Shares of beleaguered drug retailer and pharmacy chain Walgreens Boots Alliance (NASDAQ: WBA) fell 8.4% on Tuesday as of three:22 p.m. ET.

The explanation for the drop at this time seems to be twofold: One, Pfizer unveiled its personal direct-to-consumer telehealth and e-commerce platform. Two, Eli Lilly introduced it might be reducing costs for its GLP-1 drug Zepbound by 50% for sure doses, when ordered instantly from the drugmaker’s LillyDirect e-commerce platform.

Whereas it is laborious to understand how significant the impression on Walgreens shall be, buyers appeared to promote Walgreens inventory on the direct-to-consumer information earlier than asking too many questions.

Pfizer and Lilly medicine direct to you

On Tuesday, drug big Pfizer launched Pfizerforall, a direct-to-consumer and telehealth program geared toward streamlining the method for sufferers to get care. The platform seeks to assist sufferers get remedy for frequent sicknesses like migraine complications, COVID-19, or the flu. On condition that many individuals’s healthcare methods are overcrowded and plenty of sufferers cannot simply get same-day care, this platform is aiming to streamline the method.

Of notice, rival drugmaker Eli Lilly launched an identical platform again in January. Lilly additionally has a direct-to-consumer pharmacy referred to as Lilly Direct, the place it additionally introduced at this time that it will likely be promoting its GLP-1 weight-loss drug Zepbound for 50% off when ordered instantly from Lilly.

The query for Walgreens buyers is, how a lot do these bulletins actually have an effect on the corporate’s outlook?

When wanting on the particular improvements Pfizerforall hopes to offer, they embrace:

1. Similar-day or linking with native suppliers locally

2. Residence supply of prescriptions and checks

3. Appointment scheduling for vaccinations

4. Co-pays and reductions on Pfizer medicine

This will not be all unhealthy information for Walgreens. Pfizer may match up sufferers with native suppliers akin to Summit Well being, which Walgreens owns. Walgreens was additionally truly named as a accomplice of Pfizerforall for reserving vaccines, which Walgreens administers at its retail pharmacies.

However the negatives seem to outweigh any positives. Direct telehealth periods could be a detriment to Summit Well being’s visitors. However most significantly, the direct supply of medication and checks could harm Walgreens’ retail pharmacy, which accounted for three-quarters of gross sales, with drug prescriptions making up a big portion of that.

Lengthy-term headwinds rear their head once more

Although Walgreens is known as as potential accomplice to Pfizerdirect, it seems the prospect of dropping extra drug gross sales to the direct-to-consumer platforms of main drug producers is overriding any positives.

Pharmacy drug gross sales accounted for about 56% of Walgreens’ income final quarter, and pharmacy profit managers had been already squeezing these present drug gross sales’ margins for the retail pharmacy. However now with extra customers probably getting regular-use medicine instantly through e-commerce, that not solely has a detrimental impact on pharmacy gross sales, however lowers visitors usually, limiting retail gross sales of different merchandise at Walgreens’ areas.

Walgreens is encountering the identical sort of disruption bodily retailers did with the start of retail e-commerce. Whereas it has a brand new CEO that comes from the pharmacy profit supervisor world and would seemingly understand how finest to show the pharmacy margin downside round, the continuing e-commerce and direct-to-consumer risk seems to be a long-term headwind to Walgreens’ development.

That makes Walgreens a possible . As Warren Buffett as soon as stated, “When a administration with a status for brilliance tackles a enterprise with a status for unhealthy economics, it’s the status of the enterprise that continues to be intact.”

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