PHARMACY

REVISED: Rite Aid shares climb above $1 — major hurdle cleared for No. 3 drug chain

BY Michael Johnsen

NEW YORK Rite Aid stock traded at above the $1 mark on Monday — the first time the company’s stock has been above $1 since Sept. 19, 2008. As of the close of trading Monday afternoon, Rite Aid stock was up 16 cents for the day, or 17.78%, to $1.06.

The stock had been on a relatively steady rise since March 9, when it traded at just 21 cents per share.

You can say that Rite Aid’s shares have risen with the overall tide among drug retailers and the market in general, but there is no doubt that the growth curve for Rite Aid has been much sharper. Walgreens shares rose more than 44.6% since March 9, when it traded at $21.50, and closed yesterday at $31.11. CVS shares were up 35.9% during that period, closing Monday at $32.60, up from $23.98. Those gains were more or less in line with the S&P 500, up 34.4% from its 12-year low March 9 to May 11.

Meanwhile, Rite Aid shares were up 409% during that period.

You also could make the case that Rite Aid and its investors had more to gain than many other companies, and certainly more than its peers in drug retailing, from the recent surge in the price of its shares. If Rite Aid can keep the price above $1 for the 30 days leading up to June 30, it can avoid delisting without the need to execute the reverse split its shareholders approved back in December 2008.

In a statement dated March 9, Rite Aid noted that the New York Stock Exchange had issued a temporary suspension of its minimum share price listing rule, affording the company additional time and flexibility to regain compliance with the rule.

“Per the rules of the recent suspension, Rite Aid can now regain compliance by achieving the required $1.00 closing share price and $1.00 average closing share price over the preceding 30 consecutive days on any of the following dates: April 16, 2009; April 30, 2009; May 29, 2009; June 30, 2009; and August 17, 2009,” Rite Aid explained.

The move allowed Rite Aid’s directors to stave off the reverse-split its shareholders had approved in December.

While nothing has changed about Rite Aid’s fundamentals, what has changed is the belief that Rite Aid could file bankruptcy, with today’s better high-yield bond market versus two months ago.

During the company’s recent fourth-quarter conference call, CFO Frank Vitrano noted, “Although we still have 18 months before our September 2010 credit facility renewal, we are talking with our bank partners to explore refinancing options. Give the current credit market conditions, its premature to predict the final outcome but we feel confident that through our various initiatives to reduce debt by improving working capital and our performance, coupled with a term loan or high yield offering, we will be able to fully satisfy our future liquidity requirements albeit at a higher rate which is not factored into our guidance.”

More important, investors not only have faith that Rite Aid’s worst-case scenario is a lot less likely to happen, but also have greater faith in the company’s ability to renegotiate its bank debt before September 2010 — something that Rite Aid executives have talked about attempting to do later this year.

Rite Aid still may have some road to travel in convincing investors that it still is a good “buy,” however. The company’s average call volume over three months is relatively low at 5.6 million. Comparatively, Walgreens’ average volume is 9.4 million and CVS’ is 11.4 million.

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Gilead finds that investigational hypertension drug reduces blood pressure in patients

BY Alaric DeArment

SAN FRANCISCO An investigational drug reduces blood pressure in patients with resistant hypertension, results of a phase 3 clinical trial presented Friday at the American Society of Hypertension’s annual scientific meeting in San Francisco showed.

Gilead Sciences announced the presentation of data from DAR-311, a phase 3 trial of the drug darusentan. The drug, an endothelin receptor agonist, is designed as a once-daily treatment for use as part of a three-drug regimen that includes a diuretic.

“Because of the increased risk of a number of life-threatening cardiovascular conditions associated with failure to control blood pressure, including stroke and heart attack, it is essential that new therapeutic approaches be evaluated for treatment of resistant hypertension,” stated lead study author and professor of medicine at the State University of New York Downstate Medical College of Medicine. “These data are important because they showed meaningful reductions in blood pressure when darusentan was added to existing antihypertensive regimens in a very difficult-to-treat patient population.”

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Walgreens wraps up Drug Fair deal

BY Rob Eder

DEERFIELD, Ill. Walgreens announced late Friday afternoon that it has completed the acquisition of 31 Drug Fair stores in central and western New Jersey. In March, Walgreens agreed to buy the stores in the wake of Drug Fair’s Chapter 11 bankruptcy filing. Terms of the transaction were not disclosed.

Walgreens expects to have completed store conversions “over the next few weeks,” according to a statement, including extensive remerchandising, refreshed graphics package, new signage and displays, and a shift to the Walgreens product mix and assortment, including private label. Store hours will not be affected during the transition period, the company stated. More importantly, the store makeovers will also include conversion to Walgreens’ pharmacy system, tying it into the other 6,700-plus stores in the chain, and the ability to offer pharmacist counseling and prescription labels in 14 languages.

“This will be a seamless transition for our new customers,” said Walgreens market VP Tim Anhorn. “In fact, many of the familiar faces they know and trust will continue to work at these locations. These stores will carry on the tradition of service that Drug Fair has built over more than 50 years in this region.”

In addition to the 31 Drug Fair stores it will continue to operate, Walgreens also has purchased the prescription files two other stores, one in Clifton and another in Morris Plains, N.J., which Walgreens plans to move to stores it already operates in those areas. The company said it also expects to complete transactions for two additional Drug Fair locations in the coming weeks.

With total sales of more than $340 million, including $170 million of it coming from prescription drug sales, Drug Store News had ranked Drug Fair no. 48 on its annual listing of the top 50 pharmacy retailers in America for 2008 (The Drug Store News PoweRx50 2008).

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