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Walgreens reports $76.4 billion in annual sales, up 5.8%

BY Michael Johnsen

 

DEERFIELD, Ill. — Walgreens Tuesday morning posted fourth-quarter sales of $19.1 billion, representing an increase of 6.2% compared to the year-ago period, while sales for the fiscal 2014 ended Aug. 31 increased 5.8% to a record $76.4 billion. 
 
Front-end comparable store sales increased 1.3% in the fourth quarter compared with last year’s fourth quarter. Customer traffic in comparable stores decreased 2.2% and basket size increased 3.5%, while total sales in comparable stores increased 5.4%. Walgreens Balance Rewards loyalty program reached 82 million active members at the end of this year’s fourth quarter.
 
Prescription sales, which accounted for 65.7% of sales in the quarter, increased 9.3% compared with last year’s quarter, while prescription sales in comparable stores increased 7.8%. The company filled 211 million prescriptions in the quarter, an increase of 4.2% over last year’s fourth quarter. Prescriptions filled in comparable stores increased 3.9% in the quarter.
 
In fiscal 2014, Walgreens filled a record 856 million prescriptions. The company continued to see strong growth in prescriptions filled for Medicare Part D patients, which increased 9.2% in the fourth quarter compared with last year’s quarter. Since the beginning of fiscal 2013, Walgreens Medicare Part D prescription market share has grown more than twice as fast as its overall retail prescription market share, the company stated.
 
“Our fourth quarter performance was in line with our expectation, recognizing we have much more to do. We closed the fiscal year by exercising the option for the second step of our strategic transaction with Alliance Boots, completing the transition of our pharmaceutical distribution to AmerisourceBergen and driving continued improvement in our daily living business that resulted in our largest year-over-year quarterly and fiscal-year sales increases in three years,” stated Walgreens president and CEO Greg Wasson. “While continuing to work through pharmacy margin pressure, we were able to achieve improved top-line pharmacy growth as our retail pharmacy market share for the fiscal year increased 30 basis points to 19%. Finally, we maintained solid expense control in the fourth quarter and are moving forward with the implementation of our previously announced cost-reduction initiative to achieve $1 billion in savings by the end of fiscal 2017.”
 
Walgreens realized a net loss determined in accordance with generally accepted accounting principles for the fiscal 2014 fourth quarter of $239 million, compared with net earnings of $657 million in the same quarter a year ago. Net loss per share for the quarter was 25 cents, compared with earnings of 69 cents per diluted share in the year-ago quarter. This year’s quarter was negatively impacted by an $866 million, or 90 cents per diluted share, non-cash loss on the amendment and exercise during the quarter of the company’s Alliance Boots call option.
 
This non-cash loss resulted from a reduction in the amended option’s fair value (without regard to its strategic value) compared with the original option’s book value, primarily due to the reduction in the duration of the amended option and the appreciation since the original valuation in the price of Walgreens stock to be used as partial consideration for the purchase of the remaining 55% ownership interest in Alliance Boots.
 
Adjusted fiscal 2014 fourth quarter net earnings were $714 million, a 1.7% increase. Adjusted net earnings per diluted share for the quarter increased 1.4% to 74 cents, compared with 73 cents per diluted share in the year-ago quarter. This year’s fourth quarter earnings adjustments had a net positive impact of $953 million or 99 cents per diluted share. 
 
Adjusted net earnings for fiscal 2014 ended Aug. 31 were $3.2 billion, an increase of 6.1% compared with adjusted net earnings of $3 billion in fiscal 2013. Adjusted net earnings per diluted share for fiscal 2014 increased 5.1% to $3.28, compared with $3.12 per diluted share in fiscal 2013. Earnings adjustments for the fiscal year had a net positive impact of $1.2 billion, or $1.28 per diluted share.
 
The combined synergies for Walgreens and its strategic partner, Alliance Boots, in fiscal 2014 were $491 million. The joint synergy program is estimated to deliver fiscal 2015 combined synergies of approximately $650 million. Alliance Boots contributed 6 cents per diluted share to Walgreens fourth quarter 2014 adjusted net earnings. The company estimates that the accretion from Alliance Boots in the first quarter of fiscal 2015 will be an adjusted 10 to 11 cents per diluted share, including a 2-cent benefit related to Alliance Boots’ acquisition of its partner’s interest in a joint venture. This estimate does not include amortization expense, the impact of AmerisourceBergen warrants or one-time transaction costs. 
 
During fiscal 2014, the company generated operating cash flow of $3.9 billion and free cash flow of $2.8 billion. Walgreens also increased its quarterly dividend rate declared in August by 7.1% to 33.75 cents per share, consistent with the company’s goal of returning cash to shareholders. This marked the 39th consecutive year in which Walgreens increased its shareholder dividend.
 
GAAP total gross profit dollars increased $136 million, or 2.6%, compared with the year-ago fourth quarter, with gross profit margins decreasing 90 basis points versus the year-ago quarter to 28 as a percentage of sales. Adjusted gross profit dollars increased $133 million, or 2.6%, compared with the year-ago fourth quarter.
 
Pharmacy gross profit dollars were negatively impacted by lower third-party reimbursement and generic drug price inflation, which were partially offset by an increase in the brand-to-generic drug conversions compared with the year-ago quarter. Both pharmacy and front-end margins benefitted from purchasing synergies from the company’s joint venture with Alliance Boots. 
 
The company opened or acquired 46 new drug stores in the fourth quarter compared with 33 in the year-ago quarter. In fiscal 2014, Walgreens added a net gain of 21 new drug stores in addition to 70 net new drug stores through acquisitions.
 
As of Aug. 31, Walgreens operated 8,309 locations with a presence in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. The company has 8,207 drug stores nationwide, a net gain of 91 compared with a year ago. Walgreens also operates infusion and respiratory services facilities, specialty pharmacies and mail service facilities, and manages more than 400 Healthcare Clinic and provider practice locations around the country. Walgreens digital business includes Walgreens.com, drugstore.com, Beauty.com, SkinStore.com and VisionDirect.com.

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Health experts discuss improving access to specialty meds through V-BID approach

BY Antoinette Alexander

NEW YORK — Complex specialty medications often represent the most appropriate clinical recommendation for patients battling such serious health conditions as cancer, rheumatoid arthritis and multiple sclerosis but they can be complicated to deliver and carry very high costs. However, some health experts argue that there are tactics that payers and purchasers can deploy to help improve patient access.

One such tactic — Value-Based Insurance Design — is getting a lot of attention and was the topic of a Webinar that the National Pharmaceutical Council hosted on Monday.

The Webinar, moderated by Kimberly Westrich, director of Health Services Research at NPC, included presentations by:
• A. Mark Fendrick, director of the University of Michigan Center for V-BID;
• Will Shrank, chief scientific officer and chief medical officer, provider innovation and analytics, CVS Health; and
• Brian Klepper, CEO of the National Business Coalition on Health.

Specialty pharmaceuticals can be extremely effective in treating serious health issues, but the reality is that such drugs come at a cost — a high cost. In fact, the NCP noted that $600 or more per month is a common threshold. Or, for a specific example, consider the Hepatitis C treatment Sovaldi, which has a list price of approximately $1,000 per pill and $84,000 for a 12-week course.

Today, roughly one-quarter of total pharmaceutical spending in the commercial market is dedicated to specialty drugs, and, if the current trend holds, it may comprise half of all pharmaceutical expenditures by 2018.

In an effort to reign in spending, many payers have established requirements for high consumer cost sharing for specialty medications. However, such requirements often lead to non-adherence for many patients and that means poor health outcomes. That’s where V-BID comes in.

While V-BID programs are not exactly a new concept, some health experts are recommending that V-BID principles be applied to specialty medications. Currently, most V-BID programs focus on removing financial barriers for drugs to treat chronic conditions like diabetes and asthma.

V-BID is a tactic that payers and purchasers can use to promote access to high-value specialty medications, according to some health experts. It is a model of insurance design that provides more generous coverage for services that offer known, evidence-based value and less generous coverage for those where value is low, as explained by the NCP. In other words, V-BID is pivoting your thinking from “how much” to “how well” health dollars are being spent. It is driven by the concept of clinical nuance, which recognizes that medical services differ in the benefit they provide, and that the clinical benefit derived from a specific service depends on the patient using it and when/where the service is provided.

“I think we should have a robust dialogue on what the role of incorporating clinical nuance in a benefit design might be as we look more carefully and rigorously at the evidence around specialty pharmaceuticals,” Fendrick told attendees.

Added Fendrick, “We would very much like to see a reduction, or in some cases, an elimination of financial barriers to high-value clinical services and those high performing providers.”

Echoing the sentiment, Shrank said, “This is a less of a revolution and more of a modest evolution, I think, from a standard Value-Based Insurance Design to now this notion of a specialty Value-Based Insurance Design.”

Shrank went on to discuss a recent analysis done by the CVS Health Research Institute that outlined some of the challenges regarding Sovaldi, the highly effective — yet highly expensive — treatment for Hepatitis C introduced in December.

“Here we are finding ourselves in this really, really unique and sort of challenging scenario where it is not about the quality or value of the drug but is more about the population effects of the very expensive drug,” said Shrank. “It is here that we find these Value-Based Insurance Design questions to really resonate.”

Representing the purchaser perspective in Monday’s discussion, Klepper called for “equal scrutiny.”

“What I’m getting at is that the approaches that we take need to be financially nuanced, as well as clinically nuanced, and there are lot of questions here. For example, why do we need to take the current pricing structure of any particular drug for granted?” Klepper said. “… The deeper questions might be things like: What is the actual development cost? What is pricing in other countries for the same thing? And what care cost does this particular drug displace? What are the contributions to total profitability? If this is, in fact, such a wonderful thing then are the manufacturers willing to go at risk for their performance? … These are important questions and they need to be asked.”

 

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Bai Brands to debut new health-conscious beverage

BY Ryan Chavis

HAMILTON, N.J. — Bai Brands on Monday announced the launch of Bai Bubbles, a carbonated beverage that adds to the company's line of antioxidant infusions. The beverage will be available in the New York City area, with distribution support from Dr. Pepper Snapple Group.  Bai Bubbles will join the brand's existing line of Bai5 products.
 
"Bai has figured out the answer to the diet dilemma by creating five-calorie, all-natural, great-tasting beverages with Bai5. Now, with Bai Bubbles, we're offering an effervescent experience with delicious flavors but without the artificial sweeteners or calories found in most carbonated beverages," said Ben Weiss, Bai's founder and CEO.
 
Bai Bubbles will be available in seven flavors: Bolivia Black Cherry, Peru Pineapple, Gimbi Pink Grapefruit, Waikiki Coconut, Jamaica Blood Orange, Indonesia Nashi Pear and Guatemala Guava. Each flavor will be available in a 11.5-oz. can, with five calories and one gram of sugar. A national retail rollout is expected to commence in first-quarter 2015.
 
"It's in Bai's DNA to disrupt the marketplace and move it in a healthier direction. Bai Bubbles will hit the 'sweet spot' for the many consumers who prefer carbonated beverages but who also crave healthier options without having to sacrifice taste," Weiss said.
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