Does anyone still believe that Wal-Mart will not shake up the pharmacy industry?
Wal Mart Stores Inc (WMT) just expanded its $4 generic program to 38 states and more than 3,000 pharmacies. See Wal-Mart Adds 11 More States To $4 Prescription-Drug Plan. Check out Bob Nease’s succinct overview of Wal-Mart’s updated list at Libratto.
Most interesting is the fact that Wal-Mart added pravastatin (generic Pravachol), a $2.3 billion blockbuster for Bristol-Myers Squibb Co (BMY) in 2005. Sounds like The Empire Strikes Back scenario in which I predicted that the list would be broadened to include blockbuster generics. In an online poll, that scenario got 56% of the votes vs. 44% for Much Ado About Nothing. (I stopped the voting after two weeks, so last week’s news did not affect the results.)
According to Wal-Mart’s press release: “To date, as new states have been added to the program, 2.1 million more new prescriptions have been filled in those states as compared to the same time periods last year.” If true, then Wal-Mart is increasing its average number of scripts per pharmacy by about 20% per store. I suspect that incremental costs for this additional volume are relatively low at Wal-Mart, making the program a financial win.
So far, no one has any real data on which chain or format is being affected by Wal-Mart. Most obviously, cash pay customers will switch first. Chains appear less vulnerable because customers with third-party insurance may not save very much versus standard co-pays.
However, chains are now in the awkward position of telling customer to ignore price, an argument that seems curiously at odds with the trend toward consumer-driven health care decision making. Walgreens (NYSE WAG) took the bait and issued a bizarre press release telling customers to focus on “convenient locations, close-in parking and unique pharmacy services.” Ouch. How long until CVS Corp (CVS) or Walgreens cave in and lower their generics margins? PBMs also risk a margin squeeze if payers question their generic dispensing profits versus Wal-Mart.
Bottom line: I stick by my prediction made when the plan was first announced in September: Wal-Mart's Generic Pricing Will Trigger Big Changes. My two criteria for the magnitude of the near-term impact were (a) how well Wal-Mart rolls out the program, and (b) how quickly (if ever) they include more mainstream generic products. (See Reconsidering Wal-Mart -- but just a little.) The national roll-out has been very fast. I predict generic Zoloft and Zocor are not far behind.