Shares of beleaguered drug store and pharmacy chain Walgreens Boots Alliance(NASDAQ: WBA) fell 8.4% on Tuesday as of 3:22 p.m. ET.
The reason for the drop today appears to be twofold: One, Pfizer unveiled its own direct-to-consumer telehealth and e-commerce platform. Two, Eli Lilly announced it would be cutting prices for its GLP-1 drug Zepbound by 50% for certain doses, when ordered directly from the drugmaker's LillyDirect e-commerce platform.
While it's hard to know how meaningful the impact on Walgreens will be, investors appeared to sell Walgreens stock on the direct-to-consumer news before asking too many questions.
Pfizer and Lilly drugs direct to you
On Tuesday, drug giant Pfizer launched Pfizerforall, a direct-to-consumer and telehealth program aimed at streamlining the process for patients to get care. The platform seeks to help patients get treatment for common illnesses like migraine headaches, COVID-19, or the flu. Given that many people's healthcare systems are overcrowded and many patients can't easily get same-day care, this platform is aiming to streamline the process.
Of note, rival drugmaker Eli Lilly launched a similar platform back in January. Lilly also has a direct-to-consumer pharmacy called Lilly Direct, where it also announced today that it will be selling its GLP-1 weight-loss drug Zepbound for 50% off when ordered directly from Lilly.
The question for Walgreens investors is, how much do these announcements really affect the company's outlook?
When looking at the specific innovations Pfizerforall hopes to provide, they include:
- Same-day telehealth appointments or linking with local providers in the community
- Home delivery of prescriptions and tests
- Appointment scheduling for vaccinations
- Co-pays and discounts on Pfizer drugs
This may not be all bad news for Walgreens. Pfizer could match up patients with local providers such as Summit Health, which Walgreens owns. Walgreens was also actually named as a partner of Pfizerforall for booking vaccines, which Walgreens administers at its retail pharmacies.
But the negatives appear to outweigh any positives. Direct telehealth sessions would be a detriment to Summit Health's traffic. But most importantly, the direct delivery of drugs and tests may hurt Walgreens' retail pharmacy, which accounted for three-quarters of sales, with drug prescriptions making up a large portion of that.
Long-term headwinds rear their head again
Even though Walgreens is named as potential partner to Pfizerdirect, it appears the prospect of losing more drug sales to the direct-to-consumer platforms of major drug manufacturers is overriding any positives.
Pharmacy drug sales accounted for about 56% of Walgreens' revenue last quarter, and pharmacy benefit managers were already squeezing those existing drug sales' margins for the retail pharmacy. But now with more consumers potentially getting regular-use drugs directly via e-commerce, that not only has a detrimental effect on pharmacy sales, but lowers traffic generally, limiting retail sales of other products at Walgreens' locations.
Walgreens is encountering the same type of disruption physical retailers did with the birth of retail e-commerce. While it has a new CEO that comes from the pharmacy benefit manager world and would seemingly know how best to turn the pharmacy margin problem around, the ongoing e-commerce and direct-to-consumer threat appears to be a long-term headwind to Walgreens' growth.
That makes Walgreens a potential value trap. As Warren Buffett once said, "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
