Shares of Walgreens ( WBA ) have fallen more than 50% this year as the company continues to grapple with retail headwinds and pivot to a brand new strategy for the drugstore chain.
CEO Tim Wentworth, who has been on the job for eight months, laid out an aggressive plan to revamp the company on its third-quarter earnings call Thursday.
The future Wentworth envisions is one in which pharmacies are local hubs for access to health care.
The healthcare ecosystem idealizes pharmacies – chain, independent and online – as a way to maintain patient health. They are also seen as expert consultants for minor health care needs, ranging from advice on over-the-counter products to help with the administration of specialty drugs on-site.
Wentworth wants to double down on this idea by investing in technology to help automate tasks for pharmacists in order to free them up for patient needs.
“I am confident that WBA will be a leader in the future of healthcare, with pharmacy and retail at its core,” said Wentworth.
However, this strategy has not worked in the past.
Difficult economy
The idea of your friendly neighborhood pharmacist is at odds with the economics of running a pharmacy and how they are paid by pharmacy benefit managers.
It’s the struggle pharmacies of all sizes face with ever-declining reimbursements from the three largest pharmacy benefit managers: CVS Caremark ( CVS ), UnitedHealth’s Optum Rx ( UNH ) and Cigna’s Express Scripts ( CI ), where Wentworth previously has served as CEO.
Wentworth said he is fighting “to align incentives and make sure we are paid fairly.”
Pharmacies have been struggling since before the pandemic. The impact of consumer trends on storefront sales (for beauty and food items), as well as pressure to pay fairly for prescriptions, has been the focus of earnings calls for years – and was a catalyst for both Walgreens and CVS’s health services strategy.
COVID provided a brief respite for pharmacies, with increased revenue from vaccines, testing and the need for over-the-counter medications.
Since then, that has dwindled, forcing pharmacies to reduce hours, close stores and reconsider how best to use storefronts to serve the evolving needs of patients.
Long-term view
One area in which Walgreens is ahead of the competition is clinical trials.
The company has converted clinic spaces into clinical trial spaces and successfully reached an agreement with Boehringer Ingelheim.
The US Food and Drug Administration (FDA) recently announced requirements for drug companies to diversify their pool of clinical trial participants, for which Walgreens is now well-prepared.
But that didn’t stop the sell-off on Thursday on news that the company would struggle in the short term. It led to the company’s worst day in nearly four decades, closing 22% lower on Thursday.
Most analysts believe the company is deploying a solid strategy, but it will require patience to execute, especially as a key source of revenue, PBMs, is becoming increasingly competitive.
JPMorgan’s Lisa Gill said in a note late Thursday that the process will take time.
“We continue to believe that in the longer term, WBA has growth potential. If there is a good line for this print, we believe the company is taking the necessary steps to stabilize its footprint and is working with PBM- and payers to manage reimbursement obstacles,” she wrote.
Bank of America’s Allen Lutz similarly noted: “It is imperative that Walgreens more aggressively challenge PBMs to capture a more reasonable return on equity.”
But, he added, “It is not entirely clear whether a more aggressive push by retail pharmacies would yield favorable results. However, the risk from continuing on the current path for WBA could be worse.”
Walgreens is the largest retail pharmacy chain, with nearly 10,000 locations. Competitor CVS has more than 9,000 and RiteAid — which is currently in bankruptcy even after Walgreens bought nearly 2,000 locations — has fewer than 2,000.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health politics and policy. Follow Anjalee on all social media platforms @AnjKhem.
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