Walgreen Co.
(
TRV
) 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 huge $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, Walgreens 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 Walgreens 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.
According to recent data, 30,000 adults and children in the U.S.
and 70,000 people globally are suffering from cystic fibrosis.
Data shows that 10 million people in the U.S. (one in 30) carry
the defective cystic fibrosis gene. This reflects a huge growth
opportunity in the future market as well. Walgreens, with its
7,900 stores (including 180 hospital outpatient pharmacies), is
optimistic that it will be able to offer value added services to
the patients of this Cystic Fibrosis community.
The year 2012 has been challenging for Walgreens as it
experienced lower sales owing to the loss of its contract with
Express Scripts, high unemployment levels and lower discretionary
spending. Although in July Walgreens 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, Walgreens 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, Walgreens 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.
(We are reissuing this article to correct a mistake. The
original article, issued Monday, Dec 10, 2012 is no longer to be
relied upon.)
CVS CAREMARK CP (CVS): Free Stock Analysis
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EXPRESS SCRIPTS (ESRX): Free Stock Analysis
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RITE AID CORP (RAD): Free Stock Analysis
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WALGREEN CO (WAG): Free Stock Analysis Report
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