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Thursday, September 21, 2006

Implications of Wal-Mart as a Drug Dealer

Wal-Mart's (WMT) Generic Drug Plan may change the landscape of the drug sales markets, and the implications are far reaching. Wal-Mart is going to do a test in Florida where it will sell generic drug prescriptions for as little as $4.00, although this will be in as many states as they can get it into next year. The market dislikes the financial implications this so much that even WMT is down today by 0.6% at $48.56.

Wal-Mart Stores, Inc. announced that it will make nearly 300 generic drugs available for only $4 per prescription for up to a 30-day supply at commonly prescribed dosages. The program, to be launched on Friday, will be available to customers and associates of the 65 Wal-Mart, Neighborhood Market and Sam's Club pharmacies in Tampa Bay, Fla. area, and will be expanded to the entire state in January 2007. Here are some of the details:

* The $4 pricing will be available to all pharmacy customers with a prescription from a doctor that can be filled with a covered generic medicine.
* This program will be available to the uninsured.
* Insurance will be accepted.
* The program presently covers 291 generic medications from many of the most common therapeutic categories.
* The medicines represented are used to treat and manage conditions including allergies, cholesterol, high blood pressure and diabetes. Some antibiotics, antidepressants, antipsychotics and prescription vitamins are also included.
* The program will be available statewide in Florida in January 2007.
* Wal-Mart intends to take the program to as many states as possible next year.

The real winner will ultimately end up being Joe Consumer if this plan rolls out nationwide, who will possibly get to enjoy lower prices across the board.

The drug store chains aren't exactly being treated well because of the potential category killer implications that this could ultimately bring about. Walgreens (WAG) is down 5.3% at $47.25, CVS (CVS) is down 9.5% at $32.04, Rite Aid (RAD) is down 4.8% at $4.53, and Longs Drug Stores (LDG) is down 4.5% at $45.88.

Even the Pharmaceutical HOLDRs (PPH) are trading down 0.4% at $77.50 on this.

Pharmacy benefit managers and drug distributors are not feeling any love on this. Express Scripts (ESRX) is down $3.31 at $80.63. Even IMS Health (RX) is down $0.17 at $26.35. Medco Health (MHS) is down $2.23 at $60.66. McKesson (MCK) is down $0.96 at $53.00, cardinal Health (CAH) is down $2.00 at $66.68, and Amerisourcebergen (ABC) is down $1.42 at $44.79.

"This act of good corporate citizenship will help consumers manage healthcare costs, while benefiting Florida's growing population," said Florida Governor Jeb Bush. "In addition to providing a great service, Wal-Mart is encouraging important conversations between patients and their doctors about the cost savings associated with generic prescriptions. I am pleased Wal-Mart chose Florida to launch this initiative where our large population of seniors will greatly benefit."

"Fifty-bucks for a year's supply of prescription drugs is a pretty darn good deal for consumers," said U.S. Senator Bill Nelson (D-FL), an outspoken proponent of giving people access to lower-cost prescriptions. "Because Wal- Mart has the ability to shape the market, maybe other retailers will follow suit."

It should be understood that this is a test and it may be a low margin operation depending on the full ramifications, but until all the details are known the street is firing first and will ask questions later.

You can probably expect a wave of lobbyists in each state coming out of the woodwork on this issue. This could impact the business and workforces at many locations.

Jon C. Ogg
September 21, 2006
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