Jannah Theme License is not validated, Go to the theme options page to validate the license, You need a single license for each domain name.
Business

Weight-loss drugs drive retail pharmacy sales

[ad_1]

A pharmacist displays boxes of Ozempic, an injectable semaglutide drug used to treat type 2 diabetes manufactured by Novo Nordisk, at Rock Canyon Pharmacy in Provo, Utah, U.S., March 29, 2023.

George Frey | Reuters

Drugmakers aren’t the only ones feeling the impact of the weight loss industry’s gold rush.

Retailers with pharmacy businesses, such as walmart, Kroger And Ritual Aidsaid increased demand for prescription weight-loss drugs helped boost sales in the second quarter.

But analysts note that these blockbuster treatments are unprofitable for retail pharmacies — and can even lead to headwinds on margins.

“More recently, you’re starting to hear retailers talk about these drugs. But I wouldn’t say they’re necessarily beneficiaries of the growing popularity,” CFRA Research analyst Arun Sundaram told CNBC. “They really don’t make a lot of profit on the drugs. So it’s really just a traffic driver and not really a profit pool for the retailers.”

Trendy drugs like Novo NordiskWegovy’s obesity injection and diabetes treatment Ozempic have exploded in popularity over the past year, with big names like billionaire tech mogul Elon Musk among recent users.

These treatments are known as GLP-1, a class of drugs that mimic a hormone produced in the gut to suppress a person’s appetite.

Other drug manufacturers, such as Eli Lily And Pfizerare developing their own GLP-1s in a bid to capitalize on a weight-loss drug market that some analysts believe could be worth $200 billion by 2030. An estimated 40% of American adults are obese, making treatments achieved a huge opportunity for drug makers.

But the boom in demand for GLP-1 is also being felt in other parts of the drug supply chain, including pharmacies that dispense prescription drugs to patients.

Are weight loss drugs profitable?

During an earnings call on Thursday, Walmart CEO Doug McMillon said the company expects weight-loss drugs to help drive sales for the rest of the year: “We’re still expecting food, consumables, health and wellness, mainly due to the popularity of certain 1 drugs, to grow as a total percentage in the back half.”

In June, similarly, Rite Aid’s chief financial officer, Matthew Schroeder, said an increase in pharmacy revenue and the company’s decision to increase its full-year revenue guidance were “due to increased sales volume of Ozempic and other high-value GLP-1s.” Schroeder was referring to the high prices of GLP-1s, which range from around $900 to $1,300 in the United States.

He said these drugs had high sales amounts per prescription, but pointed out that the increased volume of GLP-1 had a “minimal impact” on Rite Aid’s gross profit.

Kroger CEO Rodney McMullen also said on an earnings call in June that the GLP-1 drug “sales dollars are much more important than margin dollars.”

“We would expect GLP-1 type drugs to continue, but remember, the impact on profitability is quite small,” he said.

That’s because GLP-1s like Wegovy and Ozempic are brand name drugs with “very, very low gross margins,” according to CFRA Research’s Sundaram.

He said retail pharmacies generate high sales for every GLP-1 prescription they dispense, but earn low profits, which has a small negative impact on the overall gross margins of retailers like Walmart and Kroger.

UBS analyst Michael Lasser also pointed out in a recent note that the gross margins of Walmart’s US operations “would have been even better without the contribution of GLP-1 drugs, as these generate very low profit rates.” .

A selection of injection pens for the weight-loss drug Saxenda are shown in this photo illustration in Chicago, Illinois, U.S., March 31, 2023.

Jim Vondruska | Reuters

Gross margins for brand name drugs average 3.5% for pharmacies, according to a 2017 study from USC’s Schaeffer Center for Health Policy and Economics. This suggests that it may take years for a brand name drug to contribute significantly to a pharmacy’s bottom line.

In contrast, gross margins for generic drugs – the cheapest equivalents of brand name drugs – average 42.7% for pharmacies.

There are several reasons for the lower markups of brand name drugs. On the one hand, branded drugs do not directly compete with other drugs because they are protected by patents. This gives drug manufacturers more power when negotiating drug discounts with wholesalers, who buy the drugs and distribute them to pharmacies.

As a result, there is “little room for wholesalers and pharmacies to capture significant margins due to their relative lack of bargaining power”, according to the Association for Accessible Medicines, a trade association representing manufacturers and distributors of generic prescription drugs.

What other impacts are retailers facing?

But there are also other impacts of GLP-1s to consider beyond a retailer’s pharmaceutical business.

For companies like Walmart and Kroger, GLP-1 drugs can have a positive indirect impact on other business categories.

That makes some analysts less worried about headwinds on pharmacy margins: “Headwinds on gross margin are overall less risky for Walmart because any step in the door often ends in multiple items in a basket,” Bradley Thomas said. , KeyBanc analyst, to CNBC.

“Walmart isn’t usually a quick store that you just walk into on your way home,” he said. “They’re going to be making multiple purchases, and I think we’re seeing a lot of discretionary categories seeing an uptick in some of that extra traffic they’ve been getting lately.”

Thomas added that GLP-1 drugs are only part of Walmart’s business: “If you list the most important things that are driving Walmart’s strong sales performance right now, that’s probably not part of the business. top ten,” he said.

It’s a slightly different situation for Rite-Aid and similar companies like SVC Health And Walgreens.

These companies have retail pharmacies but also other business segments that are directly impacted in different ways by the GLP-1 drug boom.

For example, CVS also operates a health insurer and drug benefit manager, or PBM, which maintains formularies and negotiates drug discounts with manufacturers on behalf of insurers and large employers.

The increased demand for GLP-1 drugs is likely more of a headwind for health insurers since they have to cover expensive drugs for beneficiaries, but CVS says “the risk is manageable” in this business division.

Meanwhile, PBMs may benefit more from increased use of GLP-1 as they negotiate steep drug discounts and drive competition between manufacturers – but they often don’t pass all the savings on to insurers. .

“Each of the companies contains some form of GLP-1 and affects them in different ways,” CVS CEO Karen Lynch said in an earnings call last month.

[ad_2]

Bus

Back to top button