Reports indicate that the biggest retail pharmacies in the United States which include Walgreens Boots Alliance Inc (NASDAQ:WBA) and Wal-Mart Stores Inc (NYSE:WMT) are increasingly exercising more leverage when it comes to purchasing products from generic drug makers. This has resulted in a fall in drug prices, a fact which is likely to have long-term effects on drug firms.
The pressure on drug manufacturers is being made worse by the efforts of regulators in the United States to speed up the approval of generic drugs. Some wholesale drug distributors and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), one of the world’s leading generics manufacturer, have issued warnings to the effect that prices could fall by up to 9% until the close of the year.
Sharp fall
This resulted in the stock prices of drug distributors and generic drug makers getting hammered. Part of the reason the big retail pharmacies are enjoying increased leverage is that they have formed partnerships. In 2013 for instance Walgreens together with AmerisourceBergen entered into a drug-buying partnership.
Earlier in the year Walgreens also entered into a partnership with Express Scripts Holdings, a pharmacy benefit manager. CVS Health Corp (NYSE:CVS) also entered into a partnership with Cardinal Health as did Walmart when it joined arms with McKesson Corp. These partnerships have increased the power of retailers when it comes to negotiations.
“There’s no question those guys are getting much better pricing and really squeezing the manufacturers on margins. It’s going to be a tough space for some time … they are just going to keep playing the manufacturers off against each other,” said Jeff Jonas, a portfolio manager at Gabelli & Co.
‘Pharmacy benefits manager list
In another sector development, CVS health has announced that it would be keeping the key drugs of Novo Nordisk, the leading insulin maker in the world, on its next year’s list. This follows a period of uncertainty for Novo Nordisk since being on the list of a pharmacy benefits manager is critical to revenues considering that PBMs account for about 80% of the drug sales in the United States.
On Tuesday shares of Walgreens Boots Alliance Inc edged up by 0.02% to close the day at $81.05.
