To negate the impact of the initial contract loss with
Express Scripts Holding Company
) as well as to win back former Express Scripts clients and
stimulate customers' demand amidst a challenging macroeconomic
scenario, drug retailer
) has been taking a number of strategic steps. Following a gigantic
$6.7 billion merger with a global international pharmacy-led health
and beauty group, Alliance Boots, and the acquisition of a regional
drug pharmacy chain, this leading drug retailer recently formed a
new alliance with Cystic Fibrosis Foundation in order to penetrate
the specialty pharmacy market that holds high growth potential.
This new partnership deal will get Walgreen a significant
ownership stake in the parent company of Cystic Fibrosis Services,
Inc., 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. However, even after this deal is closed,
Cystic Fibrosis Services will continue to operate under its present
name through its existing location in Bethesda,
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 which reflects a huge
growth opportunity in the future market as well. Walgreen, with its
7,900 stores (including 180 hospital outpatient pharmacies), is
optimistic about offering its value added services to this patient
population who are members of the Cystic Fibrosis community.
The Express Scripts contract loss remained a major hitch for the
company since the beginning of 2012 as the contract had contributed
a significant part of its sales (12.6% of total prescriptions
filled in August 2011). 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
Rite Aid Corporation
CVS Caremark Corporation
As a result, Walgreen is currently concentrating on several
partnerships, acquisitions and strategic steps to drive growth.
In August this year, the company entered into a partnership
with Alliance Boots GmbH, in which it acquired a 45% stake for $6.7
billion. 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 its acquisition of a mid-South U.S.-based regional
drugstore chain from Stephen L. LaFrance Holdings Inc. for $438
million. 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
Currently, Walgreen retains a Zacks #3 Rank (short-term Hold
rating). We have a 'Neutral' recommendation on the stock over the
CVS CAREMARK CP (CVS): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
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