Walgreens' leadership defends unconventional Valeant deal
- Walgreens' CEO, Stefano Pessina, defended the pharmacy giant's unconventional distribution deal with Valeant, arguing it will lower costs for the healthcare system and improve patient access to medications, according to the Wall Street Journal.
- Pessina told investors the Valeant deal was similar in many respects to agreements in place in Europe with pharmaceutical companies there. Walgreens leadership expressed confidence they could lift the model from Europe and make it work in the United States.
- Pessina's overall goal is to improve profits on the front end. Retail sales at drugstores in general are under pressure. Overall, retail sales fell 0.6% at Walgreens stores open for more than a year.
The drug-distribution deal between Valeant and Walgreens is unconventional in some respects. In the agreement, Valeant will buy back the rights to its own treatments from Walgreens (without actually taking back the product) and then have the pharmacy sell the drugs on consignment.
The agreement benefits both Walgreens and Valeant, however. Walgreens will get paid fees for filling prescriptions for Valeant drugs and hopes Valeant's portfolio of skin and eye drugs will help boost sales of its own cosmetic products. Valeant needed to replace the hole left by the termination of its agreement with mail-order pharmacy Philidor. With Walgreens' size, Valeant also gains a large pharmacy network.
Defending the Valeant deal, Pessina said, "Our agreement with Valeant demonstrates how we can use our pharmacy network to improve access and service level while reducing costs in the healthcare system."
Overall, net sales in Q1 were up 48% to $29 billion compared to last year. However, most of that boost is due to the inclusion of Alliance Boots in earnings this year.
The fall-off in retail sales at comparable stores was offset by higher prescription drug sales. Walgreens also moved to cut back on aggressive discounting, which crimped retail sales.