Why Walgreens Boots Alliance Sinks Today

Actions of the beleaguered pharmacy and pharmacy chain Walgreens Boots Alliance (WBA -8.96%) was down 8.4% on Tuesday as of 3:22 PM ET.

The reason for the decline today appears to be twofold: one, Pfizer unveiled its own direct-to-consumer telehealth and e-commerce platform. Two, Eli Lilly announced that it will cut 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 significant 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 straight to you

On Tuesday, drug giant Pfizer launched Pfizerforall, a direct-to-consumer telehealth program aimed at simplifying patient care. The platform seeks to help patients obtain treatment for common ailments such as migraines, COVID-19 or the flu. With many people’s healthcare systems overcrowded and many patients unable to easily receive same-day care, this platform aims to simplify the process.

Of note, rival drugmaker Eli Lilly launched a similar platform in January. Lilly also has a consumer pharmacy called Lilly Direct, where it also announced today that it will sell its GLP-1 weight loss drug Zepbound at a 50% discount 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 that Pfizerforall hopes to deliver, they include:

1. Same-day telehealth appointments or connections to local providers in the community
2. Home delivery of prescriptions and analyses
3. Scheduling scheduling for vaccinations
4. Co-payments and discounts on Pfizer drugs

It may not be all bad news for Walgreens. Pfizer could match patients with local providers, such as Summit Health, which Walgreens owns. Walgreens has actually been named a partner of Pfizerforall to stock the vaccines, which Walgreens administers at its retail pharmacies.

But the negatives seem to outweigh any positives. Live telehealth sessions would be detrimental 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 prescription drugs accounting for a large portion of that.

Long-term headwinds rear their heads again

Even though Walgreens is being named as a potential partner of Pfizerdirect, it seems the prospect of losing more drug sales to the major drugmakers’ direct-to-consumer platforms outweighs any upside.

Pharmacy drug sales accounted for about 56 percent of Walgreens’ revenue last quarter, and pharmacy benefit managers have already been squeezing margins on existing retail pharmacy drugs. But now, with more consumers able to obtain regular-use medications directly through e-commerce, this not only has a negative effect on pharmacy sales, but decreases overall traffic, limiting retail sales of other products at Walgreens locations.

Walgreens is facing the same kind of disruption that brick-and-mortar retailers experienced with the birth of e-retail. Although it has a new CEO who comes from the world of pharmacy benefit managers and seems to know best how to turn around the pharmacy margin problem, the ongoing e-commerce and direct-to-consumer threat appears to be a long-term headwind for Walgreens. ‘ growth.

That makes Walgreens a potential value trap. As Warren Buffett once said, “When management with a reputation for brilliance approaches a business with a reputation for bad economics, the business’s reputation remains intact.”