Walgreens to Sell Its Pharma Business

Walgreens Boots Alliance has agreed to sell its healthcare distribution arm of the business to AmerisourceBergen Corp for an estimated $6.5 billion. Once Walgreens successfully offloads its pharmaceutical wholesale business to AmerisourceBergen Corp, which is one of the world’s biggest pharmaceutical wholesalers, it will then be able to concentrate its efforts on growing the retail vertical, which is after all the core of the business.

As you are probably already aware, Walgreens is one of the world’s biggest and most recognizable names in pharmacies with more than 9,000 drugstores worldwide. But people simply aren’t shopping the way they used to especially mid-pandemic. Walgreens was already under immense pressure before the pandemic struck but now, like many brick and mortar retail offerings, it’s struggling to stay afloat.

It is now much easier and more acceptable to shop for drugstore staples like makeup and vitamins online and usually, for much less. The increased competition from other online retailers namely Amazon hasn’t helped things much.

Plus, insurers are also dealing with their own struggles, thus undercutting pharmacies and paying them less to fill prescriptions. As a result, Walgreens was already being forced to slash costs, the pandemic just helped to put a rush on things.

The plan is for Walgreens to cut more than $1.8 billion in costs by 2022. It’s already closed more than 400 stores in both the United States and the UK. Amid all the problems that are surrounding the brick and mortar sector, Walgreens’ competitors have opted to partner and consolidate in a bid to weather this financial storm.

For instance, in 2019, CVS Health merged forces with Aetna in a deal worth $69 billion. Walgreens had been considering a deal to purchase AmerisourceBergen but the exploration ended without a partnership. In 2015, Walgreens had also attempted to acquire Rite Aid.

This new business between Amerisource and Walgreens doesn’t come as a surprise to many though because the two organizations have been working collaboratively since 2013. Walgreens has a lot more to gain from this sale as the coronavirus pandemic has impacted retail business heavily, thus causing Walgreens’ shares to plummet more than 28% in 2020. AmerisourceBergen’s shares, on the other hand, have remained flat year-to-date.

How online pharmacies are disrupting traditional retailers like Walgreens

Online retail giant Amazon recently launched an online delivery service offering massive discounts for prescription medicine across the country. This makes pharmacies the newest sector to be disrupted by the ever-growing retail giant.

Amazon Pharmacy’s benefits and draws cannot be denied. For instance, the pharmacy offers buyers buying online or their brick and mortar pharmacies discounts of up to 80% on generic drugs for any Prime subscribers that are making purchases sans insurance.  This has effectively almost running retailers such as CVS and Walgreens out of business.

Amazon Pharmacy also offers buyers discounts of up to 40% on branded medicines. Amazon wasn’t always in the pharmaceuticals game. It joined the industry in 2018 when it acquired PillPack, a mail-order pharmacy service that would deliver medicine to its customers by post, for $1bn.

Online pharmacies have been extremely disruptive and will continue to do so as technology continues to advance at alarming speeds.  But it made sense for Amazon to join the industry. The rate at which people consume pharmaceuticals and the small packages that the drugs come in was a natural fit for Amazon’s already successful logistics process. 

Because online pharmacies such as Amazon are now preferred by shoppers, shares in competitors have plummeted as a result. Walgreens Boots Alliance, CVS Health (currently the largest pharmacy operator in the country), Rite Aid, and GoodRx, have all suffered. 

To try and fit in, many of these traditional sellers are also digitizing their operations. Case in point, CVS Health has seen its revenue growth year over year ever since it acquired Soma.com and integrated its online and retail pharmacy lines, thus demonstrating the growing demand for online pharmacies.

Even though online pharmacies certainly have their benefits, there are still challenges that must be overcome. For instance, experts are wary of regulatory compliance, especially in regards to how drugs are stored and dispatched. Online pharmacies are also restricted from delivering Schedule 2 medication, which covers numerous opioids.

Shoppers that need prescriptions filled regularly are also more likely to be loyal to their local pharmacists. Not just due to the sensitive nature of the drugs that they may use but also because regular drug users tend to be older, making them less likely to experiment with online purchases.

Further regulation is also needed in the long run as brick and mortar pharmacies look to maintain their stronghold in the industry. Not only will a more regulated eco-system benefit the e-pharmacies themselves, but it will also do a world of good for consumers who demand quality above all else.

Nonetheless, while the online market in the country may still be at its advent, the global online pharmacy market keeps growing. It estimated that by 2025, market size is likely to gross revenues of over $131 billion. The online pharmacy market is growing at unprecedented rates in both developed and developing economies.

Increased internet usage and awareness of online over the counter services have all helped to boost the growth potential. The need and demand for self-care will also see the role of pharmacies change over the next few years. 

Final thoughts

It’s no surprise that the e-pharmacy market is quickly taking over traditional services. As more and more people have access to technology, the trend will likely continue. The digitalization of the healthcare sector that’s been taking place for some time now will also ensure that online pharmacies keep growing.

Online pharmacies are a huge draw and it is easy to see why. They make the purchasing process straightforward and more convenient compared to physical pharmacies. Because of these benefits, more private companies are taking steps to invest in online pharmacies which should further propel the growth of this new sector. If traditional pharmacies want to survive in the competitive digital space, they must adapt or they will find themselves out of business.