Walgreen co.
(
WAG
) has been taking strategic steps to negate the impact of the
initial contract loss with
Express Scripts Holding Company
(
ESRX
). Additionally, the company has been striving to win back the
former Express Scripts clients and stimulate customers' demand
amid a challenging macroeconomic scenario. As part of this
effort, it has entered into a gigantic $6.7 billion potential
merger with a global international pharmacy-led health and beauty
group, Alliance Boots, and had also acquired a regional drug
pharmacy chain. Following this, Walgreen recently formed a new
alliance with Cystic Fibrosis Services Inc. in order to penetrate
the highly potent specialty pharmacy market.
This partnership, which was initiated in October and completed
recently, gave Walgreen a significant ownership stake in Cystic
Fibrosis Foundation Pharmacy LLC, the parent company of Cystic
Fibrosis Services. It is a specialty pharmacy providing
medications and treatment for cystic fibrosis, a severe genetic
disease. This disease causes acute lung infections and premature
death.
Financial terms of the deal were not disclosed. The
transaction makes the companies joint owners of two businesses:
CF Services, a specialty pharmacy for cystic fibrosis patients
and Pharma Dynamics Inc., a provider of new product launch
support and call center services for drug manufacturers. CF
Services will continue to operate under its present name at its
existing location in Bethesda,
Maryland
.
Cystic fibrosis is currently spreading at an alarming rate.
According to recent data, 30,000 adults and children in the U.S.
and 70,000 people globally are suffering from this killer
disease. Further, data shows that 10 million people in the U.S.
(one in 30) carry the defective cystic fibrosis gene. This
reflects huge growth opportunity in the future market as well.
Walgreen, with its 7,900 stores (including 180 hospital
outpatient pharmacies), is optimistic that it would be able to
offer value added services to the patients of this Cystic
Fibrosis community.
The year 2012 has been challenging for Walgreen as it
experienced lower sales owing to the loss of contract with
Express Scripts, high unemployment levels and lower discretionary
spending. Although, in July, Walgreen and Express Scripts entered
into a new multi-year pharmacy network agreement, Walgreen's
ability to win-back its previous customers remains a concern. The
company operates in a fiercely competitive market with players
like
Rite Aid Corporation
(
RAD
) and
CVS Caremark Corporation
(
CVS
).
As a result, Walgreen is currently concentrating on several
partnerships, acquisitions and strategic steps to drive
growth.Significant among these is a 45% stake in Alliance Boots
to become the world's first pharmacy driven health and wellbeing
retail.The company also has the option to attain 100% ownership
over the next three years for an approximate value of $9.5
billion in cash and stock.
In September 2012, Walgreen launched a complete customer
loyalty program, 'Balance Rewards', which claims to be the
largest consumer loyalty program in the U.S. In the same month,
the company completed the acquisition of a mid-South U.S.-based
regional drugstore chain from Stephen L. LaFrance Holdings Inc.
We expect these new ventures to boost growth going forward.
Nevertheless, it remains to be seen if these measures can
neutralize the headwinds related to the Express Scripts
contract.
Currently, Walgreen retains a Zacks #3 Rank (short-term Hold
rating). We have a 'Neutral' recommendation on the stock over the
long term.
CVS CAREMARK CP (CVS): Free Stock Analysis
Report
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
Report
RITE AID CORP (RAD): Free Stock Analysis
Report
WALGREEN CO (WAG): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research