Pharmacy retailers like Walmart, Kroger, and Rite Aid have seen an increase in sales due to the demand for prescription weight loss drugs. However, analysts caution that these drugs are not highly profitable for retail pharmacies and can even result in margin challenges.
Drugs like Wegovy and Ozempic by Novo Nordisk, which are classified as GLP-1s, have become incredibly popular in the past year. These drugs mimic a hormone in the gut that suppresses appetite. Other pharmaceutical companies, such as Eli Lilly and Pfizer, are also developing their own GLP-1s to tap into the potentially lucrative weight loss drug market, which is estimated to reach $200 billion by 2030.
While the demand for GLP-1s benefits pharmacy retailers like Walmart, Kroger, and Rite Aid in terms of increased sales, the profit margins on these drugs are low. An analyst from CFRA Research explains that retail pharmacies generate high sales from each GLP-1 prescription, but the profits are minimal. This has a negative impact on the overall gross margins of these retailers.
The prices of GLP-1s range from $900 to $1,300 in the US, leading to high sales amounts per prescription. However, these drugs have very low gross margins for pharmacies. As a result, the profitability of branded medications takes a long time to significantly contribute to a pharmacy’s bottom line. In contrast, generic drugs have much higher gross margins, making them more profitable for pharmacies.
The impact of GLP-1 drugs goes beyond the pharmacy business for retailers like Walmart and Kroger. Although they may experience margin challenges in the pharmacy, the increased foot traffic often leads to more purchases in other categories, mitigating the overall risk. Analysts suggest that the incremental traffic from GLP-1 drugs benefits discretionary categories for retailers like Walmart.
For companies like Rite Aid, CVS Health, and Walgreens, the impact of GLP-1s is more complex. These companies have retail pharmacies as well as other business segments directly affected by the boom in GLP-1 drugs. CVS, for example, operates a health insurer and a pharmacy benefit manager. While the increased demand for GLP-1 drugs poses a challenge for health insurers, it can benefit pharmacy benefit managers through negotiations and discounts. Each business segment is impacted differently by the rise in GLP-1 drugs.
Overall, while the weight loss drug industry presents significant opportunities for retailers, the profit margins on these drugs are low, leading to minimal profitability for retail pharmacies. The impact varies across different businesses within a retailer, with some benefiting indirectly through increased foot traffic. It is essential for companies to carefully manage the margin challenges while capitalizing on the potential for growth in the weight loss drug market.
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