CVS, Walgreens Say Drug Prices Are Easing After Years of Ballooning -- Update

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Walgreens Boots Alliance Inc. said an increase in prescription volumes helped lift U.S. pharmacy sales in its latest quarter as it works to continue capturing a larger share of the prescription-drug market.

Comparable-store sales at Walgreens's U.S. retail pharmacies rose 4.7% from a year ago, as pharmacy sales grew 7.4%. Comparable-retail sales, which includes general merchandise and personal-care items, fell 0.9%.

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Regulators recently approved Walgreens's $4.38 billion deal with Rite Aid Corp. to buy 1,932 of Rite Aid's stores, but the deal was smaller than originally anticipated because of regulatory concerns. The company had initially offered $9.4 billion to buy Rite Aid, which would have grown its store count by 4,600 stores.

Through last month, the largest U.S. pharmacy chain had acquired 357 Rite Aid stores. Walgreens has said it plans to spend $750 million to renovate the locations it is purchasing. Walgreens also plans to close some stores if locations are too close together or aren't performing well.

Walgreens said despite being hurt by reductions in reimbursement rates and declines in generics, pharmacy sales were helped by growth in its mail services and central specialty pharmacy now called AllianceRx Walgreens Prime. Walgreens closed a deal last year to form an alliance with pharmacy-benefits manager Prime Therapeutics.

Shares fell 0.7% in premarket trading to $75.

In all the company's profit fell 22% to $821 million, or 81 cents a share, due to an impairment on the company's stake in a China-based pharmaceutical wholesaling joint venture. Last month the company said it was decreasing its stake in Guangzhou Pharmaceuticals Corp. by 30% after it got an offer from the holding company that is a partner in the joint venture. When the deal closes, Walgreens said it will have a 20% stake.

On an adjusted basis, earnings rose 7.8% to $1.3 billion, or $1.28 a share, compared with $1.2 billion, or $1.10 a share a year ago. Revenue rose 7.9% to $30.74 billion.

Analysts polled by Thomson Reuters expected Walgreens to earn $1.26 a share on $30.35 billion in revenue.

Walgreens also raised the low-end of its full-year adjusted earnings guidance, forecasting per-share earnings between $5.45 and $5.70.

Walgreens's pharmaceutical wholesale business posted a comparable sales increase of 4.5% on a constant-currency basis, a gain it said was lower than its market-growth estimate. Comparable sales at its international retail pharmacies fell 0.7% on a constant-currency basis, dragged down by a 1% drop in comparable retail sales.

Write to Allison Prang at allison.prang@wsj.com

Corrections & Amplifications

This article was corrected at 10:35 a.m. ET because the original incorrectly stated that Walgreens bought the company. Walgreens closed a deal last year to form an alliance with pharmacy-benefits manager Prime Therapeutics.

Walgreens closed a deal last year to form an alliance with pharmacy-benefits manager Prime Therapeutics. "Walgreens Focuses on Pharmacy Sales as Store Count Rises," at 9:17 a.m. ET, incorrectly stated that Walgreens bought the company. (Jan. 4)

After years of surging U.S. drug prices, the two largest drugstore companies said some pricey prescription medicines are becoming more affordable.

CVS Health Corp. and Walgreens Boots Alliance Inc. said Thursday that their pharmacy revenues are taking a hit from an increase in generic alternatives, particularly for some expensive specialty drugs, along with slowing price inflation for name-brand medications.

"You're going to see continued dampening going forward as you think about the pipeline of generics coming into the markets," said CVS finance chief Dave Denton, who didn't discuss specific products.

Lower prices will dent the company's revenue, but ultimately could lead to increased profits because generics generally have a higher margin than name-brand drugs. "The introduction of generics can really dampen the top line but affect the bottom line in a positive way," Mr. Denton said.

Prices for generic medicines fell sharply last year as wholesalers competed for business by discounting them. Meanwhile, some pharmaceutical firms raised branded prices at a slower rate than previous years to avoid sparking further scrutiny from lawmakers in Washington.

Some of the most eye-popping prices are for cancer treatments and genetics-based therapies that aren't sold through drugstores.

Just this week, Spark Therapeutics Inc. said it would charge $850,000 per patient for a pioneering new treatment for a hereditary form of vision loss.

CVS, which also owns Caremark, a large pharmacy benefit manager, forecast low single-digit revenue growth in 2018 and operating-profit growth of 1% to 4%. The figures don't factor in CVS's planned acquisition of health insurer Aetna Inc. The company aims to close the $69 billion deal in the second half of this year.

CVS said it expects claims volume in its pharmacy-services segment to grow by 8% in 2018, with revenue rising a slimmer 1.5% to 3.5% due largely to cheaper drugs. Walgreens, meantime, said U.S. pharmacy sales rose nearly 9% by volume in the most recent quarter, while revenue increased 7.4%.

Alex Gourlay, Walgreens co-chief operating officer, in a call with analysts, said the company has been seeing drug-price deflation due to in introduction of generics.

Walgreens, which also has operations in Europe, said the increase in prescription volumes helped lift U.S. pharmacy sales in its latest quarter. Comparable retail sales, which includes general merchandise and personal-care items, fell 0.9%.

Regulators recently approved Walgreens's $4.38 billion deal with Rite Aid Corp. to buy 1,932 of Rite Aid's stores, but the deal was smaller than originally anticipated because of regulatory concerns. The company had initially offered $9.4 billion to buy Rite Aid, which would have expanded its store count by 4,600 stores.

Walgreens shares initially jumped Thursday on its latest results but then fell after Rite Aid reported quarterly results that included a decline in store sales and a decrease in the number of prescription sales. Walgreens shares were down nearly 5% to $71.82 in afternoon trading, while CVS rose 3% to $75.43.

Write to Sharon Terlep at sharon.terlep@wsj.com

(END) Dow Jones Newswires

January 04, 2018 14:38 ET (19:38 GMT)