Tuesday, March 19, 2013

BREAKING NEWS: Walgreens and ABC Sign a Big Deal

3/21/13 UPDATE: For more detailed analysis, please see Making Sense of ABC-Walgreens-Alliance Boots

Remember all of those rumors and noise about Walgreens bypassing wholesalers and buying directly?

Never mind.

This morning, Walgreens (NYSE: WAG) announced a surprise 10-year supply deal with AmerisourceBergen (NYSE: ABC).

And in a move that should make everyone nervous: “Walgreens and Alliance Boots together have been granted rights to purchase an equity position in AmerisourceBergen.”

Highlights below. I’ll follow-up later this week as details become known.

Channel consolidation, thy name is Walgreens!

Here are the press releases:
Highlights:
  • ABC will now be Walgreen’s primary pharmaceutical supplier, with a 10-year agreement that starts on September 1, 2013. (Bye-bye, direct purchasing initiative. Guess it was easier to buy agreements than negotiate them.)
  • Total revenues for ABC will be $28 billion, because the deal includes the distribution of brand, generic, and specialty pharmaceuticals to Walgreen's retail stores, mail order and specialty pharmacies. (Translation: Cardinal is out completely.)
  • Beginning in calendar year 2014, AmerisourceBergen will "increasingly assume the distribution of the generic products that Walgreens has historically self-distributed." (Wow!)
  • ABC has "access to generic drugs and related pharmaceutical products through the Walgreens Boots Alliance Development joint venture." (So, ABC gets to share/contribute to the purchasing synergies? Bad time to be a generic drug manufacturer!)
  • Over time, Walgreens and Alliance Boots will have the opportunity to add two directors to ABC's board. (Yikes!)
Intriguingly, Walgreens and Alliance Boots will take an equity stake in ABC. Per the press release:
Walgreens and Alliance Boots together have been granted the right to purchase a minority equity position in AmerisourceBergen, beginning with the right to purchase up to 7 percent of the fully diluted equity of AmerisourceBergen in the open market. In addition, AmerisourceBergen has granted to Walgreens and Alliance Boots equity warrants exercisable for 16 percent in the aggregate of the fully diluted equity of AmerisourceBergen.
And from the department of Supply Chain Irony (SCI): By owning a chunk of ABC, Walgreens will now be heavily invested in the primary brand-name wholesale supplier to Express Scripts, Walgreen's least favorite PBM! Quite a tangled web for anyone trying to make sense of the drug channel.

6 comments:

  1. Holy S*****! I thought this might be an April Fools article, but am scared that it's not!!!

    ReplyDelete
  2. If you are an independent pharmacy, and supporting ABC as your primary wholesaler, now you are supporting WAG with your purchases.

    \
    Seriously,, if your are supporting one of the Big 3 wholesalers
    (even though your buying group) now is the time to switch to an
    independent/regional wholesaler.

    When the Big 3 are all that's
    left, and they are in partnership with a chain or PBM what kind of deal
    do you think you will be getting??

    Support the smaller
    wholesalers before it's too late!!!! (Even if it means you might pay a
    penny or two more now, it's better than a paying a few bucks more
    later).

    ReplyDelete
  3. The big three wholesalers are so vertically and horizontally integrated that at some level and at some time or another we will all be buying and competing simultaneously.

    ReplyDelete
  4. With the pending regulatory requirements from Calif in particular, the equipment and IT required to comply, and the constant diversion and counterfeit products entering the supply chain, it is going to become more costly and require more overhead to compete in this space.

    ReplyDelete
  5. Adam,
    From your perspective, do you understand Walgreens is essentially buying Amerisource Bergen out over the next 10 years or at a minimum "assuming control"? I'm certainly interested in hearing your insights as well as more comments from Buying Groups and Independent Pharmacies on this event, especially those with Amerisource Bergen .

    ReplyDelete
  6. Yes. Tune in tomorrow for my comments on independents and ABC's future.

    ReplyDelete

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