September 24, 2006

Wal-Mart and Pharmaceuticals

This will be interesting to see. Wal-Mart's pharmacies are doing a test run in Florida selling 291 specific Generic Drugs in their pharmacies for a flat $4.00 per month of medication. This is having a bit of a ripple through some businesses. From BusinessWeek Online:
Wal-Mart's Generics Hit Pharma Stocks
When Wal-Mart Stores disclosed on Sept. 21 that it will make 291 generic drugs available for only $4 per prescription, the news slammed many pharmacy retailers and generic drug stocks. The announcement also was one more step in the company's carefully orchestrated campaign to improve its image.

The Bentonville, Ark., retailer test program starts Sept. 22 at the 65 Wal-Mart, Neighborhood Market, and Sam's Club pharmacies in the Tampa Bay, Fla., area, and will be expanded to the entire state in January, 2007. The company added that it plans to take the program to as many states as possible next year. "Each day in our pharmacies we see customers struggle with the cost of prescription drugs," said Wal-Mart CEO H. Lee Scott, Jr., in a press release.

Wal-Mart says the genericsócovering every major therapeutic category used to treat and manage conditions including allergies, cholesterol, high blood pressure, and diabetesówill be sold at different savings and are available for up to 30 days worth of supply. The popular diabetes drug Metformin, for example, at $4 for a 30-day supply, represents a nearly 50% savings from the cost of the brand-name version of the drug, Wal-Mart says. Getting the generic, Lisinopril, at that price saves customers nearly $100 annually.

Wal-Mart's national rollout of the plan would clearly put pricing pressure on rival pharmacy retailers, including big drugstore chains Walgreen. and CVS. Smaller chains such as Rite Aid and Longs Drugstores would likely be hurt more because they don't have as large of a buying clout with drug manufacturers. Discount rival Target and warehouse club Costco, which also sell pharmaceuticals, could also feel some pain.

On Sept. 21, CVS shares tumbled 8.4%, to $32.47, on the news. Walgreen's shares fell 7.4%, to $46.28. Rite Aid was off 5%, to $4.52. And Longs lost 4.3%, to $46.01. Costco's shares fell 3.1%, to $50.26, and Target was down 1.2%, to $54.39. Wal-Mart's stock, meanwhile, fell less than 1%, to $48.46.
And of course, the price war is just starting. From the Sarasota Herald Tribune:
Target to follow Wal-Mart's lead with $4 prescriptions
Wal-Mart's move to slash prices on generic drugs to a flat $4 has triggered a competitive battle that is looking like a boon for Florida consumers, many of whom are older people who take multiple prescriptions on a permanent basis.

Quickest on the draw after Wal-Mart's bombshell was Target Inc., which announced early Friday that it would match Wal-Mart's dramatic price cuts at all its pharmacies in the Tampa Bay area, including Sarasota and Manatee counties.

That is the precise battleground that Wal-Mart established this week for its rollout.
And they are making money at $4.00 -- makes me wonder what their actual cost is and how much of a markup these drugs have... Posted by DaveH at September 24, 2006 8:33 PM | TrackBack
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