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Our commentary Thursday on WalMart’s thrust into the drugstore business (What Does Wal-Mart’s Prescription Drug Plan Mean?) got a nice mention in Barron’s today:
"WAL-MART DROPPED THE BOMB last week. It wasn’t exactly a nuclear number, except if you happen to be Walgreen, CVS or Rite Aid, whose stocks were more or less pulverized when the mammoth merchant announced that it planned to offer generic drugs at knockdown prices (more specifically, $4 for a month’s supply).
From the standpoint of the drugstore outfits — or pharmacies, as their fans like to call them — what the world doesn’t need is another vendor of drugs. And, as the action in their shares makes painfully clear, the very last thing in the world they need is that vendor to be Wal-Mart.
It’s true that Wal-Mart plans to roll out the program in stages, starting with 65 stores in Tampa, expanding its reach throughout Florida by early next year and ultimately go nationwide. It’s true, too, that by no means will all generics be offered, only about 300 of the several thousand on the market; but you’ve got to start somewhere, and restrictive is not part of the company’s lexicon.
Barry Ritholtz, the chief market strategist of the cunningly-named Ritholtz Research& Analytics, pooh-poohs the skeptics who pooh-pooh the announcement as "a mere publicity stunt in an election year" (the Dems, in case you missed it, are running against Wal-Mart as well as any stray Republicans they turn up). He points to the devastation the goliath caused among supermarkets when it moved into food retailing as a likely precursor of what may happen to the drugstore chains.
Our savvy friend Larry Feinberg, proprietor of Oracle Investment Management, which concentrates on pharmaceutical and biotech companies, sees the push by big, muscular outfits like Wal-Mart and Target to cut generic prices as bad news for a number of companies beyond the drug chains. Wal-Mart’s thrust, he says, will hit such companies where it hurts most — in their profit margins, which have been exceedingly plump.
The Wal-Mart disclosure marks, in his words, "the beginning of a period of increasing transparency — where consumers and those that bear the freight alike will be seeking information about what the true costs of generic drugs are." And, he predicts, the disintermediation that will occur will hurt drug distributors (McKesson and Cardinal Health come to mind) as well as drug chains.
Moreover, Larry thinks the impact will be "devastating" on pharmacy-benefits managers like Medco Health Solutions, Caremark Rx and Express Scripts, some of which in some cases get the bulk of their profits from their mail-service generic drug business.
The decline, he adds, "won’t happen overnight. But the die is cast."
Very cool . . .
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Source:
Weirdo and Whacko
Alan Abelson
UP AND DOWN WALL STREET
Barron’s September 25, 2006
http://online.barrons.com/article/SB115896917501371971.html
You are my media hero. Now, why are you working on the Jewish New Year? Shame on you!
While I’m no Walmart fan (crowded, difficult to maneuver, long lines at checkout), I applaud this move. People shouldn’t have to choose between medicine and other basic needs. Now, if we can only get an affordable system where folks can gain access to medical services so they can actually have a prescription written…oh wait, isn’t Walmart going to do that as well? A move I also applaud. Perhaps Walmart is the privatization of a national health care system!
I carefully reviewed the Old Testament for prohibitions against either “Cut & Paste” or “Blogging,” and came up empty.
I am, however, in trouble on the whole “no shellfish” thing . . .
THIS Dem thinks Wall-Mart IS listening…. They are also “Greener” than most people realize. (Al Gore himself is a fan!) With their recent moves on employee Health Care and now this generic drug pricing “rollout” i think WM are doing better than most Corporate Behemoths these days….hats off.
As fot the Journalist, maybe Barron’s should just cut out the middle man there too eh Barry? ;)
Kudos on the mention. Too bad they had to pullute the sentence with that inane parenthetical remark about Democrats. What garbage.
Ignorance is bliss. “What the world doesn’t need now is another vendor of drugs.” WMT is the third largest vendor of drugs in the U.S. It represents about 5% of their sales and continues to become more important to their net profits. The profit margins on generics are higher than on name-brand drugs. WMT’s move is a smart one, and not a publicity stunt. You might also consider their rollout of instore health clinics. That will become a growing trend in health care.
I’m happy Walmart is selling generics cheaper than before. Too bad we can’t talk You-Know-Who’s Party in Washington to allow Medicare to bargain hard over drug costs as well.
Wal-Mart will get sued soon enough and this cheap ploy will be negated.
Now, why are you working on the Jewish New Year?
It’s not my place to comment on Jewish religious doctrine, but since when is this is work?
Anyway, I’d be very curious to get reaction to the comments of auto analyst Chris Ceraso regarding the economic assumptions he makes to come up with his estimates for the auto makers and suppliers for 2007 and 2008
(pages 43-44 of this week’s Barrons; online at http://online.barrons.com/article/SB115896881896671928.html?mod=9_0031_b_this_weeks_magazine_main)
There are four key macroeconomic forces largely responsible for whether or not demand will be above or below trend: real income growth, the unemployment rate, interest rates and home-price growth. For example, our estimate for 2006 is 16.5 million light-vehicle sales in the U.S., and we get there by figuring 2006 trend-level demand is 16.7 million. But we end up about 200,000 units below trend, because while there’s a favorable unemployment rate, there’s slightly unfavorable income growth, slightly unfavorable interest rates and neutral home-price growth.
* * *
Demand trend level for 2007 is probably about 16.8 million units. If we assume unemployment stays around its current level in the high 4% range, and real income growth is about 3½% — or a bit better because energy prices should at least stop going up — and if interest rates stay about where they are, then a lot will boil down to what happens to the housing market. Assuming home prices will be flat in 2007, based on the OFHEO [Office of Federal Housing Enterprise Oversight] House Price Index, and if that’s the case, based on the other assumptions, industry demand could be about 16 million in 2007. We caution against looking at any one of these four metrics in isolation, because it is a dynamic situation. If home-price growth looks like it is really softening, then interest-rate assumptions could come down.
In other words, what happens to auto sales and stocks down the whole supply chain if, for example, housing goes off a cliff? Or what if unemployment goes higher or invcome growth goes even lower than it is?
I can’t believe that I’m rooting for WalMart a bit.
This strikes me as entirely consistent with Walmart’s business model. They apply massive buying power and state of the art logistics to a category, and in the process are able to garner a leading share in that category. Vendors will respond by forcing costs out of their own businesses, which may include offshore production.
The offshore production is interesting, but not so much because of the safety/quality issue. Most of us have no idea where or under what conditions much of our food is produced, and for the most part we don’t care. We assume, rightly or wrongly, that government inspection processes together with brand value will protect us from unsafe products.
What’s interesting is that this may be the beginning of a significant move upmarket in offshore producers. Wallmart may have reached the limits of offshoring t-shirts etc., and is searching for other categories to apply its methods. Since Wallmart has been down this road many times before, odds are they’re evaluated the potential for low-cost offshore production, and are confident they can pull off in generic drugs what they’ve done in lower tech categories before. The implications of that could be profound.
Wal-Mart Does Drugs
This is exactly what our health care system needs – a little competition. Wal-Mart has already brought competition to the vision care world, with in-store optometrists (who will just do the exam and hand you your prescription – what a concept!), and l…
Even if WMT made no money at all on these prescriptions, it would probably be a good deal for them on the pull-through revenue: ie, people going to the store for the prescriptions and also buying other stuff.
I suspect that the pull-through model can’t be used by the traditional drugstore chains, because (a)so much of their revenue is already from drugs, and (b)it’s no big deal to go to a drugstore, since there are so many of them, and you won’t feel like you’re wasting a trip if you don’t buy something else, and (c)their overall product selection is smaller, and (d)they are mostly pretty repellant places to shop, making WMT look like Nieman-Marcus by comparison.
It is pretty typical for the large box stores to locate pharmacies at the back of the store and if the script is not called in first, then the customer has to wait or rather “Shop”. I think WM is pretty smart. Also the more $ saved by the person the greater the potential for them to spend it in other parts of the store. And of course if they need a non generic are they going to go anywhere else? In addition this is good press positive press for them after they have been bashed about. I personally have not enjoyed any of the times I have gone into a WM. The lighting, sound quality, and physical arrangment are usually distastefull. Prices are good but it is not enough for me to go back. I have not been into one of their new upscale facilities, it has to be better. On the other hand if Ikea sold food…..
Barry about the work thing. I have some relatives who are literally as orthodox as you can get. (Worst of all converted to it) and according to them turning on a light switch would be considered work. So you are dammed. They are really decent people, live in Israel, but I think they are a bit nuts when it comes to how they practice their faith. Their idea of cleanliness borders on obsesive compulsive disorder. But of course all the fundamentalists of any religion are going to seem “out there” to me.
Also I wrote something for this blog yesterday on my computer (I need spell check!) and when I tried to transfer it my post was rejected. Is this typical?
Be well.
Thanks for the list of areas to go short via Barron’s now I just have to figure out when.
OT:
BR, whatever happened to Open Thread? I know you had some issues with trolls over the past several weeks, but as I recall that was with regular threads. Open Thread would be nice to see again.
It seems that kmart sells a list of 185 generic drugs for the price of 15 dollars for a 3 month supply. They are touting it on the basis that you do not have to go to the store as often to get your prescriptions. This is nationwide. WM is better at getting press.
I second whipsaw’s motion for open thread.
Walmart. Bad news for everyone. This is a company who’s custumer base is low income. The more low income people in the US, the better this outfit does. They have an incentive to destroy the middle class. Whether it is throwing their considerable girth around in DC to promote and sustain the acceptance of myopic, unilateral trade with communist China or targeting local community based business, the rise of Walmart business practices is never good news.
Leveling of the drug monopsonies is good news. Drugs are overpriced, so in that sense Walmart may actually provide a left handed benefit.
Family level, middle class incomes are the best defense against Walmart. People that are making a living wage will pay a little more to avoid the de-humanizing Walmart shopping experience.
The Democrats are right to oppose this behemouth, just as the US was right to break up the trusts in the early part of the 20th century. The unchecked importation of manufactured goods from the Far East has shown up in the jobs data. Medical care and the housing bubble have masked the absolute scale of decimation of middle class jobs in the US.
We need a sensible response, and we need it five years ago. So is Walmart growth good for us? No.
what walmart is doing is good for the US. They take our dollars, sell them to the chinamen, for goods at prices we could not duplicate in the US because china pays less than slave wages. Our federal reserve is so busy running the printing presses (why we have had so many bubbles lately) devaluing our currency and who ultimately is hodling the bag? the chinamen. who benefits? all those that hold hard assets in the US. so stop blaming walmart for cheap prices and stop balming the federal reserve for devaluing our currency and last but not least stop blaming our goverment for running massive deficits, the chinamen and other foreigners who buy our debt are the ones footing the bill. Go to walmart, k mart or even Target and have one on the chinamen. cheers.
blam, how is offering cheap goods to consumers going to create more low income consumers? your logic is flawed.
I am middle income and shop at walmart, funny, i didn’t know saving money and being able to 1 stop shop is dehumanizing. Would you prefer i drive my gas guzzling SUV 30+ miles to 10 different stores instead?
the democrats beef with walmart is plain and simple, WalMart is anti-union, don’t let any shill tell you otherwise-
I love Wally World, I shop there all the time and I’m not poor.
The people who hate it are snobs and elitists of the very leftist persuasion.
Things that are great about Wal*Mart:
After a hurricane (very important to a Floridian like me) you can get food/water/ice/essentials there. You think the mom & pop stores can get supplies for thousands of people in a hurry? HA!
Supercenters are open 24 hours a day. As an ex-NY’er it’s nice to be able to buy stuff at 3am and there aren’t a lot of places here that are open at those hours (besides 7/11 and gas stations).
Very good supermarket/produce department.
Decent electronics dept. I got a 24″ flat screen Sanyo there last year ($180) as an emergency replacement for a set that died. They were competitive with Best Buy and Circuit City.
Bargain DVDs if you want to poke through the bins for lost “treasure”.
The clothes aren’t high-end but the prices on stuff like T-shirts, undies, socks are good.
They employ some people who might otherwise be mugging me in their parking lot if there was no Wal*Mart to provide them with jobs.
Salty snacks! Salty snacks! Salty snacks!
Things that suck about Wal*Mart:
Jack-of-all-trades but master-of-none in most product segments. They carry a bit of this and a bit of that, but their selections aren’t as varied as specialized retailers.
Computer department is pitiful with few bargains to be found in hardware, but the few software items they carry are competitive in price to other retailers.
Prices are not always the lowest. (Amazing but true!)
Long lines at the checkout tend to be the rule rather than the exception.
The liberal argument against Walmart is slightly more complicated than that they are anti-union. The problem is that they pay many of their employees less than cost of living. Many Walmart employees are on welfare because their income even when working full-time is still low enough to qualify.
If Walmart really wants to get liberals to support them, they should start lobbying for universal health care. I don’t see any downside for Walmart from supporting it. It would mean that low-income Americans have that much more money to spend. And the liberals would stop being bothered by Walmart not offering health care to all of its employees.
I will go out on a limb and say this will have little to no effect. While I’m sure there is some negotiation power between Wal-Mart and the drug suppliers, I doubt Wal-Mart has the ability to increase gross receipts per pharmacist by cutting prices.
As a little history, pharmacies have been a relatively late entrant into the corporatization of America. Walgreens, a 100+ year-old company, didn’t open its 1000th store until 1984. It had doubled by 1994. 2000 and 2003 each saw the addition of 1000 more stores. This coincides with 3rd-party-payers becoming prevalent in pharmaceuticals. This is what drove corporatization, not volume discounts.
Going forward, Wal-Mart will need the government to lessen the standards for becoming a pharmacist in order for a Wal-Mart model to become dominant. Oddly enough, this is being pushed in various parts of the country. Oddly enough as well, don’t be surprised if this is the area where Wal-Mart finally succumbs to having to deal with unions.
What a healthy development!!! Remember this day. Good news is hard to come by these days, and this is fantastic.
I am no fan of Wal-Mart, nor do I care much about them trying to win another market. But I was thrilled to see Target match, and guess what … for competition to benefit the consumer. It would be great if medication, through competition, dropped enough in price where the consumer would start to shop around for the best deal, and not have to suck it up and pay insurance plus some weird price floor co-pay strangeness. If you always pay a flat co-pay, what incentive is there for you to shop around? $4.00 generics are below the co-pay’s so this should introduce some much needed change and shake things up a bit.
The insurance industry has so *%$#’ed up the system that market forces are no longer at play between doctor and patient. It’s an Alice and Wonderland alien-scape of regulation, lobbying, subsidies, choking bureaucracy and a colossal MIS-ALLOCATION of resources. And when people are ground down and desperate, they will embrace the seductive siren calls of socialized medicine because it sounds like “relief”. Of course we could weakly embrace absolute market failure with some sort of comfort, and emulate other socialists systems, but it would be sad and pathetic. We actually have a chance for a healthy health care economy, which evolves and does not become a giant leech on society.
I hope Target, Walmart, and Costco really, really, really shake it up.
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After losing our health insurance after my husband and I lost our business and had to go on anxiety medicine, we were unable to afford the castatrophic insurance that was offered to us. We have been getting help from our physician with samples, but that has come to an end. When I went to get a percription filled I about killed over with the price. People can judge Walmart, but until the gov. comes up with a better solution I am extremely excited about the news of the generics coming to Walmart.
I can’t find the “Walmart drug list @ $4.00 each” on any of web addresses
I just wanted to say thank you for thinking of someone else. and not just the dollars. im a mother of three and two still live with me. we have no insurance so going to the doctors is hard. so when the doctor bring out the percription pad i get a very unsettling feeling what bill am i going to have to take from for this (rob peter to pay paul ).when my doctor told me about this i was so happy.i do little thing every day to help people, helping when a stranger drops something or helping an old lady otu of a car i even volenter, but to help thousands of people with there percriptions is above and beyond. thank you again