Citigroup doesn’t think Wal-Mart price cut move is significant
Yesterday’s price cut on generic drugs, led by Wal-Mart and quickly matched by others, shouldn’t have a big impact on other players in the pharmaceutical supply chain, according to Citigroup analyst Charles Boorady.
Upon perusal of [the list of drugs to be sold for $4] we find no change to our [earning estimates for PBMs] and therefore find the stock drop unwarranted. The vast majority are drugs PBMs bill and collected almost nothing for anyway because (1) were already low priced, (2) mostly acute drugs such as antibiotics and not maintenance meds, or (3) OTC drugs like multivitamins or pain meds
That narrow analysis is probably on target, but as I posted last night, the danger to payers is that it represents the beginning of the end of routine costs being paid by insurance, by making people see that it’s not worth the hassle. For example, here’s an excerpt of an email I received today from a family member:
I see in the paper today that K-Mart is offering generic drugs, including Atenolol, which I take, for $4 per 30 pills. After my insurance coverage does its thing, I pay $20 for 90 pills. Interesting.
That’s the kind of realization I’m talking about. Unlike Boorady, I don’t think the market oversold these stocks.September 22, 2006