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Walgreens (WBA) new CEO, Tim Wentworth, has multiple challenges ahead to generate profitability as the company transitions into providing healthcare beyond just the in-store pharmacy. The company is under pressure due to its recent majority stake in VillageMD as well as decreasing demand for Covid tests and vaccines. Jefferies Healthcare Services Analyst Brian Tanquilut joins Yahoo Finance to discuss the challenges Wentworth has ahead of him as well as the future of the company.
Tanquilut states Wentworth "will have to look at putting all these assets that they bought over the last few years that are healthcare-related, and coming up with a good synergistic offering that actually generates profitability."
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Video Transcript
- Brian, what do you think the top priority should be or needs to be for Tim Wentworth when he takes the helm?
BRIAN TANQUILUT: I think the thing that's changing with Walgreens is that they're making a big push into health care. So, I think, Tim, being the health executive that he is, very seasoned, will have to look at putting all these assets that they've bought over the last few years that are health care related, and coming up with a good synergistic offering that actually generates profitability. So, for example, VillageMD and CityMD, which they bought last year, as a business, has been losing a lot of money.
So, I think that turning that segment around is important. But also, I think having a solid health strategy going forward is important for Walgreens to be viable as a company. When you look at CVS with their Aetna business and their PBM, I think Walgreens feels the need to have a similar health care focused strategy.
And I think Tim will have his hands full trying to put all these things together.
- When you think about the different kind of services that those pharmacies within Walgreens provide, and for where Walgreens and CVS and some of the other largest PBM players have been able to maintain market share, it's a, kind of, market share guarantee when you're the company that's working with some of these larger entities that have the IP, that have the patents. But some of those patents are starting to roll off. So, how does a patent roll off also impact a company like a Walgreens?
BRIAN TANQUILUT: That's a good question, Brad. So, as we think about the drug world, right? I mean, today, roughly 90% of all prescriptions filled are generic already.
Now, the remaining 10%, though, a lot of those are biologics or what we call specialty drugs, and they still represent about 50% of overall drug spend. And I think that's one area where Walgreens does not have a good presence or a significant of a presence, as say, UnitedHealth and Optum or CVS with their Caremark specialty pharmacy business. So I think it's an area where we're seeing a lot of growth that Walgreens needs to have a footprint in at some point.
But also, like, to your question about the PBM, I think some of the challenges we've seen over the last few years is that the PBMs have been putting pressure on pricing for these retail pharmacies where the view has become that retail pharmacy is a commodity at this point, right? So, I think having the health assets behind them and having some of the clinics inside the pharmacy locations will give Walgreens hopefully some leverage to push back down the road against some of these gross margin and pricing pressures from the PBMs.