Walgreens Boots Alliance Inc. (NASDAQ:WBA) is charting a bold new course as it grapples with a more than 50% drop in stock value this year. The pharmacy giant is facing substantial retail headwinds while pivoting to a fresh strategy outlined by CEO Tim Wentworth, who has been in charge for eight months.
New Vision for Walgreens
During the third-quarter earnings call on Thursday, Wentworth presented an ambitious plan to transform Walgreens into a central hub for healthcare access. This vision involves leveraging pharmacies—both chains and independents—as pivotal points for maintaining patient health and offering expert advice on minor healthcare needs, including administering specialty drugs.
Wentworth emphasized the need to invest in technology to automate pharmacists’ tasks, freeing them up to focus more on patient care. “I am confident WBA will be a leader in the future of healthcare, with pharmacy and retail at its center,” he stated.
Economic Challenges
Despite this optimistic outlook, the economics of running a pharmacy are challenging. Pharmacies of all sizes face decreasing reimbursements from the three largest pharmacy benefit managers: CVS Caremark , UnitedHealth’s Optum Rx, and Cigna’s Express Scripts, where Wentworth previously served as CEO. Wentworth is fighting “to align incentives and ensure we are paid fairly.”
The struggle for fair reimbursement has been a long-standing issue, exacerbated by evolving consumer trends and pressures on front-of-store sales. The brief surge in revenues from COVID-19-related services like vaccines and testing has tapered off, leading to reduced business hours, store closures, and rethinking storefront utilization to meet patient needs.
Long-Term Strategy and Clinical Trials
One area where Walgreens is ahead is in clinical trials. The company has been converting walk-in clinic spaces into clinical trial sites and has secured a deal with Boehringer Ingelheim. This positions Walgreens well in light of the FDA’s recent mandate for drug companies to diversify clinical trial participants.
Despite this progress, news of short-term struggles caused a significant sell-off, resulting in Walgreens’ worst trading day in nearly four decades, closing 22% lower on Thursday.
Analyst Perspectives
Most analysts agree that while Walgreens’ strategy is sound, it will take time to implement. JPMorgan’s Lisa Gill noted, “We continue to believe that in the longer-term, WBA has the potential for growth. If there is a silver lining to this print, we believe that the company is making
the necessary steps to stabilize its footprint and working with PBMs and payors to manage reimbursement headwinds.”
Bank of America’s Allen Lutz echoed this sentiment, emphasizing the need for Walgreens to push back more assertively against PBMs to achieve a reasonable return on capital. “It is imperative that Walgreens pushes back more assertively against PBMs to capture a more reasonable return on capital,” he wrote. However, he cautioned that the outcome of such efforts is uncertain, and the risks of continuing down the current path may be worse.
Competitive Landscape
Walgreens remains the largest retail pharmacy chain with nearly 10,000 locations, followed by competitor CVS with more than 9,000 locations. RiteAid, currently in bankruptcy despite Walgreens acquiring nearly 2,000 of its locations, has less than 2,000 stores.
Walgreens’ new strategy aims to revitalize the company and restore investor confidence. As the company navigates these challenging times, its focus on technology, healthcare access, and clinical trials positions it for potential long-term growth, albeit requiring patience and strategic execution.
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