Wal-Mart to Cut Prices for Generic Drugs
Friday, September 22, 2006
Wal-Mart, the world's largest retailer, plans to slash the prices of almost 300 generic prescription drugs, offering a big lure for bargain-seeking customers and presenting a challenge to competing pharmacy chains and makers of generic drugs.
The drugs will be sold for as little as $4 for a month's supply and include some of the most commonly prescribed medicines such as Metformin, a popular generic drug used to treat diabetes, and the high blood pressure medicine Lisinopril.
Wal-Mart Stores Inc. will launch the program Friday at 65 Wal-Mart, Neighborhood Market and Sams' Club pharmacies in Florida's Tampa Bay area. It will be expanded statewide in January and rolled out to the rest of the nation next year, company officials said Thursday.
The news sent the shares of big pharmacy chains like Walgreen's and CVS slumping because of fears that Wal-Mart's price cuts could cost them market share. Analysts said consumers will save an average of 20 percent and up to 90 percent in some cases. Shares of prescription drug management companies and some generic drugmakers fell as well.
Analysts said the risks to Wal-Mart are slim because profit margins on most of the drugs already are low _ and the program could help the Arkansas-based retailer address an image problem stemming from its policies on health insurance coverage for employees.
"They are doing something that may be good for consumers, but they don't have altruistic motives," said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle. "They are capitalists. They still need to make a profit."
Tampa Wal-Mart pharmacy customer Pat Sullivan, a retired Massachusetts police officer, said $4 generic prescriptions would be a tremendous help.
"I'm on disability and my benefits run out by the end of the month," he said. "It comes down to where do I go for a $100 prescription? I have no outlet other than to break a pill in half and take half today and half tomorrow."
The $4 prescriptions are not available by mail order and are being offered online only if picked up in person in the Tampa Bay area.
Bill Simon, executive vice president of the company's professional services division, told reporters that the generic drugs would not be sold at a loss to entice customers into the stores, a strategy that has been used in Wal-Mart's toy business.
"We're able to do this by using one of our greatest strengths as a company _ our business model and our ability to drive costs out of the system, and the model that passes those costs savings to our customers," he said at a Tampa Wal-Mart. "In this case, we're applying that business model to health care."
Simon said Wal-Mart is working with the 30 participating drug companies to help them be more efficient. "We are working with them as partners. We are not pressuring them to reduce prices," he said.
David W. Maris, an analyst at Banc of America, said in a report issued Thursday that the plan could "squeeze the generic manufacturers." But Kathleen Jaeger, president and CEO of the Generic Pharmaceutical Association, disputed that, saying Wal-Mart's plan will have "little impact" on its members.
The initiative follows a series of moves by Wal-Mart to improve its health benefits since last October. They include relaxing eligibility requirements for its part-time employees who want health insurance, and extending coverage for the first time to the children of those employees. Last October, Wal-Mart offered a new lower-premium insurance aimed at getting more of its work force on company plans.
Wal-Mart's shares fell 41 cents to close at $48.46 in trading Thursday on the New York Stock Exchange. But shares of the nation's largest drug chain, Walgreen Co., slumped 7.4 percent and the stock of rivals CVS Corp. and Rite-Aid Corp. dropped more than 8 percent and more than 5 percent, respectively. Shares of generic drug makers Barr Pharmaceuticals Inc.'s and Mylan Labs also fell, as did the stock of Caremark RX Inc., a pharmacy benefit manager firm.
Still, Rite-Aid and Walgreens executives both noted that Wal-Mart's list of the discounted generics contains only a small percent of the 1,500 and 1,800 generic drugs each offers, respectively.
Faced with soaring drug costs, consumers are increasingly turning to generic drugs, which often are made by multiple companies after the original patent on the medicines expire. The average monthly cost for a generic drug prescription is $28.74, according to the National Association of Chain Drug Stores. For branded drugs, that figure is $96.01.
The Generic Pharmaceutical Association, a trade association, said generic medicines account for 56 percent of all prescriptions dispensed in the United States, but only 13 percent of all dollars spent on prescription drugs.
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Associated Press Writer Mitch Stacy in Tampa, Fla. and Shaila Dani in New York contributed to this report.
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On the Web:
For a list of generic drugs to be sold at discounted prices and details about the program:
http://www.walmartfacts.com
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