Walgreens-CVS Extend Pharmacy Deal

Zacks

In the most recent strategic maneuver to boost its pharmacy network, Walgreens (WAG), the largest retail pharmacy chain in the U.S., extended its agreement as a network pharmacy provider in the CVS Caremark (CVS) pharmacy benefit management (PBM) retail network. The deal appears to be an attractive play to gain more clout in a tough competitive environment.

The deal should improve customer traffic at Walgreens stores which failed to improve in recent months. It should also improve volumes at the company’s comparable stores on the back of demographic tailwinds.

While the financial details and terms of the agreement remain undisclosed, the extended multi-year agreement is well aligned with Walgreens’ objectives. The company’s multi-year agreement will support cost-effective pricing and fair reimbursement for services and value for patients and payers.

Apart from CVS Caremark, Walgreens also has a multi-year agreement with the largest PBM in the U.S. Express Scripts (ESRX). After few months of fallout in 2012, Walgreens and Express Scripts announced a new multi-year agreement, effective Sep 15, 2013. Walgreens suffered a prolonged period of lean sales during the impasse, reflecting the importance of its inclusion in the pharmacy provider network of Express Scripts.

There has been a lot of commotion surrounding the stock as Walgreens has been on a deal-making spree of late. In March, the company inked a long-term deal with AmerisourceBergen Corp. (ABC), effective Sep 1, 2013, in order to improve its global pharmaceutical supply chain for branded as well as generic drugs. AmerisourceBergen will replace Walgreens’ current pharmaceutical distributor Cardinal Health as the existing contract is set to expire in Aug 2013.

Last year, Walgreens resolved its seven-month impasse with Express Scripts and extended its global reach with a strategic deal with Alliance Boots.

Evidently, Walgreens is leaving no stone unturned to post relatively strong sales. We believe that the deal should lend some positive momentum to the stock, which carries a Zacks Rank #3 (Hold).

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