Walgreens Struggles Amid Growing Challenges in the Pharmacy Sector
Walgreens is facing significant financial setbacks, with its stock plummeting by over 80% in the past five years, making it one of the worst-performing companies in that period. In response to its ongoing troubles, the pharmacy giant is closing 1,200 stores, or about 15% of its total locations, and is reportedly in talks with private equity firm Sycamore Partners to explore the possibility of taking the company private.
The struggles of Walgreens stem from several factors. Unlike its rival CVS, which has diversified into health services, Walgreens remains primarily focused on its traditional pharmacy business. This has left the company at a disadvantage, particularly in negotiations with insurers and other healthcare entities, which control the reimbursements for most prescriptions. Additionally, the decline in profits from its pharmacy business has been exacerbated by reduced reimbursement rates from pharmacy benefit managers (PBMs), who negotiate rebates from drug manufacturers to insurers.
Walgreens’ retail business, which includes sales of snacks and household products, has also seen a downturn. As more shoppers turn to online giants like Amazon and large retailers such as Walmart and Costco, Walgreens’ in-store sales of these products have become less profitable. In fact, while Walgreens generates 26% of its sales from its front-end business, CVS is more diversified, with a higher percentage of sales coming from its health services, offsetting the struggles of its pharmacy and retail operations.
Despite these issues, CVS has managed to weather similar challenges by expanding into the more lucrative health insurance sector. Following its acquisition of insurer Aetna and the creation of its own PBM, Caremark, CVS has been able to mitigate some of the pressure on its pharmacy and retail businesses. However, even CVS has had to make difficult decisions, such as closing over 1,000 stores in recent years and replacing its CEO earlier this year.
The broader pharmacy industry is facing a nationwide problem of closures, which experts warn could have serious consequences for public health. A recent study in the journal Health Affairs found that nearly one in three pharmacies across the U.S. closed between 2010 and 2021, with closures particularly prevalent in predominantly Black and Latino communities. Independent pharmacies, often excluded from PBM networks, were more than twice as likely to shut down compared to chain stores.
Experts, including UC Berkeley School of Public Health’s Jenny Guadamuz, warn that these closures could exacerbate health disparities, particularly in access to essential pharmacy services like vaccinations and medications for chronic conditions.
