Walgreens to Invest $5.2 Billion in VillageMD

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The pharmacy chain plans to add doctors’ offices to hundreds of drugstores

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The drugstore company already has a stake in VillageMD after agreeing to pay down $1 billion in equity and debt over three years in exchange for a 30% stake in the Chicago-based startup last summer. Under the deal announced on Thursday, Walgreens will have a 63% stake in VillageMD.

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The deal is the first major strategic move under Walgreens chief executive Rosalind Brewer who moved to the company from Starbucks in January. Shortly before joining, Walgreens completed a deal to sell its pharmacy wholesale unit to AmerisourceBergen Corporation

for $6.5 billion and indicated it could use the proceeds to push deeper into healthcare.

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“A primary reason for launching this partnership is that they are focused on all patient populations,” Ms Brewer said Thursday, adding that the chain serves private and government plans and uninsured patients. “Our ability to provide care through ownership and partner assets is critical for us to better care for them beyond the pharmacy.”

Walgreens said VillageMD is planning an initial public offering in 2022. It will continue to be a standalone company with its own board and management.

Walgreens and Rival CVS Health Corporation

Are in a race to become the go-to treatment center, especially for patients with expensive, difficult-to-manage chronic conditions. They want to move beyond retail to provide more health services such as mental-health counseling and chronic care.

Both chains are looking for new ways to counter the small revenue from prescription drugs, which make up the bulk of their sales. They’re also battling Amazon.com Inc.,

Which has turned shoppers away from physical stores and launched an online pharmacy.

Also on Thursday, Walgreens said it would acquire a majority stake in CareCentrix Holdings Inc., a Hartford, Conn.-based home healthcare benefits manager. Walgreens said it derives 85% of its revenue from about 35 million customers who have chronic conditions such as diabetes or heart disease.

Ms Brewer said the expanded stake in CareCentrix and VillageMD will help the company manage rising costs for high-risk patients. “These are the same patients who often come to our stores and visit our pharmacists,” she said.

The chain will break out a business segment, called Walgreens Health, and is investing in making it cheaper and easier to fill prescriptions. Among the plans: employing a strategy called microfulfillment — increasingly popular in retail — for its pharmacy business. The model seeks to accelerate the delivery of goods to consumers by complementing larger, centralized distribution centers with smaller, more abundant operations.

Walgreens has two microfilament centers in the Dallas and Phoenix areas, serving more than 1,000 of its approximately 9,000 locations. It plans to add nine more by the end of next year, which will serve 3,900 stores; And by 2024, an additional 22 locations will have 8,500 stores available. The company said the centers will cut working capital costs by $1.1 billion by 2025.

For the latest quarter, Walgreens reported increased revenue from administering Covid-19 vaccines and tests. The company said it provided 13.5 million vaccinations in the three months ended August 31 and more than 40 million vaccinations since the start of the pandemic.

The company reported sales of $34.26 billion for the fiscal fourth quarter, up from $30.37 billion in the same period last year and exceeded Wall Street estimates. Profit increased to $627 million from $373 million in the same period last year.

Sharon Terlep at [email protected]

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