- Over the course of 2018, Walgreens has managed to partner up or strengthen its relationships with more than half a dozen companies like LabCorp, Humana, and Alphabet's life sciences arm Verily.
- It's happening at a time when Walgreens faces stiff competition from the likes of Amazon, which got into the pharmacy business through PillPack, and CVS Health, which in November acquired acquired health insurer Aetna.
- The strategy is 'not enough,' according to one Wall Street analyst. Walgreens was down as much as 3% on Thursday after reporting earnings.
First it was UnitedHealth Group and Humana.
Then in the fall, it was LabCorp, Kroger, Birchbox and FedEx.
And on Wednesday, it was Verily, the life sciences arm of Google's parent company Alphabet, rounding out a busy year of partnership-forming or strengthening for pharmacy giant Walgreens.
The partnerships are an integral part of Walgreens' strategy to stay competitive as it faces stiff competition for customers. Walgreens is facing off against Amazon, which is getting into the pharmacy business through its acquisition of the online pharmacy PillPack; CVS Health, which is making a big bet on the healthcare aspect of its business through the acquisition of the insurer Aetna; and of course the retail giant Walmart.
With Verily, the plan is to offer a "virtual diabetes program" from Onduo, the joint venture between Verily and Sanofi, to Walgreens employees. It also makes Walgreens a commercialization partner for Verily, meaning that Walgreens would be the store that carries products Verily develops.
But there's skepticism about the cautious nature of these partnerships, because they fall short of the big transactions pursued by the company's rivals and are slow to add profits to the company's bottom line.
"Partnerships Not Enough," Eric Coldwell, an analyst at Baird Equity Research, wrote in an investor note. He called the company's earnings report out Thursday "underwhelming," and said the retailer needs to take bigger steps to cut costs and improve its business.
Walgreens reported its fiscal first-quarter earnings on Thursday, beating Wall Street's expectations but showing signs of weakness in some aspects of its business, especially its front-store sales and international pharmacy sales. Its stock was down almost 4% on Thursday.
Walgreens CEO Stefano Pessina has long said he prefers partnerships to large mergers and acquisitions.
"These deals are really based on synergies. So you have to be sure of the synergies, you have to strongly believe in the synergies," Pessina said at the Forbes Healthcare Summit in New York in November. "This is why we try to do the same thing, to form alliances and partnerships where we don't invest a substantial amount of money. The logic, what we try to achieve is the same thing."
Edward Jones analyst John Boylan said in a note Thursday that he likes that the company is doing the partnerships, though it remains to be seen what impact they have on the company's financial future.
"Many of these partnerships are still in their very early stages, and we would like to see if these services will have a notable impact on growth and profitability," Boylan said.
That's a big question on Wall Street. During Thursday's earnings call, a Bank of America Merrill Lynch analyst asked about when the company might expect to see financial contributions from the partnerships.
The answer: Eventually.
If the partnerships work in smaller pilots, Walgreens will expand them, Pessina said.
"If we have 15 stores or 20 stores, the contribution is there, but it's very small. When we will have thousands of stores, then we will start to see the contribution," Pessina said. "At the end, those partnerships will have a significant contribution to what we do."
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