Drugs for a penny? It's all about volume

Amid patent cliff, chains must replace sales with volume

Earlier this week, DSN reported that members of a prescription drug program offered by Humana to Medicare beneficiaries will soon be able to obtain 10 generic hypertension drugs from Walmart for a penny.

It's certainly good news for people with high blood pressure, but it also has big implications for the pharmacy retail industry.

In a recent interview with DSN for a company profile to appear in the December issue of the magazine, Rite Aid EVP pharmacy Robert Thompson said that with the drops in sales that retail pharmacies are seeing because of generics, they will have to replace sales with volume — that means chains getting more customers into the store and distinguishing themselves through service.

Walmart made a big splash when it launched its $4 generics program in 2006, whereby patients could get 30 days' worth of certain generic drugs for that much, a program later expanded to include 90-day supplies of drugs. At the time, critics said it would take the profitability out of generics, but it wasn't long before drug, supermarket and mass merchandise chains from coast to coast were offering nearly identical programs of their own.

The latest initiative from Walmart is part of an evolution that's been happening in the whole idea of generic discount programs. While it's unlikely that any chain will institute a broad price reduction of its $4 generics to 1 cent, several chains have selectively offered huge price reductions — or eliminations, to be more specific — on certain generic drugs. At the beginning of September, Meijer announced it would offer generic versions of Pfizer's cholesterol drug Lipitor (i.e., atorvastatin calcium) for free. That's in addition to the many other chains giving away supplies of antibiotics and prenatal vitamins.

Obviously, a store doesn't make anything by selling drugs for a penny, let alone giving them away for free, but as analysts have suggested to DSN, that's not the point. As with vaccinations and pet medications, super-cheap or free generics are more about getting more customers, which ultimately means better sales overall. It's not a race to the bottom — retail pharmacies just have to start climbing a different hill.

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