Wal-Mart move intensifies generic drugs price war

Wal-Mart move intensifies generic drugs price war
By Christopher Bowe and Jonathan Birchall in New York
Copyright The Financial Times Limited 2006
Published: September 22 2006 03:00 | Last updated: September 22 2006 03:00


Wal-Mart, the largest US retailer, yesterday shook up the US healthcare industry by saying it would slash the prices of nearly 300 generic drugs sold at its in-store pharmacies by as much as 60per cent.

Bill Simon, who oversees the retailer's pharmacy unit, said the company would start charging only $4 for a month's supply of some of the most widely used generics - copies of branded drugs whose patents have expired.

The move reflects growing scrutiny of generic drug prices, the retail prices of which often contain a large mark-up for middlemen including pharmacies and distributors.

Mr Simon said the programme, initially launched at 65 stores in Florida, would extend across the state by January next year, and then be extended to the retailer's nationwide network of more than 3,000 stores. Wal-Mart's $4 price for a 30-day supply of metformin, the most widely used entry-level diabetes drug, will be 49 per cent lower than the branded drug price. A similar $4 supply of lisinopril, a high-blood pressure medicine, was 67 per cent lower than brand prices.

Even with the planned reductions, he said Wal-Mart would not be selling the drugs at a loss, and that the company was not pressuring manufacturers for price cuts. Wal-Mart's move also comes on the heels of a crackdown on some generic drug pricing by UnitedHealth Group, the second-largest US health insurer. UnitedHealth has challenged the belief that generics are always cheaper, moving to discourage the use of 27 generic medicines because they were more expensive to the insurer than deeply discounted branded alternatives.

The leading US drug store chains, who make most of their profits from generic sales, saw their shares fall yesterday on the news. CVS was down 9 per cent to $32.27, while Walgreens fell 6 per cent, to $46.96, and RiteAid 6.5 per cent, to $4.45.

The US generic market faces increasing pricing pressure as more and more competition enters the lucrative market. This competition is pressuring manufacturers' margins, and moves such as Wal-Mart's adds to this pressure, according to David Maris, Bank of America analyst.

Wal-Mart this summer launched a marketing campaign focused on its pharmacy business, which it hopes can attract more customers and increase overall sales across its stores. Mr Simon said the pharmacies "are geared up to deal with significant volume increase" as a result of the new prices.

Over the past year, Wal-Mart has responded to political criticism of its healthcare provision for its own workers by saying it is committed to reducing overall healthcare costs. It is expanding a network of walk-in clinics in its stores, which offer lower cost care for basic medical issues.