The second-largest pharmacy chain in the US is gunning to expand its primary healthcare footprint.
A primary-care provider Walgreens Boots Alliance (hereon referred to as Walgreens) has a majority stake in, VillageMD, has agreed to acquire urgent care provider Summit Health-CityMD. The transaction is valued at $8.9 billion, with investments from Walgreens and Cigna’s health services business line Evernorth, according to a Nov. 7 press release.
The deal, expected to close in the first quarter of 2023, will create one of the biggest independent doctor groups in the US providing primary care, specialty care and urgent care.
Walgreens’ moves beyond pharmacy retail
In an Oct. 13 earnings call, CEO Rosalind Brewer listed building “our next growth engine with consumer-centric healthcare solutions” as one of the key priorities for the company.
This merger is only the latest move that puts Walgreens’ words about reducing reliance on retail by diversifying into healthcare into action.
The Summit Health acquisition adds to a recent spending spree of nearly $10 billion to pivot the brick-and-mortar retailer to an end-to-end service provider of sorts. The company expects the healthcare division to turn a profit by 2024.
VillageMD: In July 2020, Walgreens acquired a 30% stake in VillageMD to start offering full-service doctor offices co-located in its stores for $1 billion. It increased its stake to 63% by pumping in $5.3 billion in October 2021.
Shields Health Solutions: In September 2021, Walgreens plowed $970 million into the specialty pharmacy company for a 71% stake. On Oct. 29, the drugstore firm closed its acquisition of Shields, adding $1.37 billion to take its stake from 71% to 100%.
CareCentrix: Walgreens spent $330 million for a 55% stake in the homecare provider, which offers services like home nursing, durable medical equipment, home infusion and in-home palliative care. Weeks before the Summit Health deal, Walgreens announced plans for full ownership of CareCentrix for an additional $392 million.
Walgreens’ healthcare draw, in CEO Rosalind Brewer’s words
“When we think about where does the profitability come from in this, it is much beyond the prescription usage. When I think about a customer coming into VillageMD and actually understanding more about their healthcare needs, it will help them understand the spending and then also, too, what comes from operating a primary care physician practice within our entity.” —CEO Rosalind Brewer on the Oct. 13 earnings call
Walgreens’ retail losses and healthcare wins, by the digits
$32 billion: Market cap of Walgreens Boots Alliance, a distant second-largest pharmacy chain in the US behind CVS, which is worth $100 billion more
4: retail and business brands owned by the alliance—Walgreens, Duane Reade, Boots, and Alliance Healthcare
7.2%: year-over-year drop in US retail pharmacy segment sales—$26.7 billion for the quarter ended Sept. 30, 2022. Drug sales and prescriptions filled, including and excluding immunizations, were all down. Plus, online competitors like Amazon are chipping away at sales of household and beauty items, according to Bloomberg
$12 billion: raised sales target for its healthcare business unit in 2025, up from $11 billion
$3.5 billion: combination of debt and equity Walgreens is investing in Summit Health
53%: Walgreen’s stake in the combined VillageMD-Summit Health company after the deal closes
342 and 152: VillageMD clinics and co-located clinics respectively open by Oct. 13
680: VillageMD and Summit Health’s combined provider locations
500,000: Summit Health’s outpatient visits a year
People of interest in Walgreens leadership roles
👨💼Lee Cooper, CEO of Shields, will lead Walgreens’ pharmacy operations,
👨💼CareCentrix CEO John Driscoll is the president of US Healthcare at Walgreens, and executive vice president
Company of interest: CVS
Walgreen’s biggest rival and the largest pharmacy chain in the US, CVS, is also big on healthcare: It bought health insurer Aetna in 2018, to improve the access and quality of care. In September this year, it decided to buy home health provider Signify Health for $8 billion. It was reportedly eyeing Signify rival Cano Health but apparently backed out. It plans to enter the primary care playing field by year-end, too.
Retail companies dominate CVS’ acquisitions, making up for 42% of them, but healthcare is already a big share at 30%, according to M&A and private equity database Mergr.
Two things tying three US drugstores together
💊 Opioid crisis: CVS, Walgreens, and Walmart have agreed to pay over $13 billion to resolve thousands of state and local lawsuits accusing the pharmacy chains of mishandling opioid pain drugs
🩺 Clinical trials: All three companies are trying to improve diversity in clinical trials by leveraging patient data and care locations.
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