers to move very fast

Pharmacy main

Provider Sales $B'18
CVS 100
Walgreens 75
CI/ExprScripts 48
UNH/Optum 23
Walmart 21
  • CVS, WBA get 40% of $s
  • Walgreens and CVS have closed or are closing more than 300 underperforming stores, while Rite Aid Corp., the No. 3 U.S. chain, is struggling to turn itself around after regulators blocked a merger with Walgreens in 2017.

  • Anthem/BCBlueShield -> sent to retail pharmacy

  • Kaiser In-house pharma

TR: Grocers closing pharmacy counters at back

  • Grocers can't compete on PBM discounts or rates => higher rates
  • Lower volumes - can't pay for staff
  • CVS bought TGT pharmacy in 2015 but closed down - shifted scripts if nearby pharmacy to get floor traffic
  • aren’t connected to big medical networks or insurers
  • But in 80s-90s pharmacy counters were high profit,low cost
  • At peak 15% of all scripts filled by grocers
  • Number peaked in 2016 at 9344, falling since '17 9026, shutting fast
  • In affluent areas like Cupertino or Saratoga,CA - grocers are being closed as ethnic Indian or Chinese stores outcompete on relevant merchandise, or people buy $1/lb tomatoes there or at Costco,etc. while Safeway etc charge 2 or 3x. When grocers are closing - it is harder to find pharmacy nearby.

  • Raley’s Supermarkets, a West Sacramento, Calif., chain of about 120 stores, last year shut down a third of its roughly 100 pharmacies and transferred prescriptions to nearby Walgreens, CVS and Rite Aid stores. Those grocery pharmacies had low prescription rates, were losing money and didn’t merit high operating and labor costs, according to Raley’s. Raley’s is cutting hours for the remaining pharmacies to improve profits and create efficiency. Pharmacies make up roughly 20% of Raley’s total sales.

  • Kroger Co., KR +0.62% the biggest U.S. supermarket chain, said its pharmacy business is expected to improve this year after lower-than-expected profits in 2019. Kroger has said pharmacy shoppers tend to be more loyal, spending three times as much as nonpharmacy customers. “We’ve been able to connect the relationship with food and are starting to build out new revenue streams

Pharma low 3% profit industry - squeezed by insurers - lowFrontEnd sales! only cosmetics/seasonals

CVS,WBA The chains, which now either own or have partnerships with the biggest insurers and pharmacy-benefit managers, are able to secure better deals on drug costs that largely shut out the industry’s smaller players. Pharmacy-benefit managers serve insurers and other clients by choosing which medicines to cover and pushing for lower prices from drugmakers and sellers.

  • No inhouse insurer => Cigna, Anthem Blue cross etc to shun CVS or push mail order
  • But Express scripts etc => Anthem Blue cross to do that

Shift to EC, Insurers forcing supply by mail order as CVS seen competitor

  • Drugstore industry copes with a shift to online shopping and shrinking profits in prescription medicines, which often disproportionately affect smaller players.

Health Care hubs hot,cold - not going to be primary

  • Flu shots
  • Injection medicine
  • Other than that - little at MOST retailers
  • Diagnostic blood draw? - needs more training,expense
  • Volume is just not there!

  • TESTING FULL service - pharmacists and doctors, they own medical practices, and they own urgent-care clinics,

  • Grocers generally lack walk-in clinics and other health services that draw many customers to CVS and Walgreens locations.

WBA y4.3% M=36b

Q2'2020

Q1'2020

  • 3/26/2020 c45 b40.5 T50 S54 trend\ - MUSTgetDRUGS! hasDriveThru! M$44 PS=0.3x 5$ 12% e15% n% 2.7%. y4% pay=44% de=0.75
  • All round conservatively managed recurring rev co, buy cheap assets from rad

Walgreens’ valuation, with the stock trading at 6.9X forward 12-month Zacks earnings estimates. This marks a discount against its one-year median of 9.1X and its industry’s 15.7X average.

Dec'2019

  • Q4'19
    • NI $677m y -55%
    • margins falling as amount customers pay falls in PBMs, even as WBA's costs also fell some
    • A MAJOR REASON IS it doesn’t own pharmacy-benefit managers who play an outsize role in drug pricing.

$70b LBO/PE takeover bid - Failed - too difficult to finance

$15b in debt already there - would have to be financed also
To get all the stock - PE firm would have to pay a premium on the current stock-market valuation
When debt cycle turns, would leave Walgreens vulnerable - as happened to over-leveraged Rite-Aide
  • Q3'19 PEacq but dropped *2014 merged with Alliance Boots – a Switzerland-based health and beauty multinational
  • Found 1901 - front end sales\

Key Facts

  • WBA is in the DOW! - but is it still dominant "AMERICA" - cvs stole the leadership/marketshare

Not Remodelled, Custsvc

?> Filthy stores, incompetent employees

High Priced - margins

Search their prescription prices - find higher than their competitors - for cash buyers? - MANY SAID

CVS x /Aetna $72

  • Closed $70b AET acq Nov'18
  • Revenue for CVS’ health-care benefits segment, which also includes CVS’ SilverScript business, topped expectations at $17.87 billion.

  • Retail health care? Unlikely - except for OPTIONAL procedures CVS is testing three stores in Houston called HealthHUBs that include a lab for blood testing and health screenings

  • Wellness rooms for yoga and seminars
  • Dietitians and respiratory specialists.
  • CVS will bring hundreds of SmileDirectClub shops to its stores, offering a cheaper way to straighten teeth

CVS Health crushes first-quarter expectations, raises full-year forecast - Adjusted earnings per share: $1.62 vs. $1.50 expected - Revenue: $61.65 billion vs. $60.39 billion expected

It says its newly acquired health insurance business boosted results and its pharmacies filled more expensive prescription drugs. CVS raises its 2019 earnings forecast to between $6.75 and $6.90 per share from $6.68 to $6.88 per share.

CVS Health as one of the largest pharmacies has now bought Aetna

x too much debt, no foot traffic

CVS’s acquisition of Aetna has created a new paradigm for consumer health. On Wednesday, the company rolled out its vision and projections for the combined company, and financial guidance for the next few years was a pleasant surprise. Benefits from merger synergies, infrastructure modernization and business transformation can be large. Demographics and economics are working in the company’s favor. Debt level is above management’s long-term target but will be rapidly paid down from free cash flow generation. The stock trades at less than 8x next year’s EPS and at a 3.7% dividend yield. c54 Matrix target – $85+.

SEG: PBM of CVS Caremark

It is also one of the biggest PBMs in the country.

Of course, CVS Health's legacy businesses remain very important to the company. The company's pharmacy services segment, which includes its CVS Caremark PBM and Silverscript Medicare Part D prescription drug plan business, generates more than half of total revenue.

SEG: Retail pharmacy

CVS Health's retail and long-term care (LTC) pharmacy business continue to be the company's second-biggest source of revenue.

30% $ SEG: Aetna Insurance

And thanks to the 2018 acquisition of Aetna, CVS Health is now one of the biggest health insurers. This acquisition created controversy as analysts and investors questioned the wisdom of the pharmacy giant expanding into health insurance. However, CVS Health felt the synergies and opportunities to "create a new front door to healthcare" made the Aetna acquisition a smart long-term growth strategy.

CVS Health is still in the process of fully integrating Aetna into its overall business. But Aetna already makes a big financial impact for the company, contributing nearly 30% of total revenue. Strong demand for its Medicare products continues to drive Aetna's revenue growth.

RAD


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