Pharmacies Fight Tough Battle on Generic Prices

Date: 22 Dec. 2008

Retail pharmacies are waging what some consider a generic-drug price war that is threatening margins in a typically high-profit area and reflects the intense competition that drug-store chains face in attracting and keeping customers.

Big pharmacy chains like CVS Caremark Corp., Walgreen Co. and Rite Aid Corp. have started to aggressively promote their discount drug programs in recent months as the economy declined and competition increased. These moves are among the latest in a market battle that has helped lead to lower prices and greater use of generic drugs.

Retail pharmacy generic discount programs have proliferated since Wal-Mart Stores Inc. introduced $4 generic prescriptions for one-month supplies of hundreds of unbranded drugs in 2006, and mass merchandisers and grocery stores responded with their own versions.

In recent months, three big pharmacy chains each have unveiled or expanded drug discount programs.

Walgreen this summer started strongly marketing its Prescription Savings Club, which provides discounts on generics and 5,000 branded medications and rebates on store-brand products. The company said the program has been "extremely successful" in keeping and acquiring customers.

CVS this fall introduced a discount program aimed at the uninsured, offering a 90-day supply of more than 400 generic drugs for $9.99 and a 10% discount at the company's store-based clinics. The company at the time cited "a very challenging economic environment," and Americans' struggles with health-care costs.

"Wal-Mart's move was very significant because they were going after a core source of profits for retail pharmacy," said Adam Fein, president of pharmaceutical supply chain consulting firm Pembroke Consulting Inc. in Philadelphia.

While offers such as Wal-Mart's have hurt independent pharmacies and regional drug-store chains more, Mr. Fein said, national drug-store chains face significant pressure as well.

For their part, the retailers see the recent rollout of discount generic drug programs as normal competition.

"I don't know if I would term it a generic price war," said Kermit Crawford, Walgreen's senior vice president of pharmacy. "I think that the pricing is competitive within certain therapeutic categories, and I think what you see is all of the retailers promoting their competitive price."

Pharmacy benefits managers such as CVS Caremark, Medco Health Solutions Inc. and Express Scripts Inc., which run the nation's big mail-order drug stores, say the retail generic discount programs aren't hurting their businesses.

"The movement's really been from retail to retail. We have not seen movement from our mail pharmacies," said Ken Malley, Medco vice president for channel and generic strategy. Mail-order programs serve the insured while the retail programs tend to focus more on the uninsured, and Mr. Malley noted that generic pricing for the insured market already is low.

Pembroke's Mr. Fein sees more than the economy behind CVS's move. Most of CVS's customers are insured, he said, wondering whether the company is trying to pick up more uninsured and underinsured patrons or defending against the leakage of pharmacy customers to competitors.

A CVS spokeswoman, Carolyn Castel, said the company has made no strategic change. "The prevailing economic situation only increases the need to offer options for the under- and uninsured," she said.

Rite Aid in late September rolled out nationally a prescription savings card offering hundreds of generic drugs at $8.99 for a 30-day supply or at $15.99 for a 90-day supply, plus discounts on branded drugs and Rite Aid products. Chief Executive Mary Sammons acknowledged in September that retail drug discount programs were starting to affect consumers' decisions on where to purchase their medications.

Rite Aid says its prescription savings program has been very successful, with more than 30% of the 700,000 customers who have used it being new patients to the stores.

Source: http://online.wsj.com/article/SB122990612110525373.html?mod=googlenews_wsj