Wal-Mart Adds New Drugs to Generic Offering Programme

Wal-Mart has introduced new additions to its US$4 and US$10 prescription drug schemes, increasing the ambit of choice for cheap drugs and potentially increasing savings for U.S. consumers. The additions and new initiatives are as follows:

• US$4 Prescription Drugs Scheme: The scheme, offering 90-day supplies of drugs for US$10, has been expanded to include 350 drugs at its Neighbourhood Market, Sam's Club and Wal-Mart outlets.
• Inclusion of Women's Health Treatments: Wal-Mart has added the newly off-patent Fosamax (alendronate), indicated for the treatment of osteoporosis, which is priced at US$9 for a 30-day supply and US$24 for a 90-day supply. Also included are breast cancer drug tamoxifen, menopause drugs, and hormone deficiency treatments oestrogen/methyltestosterone. Wal-Mart estimates that savings of US$100 million will be made annually from its women's health treatment schemes alone.
• Over-the-counter drugs: The chain has also expanded its scheme that offers 30-day supplies of drugs for US$4 to include over-the-counter (OTC) drugs, with an initial list of 1,000 drugs at prices of US$4 or less. The list includes Zantac, Pepcid and Claritin, among others.

Wal-Mart claims to be including up to 95% of all prescriptions in major therapeutic categories in its US$4 scheme. The prescription programme was first initiated in September 2006 through its Sam's Club and Neighbourhood Market outlets. Similar programmes have also been introduced in other countries, such as Mexico, Brazil and Puerto Rico, enjoying similar levels of success.

Outlook and Implications

The new additions in the two flagship schemes from Wal-Mart's generic drugs programme will bolster the company's revenues, raising the contribution of the prescription sales (currently at 9%) to overall sales. In the fiscal year ending 31 January 2008, Wal-Mart registered U.S. sales of US$215 million from prescription drug and OTC drug sales, according to Wall Street Journal figures. So far, the scheme has been fairly successful due to its rock-bottom prices, which Wal-Mart claims to be 50% lower than those of other supermarket pharmacy chain stores. One of the main criticisms of the scheme is that it includes older drugs, where the segment is already facing intense pricing competition. The inclusion of alendronate immediately after the drug went off-patent signals further pricing competition in that segment, at a time when generic firms are inflicting price erosion. The expansion in Wal-Mart's scheme will directly benefit the United States' 47 million uninsured people, who are at the heart of the debate surrounding savings and higher healthcare costs.

This expansion is clearly meant to take on competition from not only smaller pharmacy chains but also from popular mail-order pharmacy businesses. It is imperative that, following the price cuts announced by Wal-Mart, other pharmacy chains are forced to follow suit in order to retain customer numbers. This will affect their already strained financial results, making their business model vulnerable. With insurers also providing deep discounts for prescribing generics, the squeeze will be very much on pharmacy chains. Firms such as Walgreen Co., CVS Caremark, and smaller competitor Rite Aid Corp (all U.S.) indicate that sales have been particularly weak in late 2007, when Wal-Mart and other discount chains announced new pricing regimes. Walgreen reported a 2.6% increase in sales from stores open for at least a year, while pharmacy same-store sales rose by only 3.3% year-on-year (y/y) in December.

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