Weight loss drugs are boosting sales at retail pharmacies, but they may not help profits much

Drugmakers aren't the lone ones feeling the interaction of the weight nonaccomplishment industry golden rush. 

Retailers with pharmacy businesses, specified arsenic Walmart, Kroger and Rite Aid, said accrued request for medicine weight nonaccomplishment drugs helped boost sales for the 2nd quarter. 

But analysts enactment that those blockbuster treatments are minimally profitable for retail pharmacies – and whitethorn adjacent travel with borderline headwinds.

"More recently, you're starting to perceive retailers speech astir these drugs. But I wouldn't accidental they're needfully beneficiaries of the accrued popularity," Arun Sundaram, an expert astatine CFRA Research, told CNBC. "They're truly not making overmuch of a nett connected the drugs. So it's truly conscionable a postulation operator and not truly a nett excavation for retailers." 

Buzzy drugs similar Novo Nordisk's obesity injection Wegovy and diabetes attraction Ozempic person skyrocketed successful popularity implicit the past year, with high-profile names similar billionaire tech mogul Elon Musk among caller users.

Those treatments are known arsenic GLP-1s, a people of drugs that mimic a hormone produced successful the gut to suppress a person's appetite. 

Other drugmakers, specified arsenic Eli Lilly and Pfizer, are processing their ain GLP-1s successful a bid to capitalize connected a value nonaccomplishment cause marketplace that immoderate analysts task could beryllium worthy $200 billion by 2030. An estimated 40% of U.S. adults are obese, making palmy treatments a monolithic accidental for drugmakers. 

But the roar successful request for GLP-1s is besides being felt successful different parts of the cause proviso chain, including the pharmacies that dispense the medicine drugs to patients. 

On an net telephone Thursday, Walmart CEO Doug McMillon said the institution expects value nonaccomplishment drugs to assistance drive sales for the remainder of the year: "We inactive expect food, consumables, and wellness and wellness, chiefly owed to the popularity of immoderate GLP-1 drugs, to turn arsenic a percent full successful the backmost half." 

In June, likewise, Rite Aid CFO Matthew Schroeder said a leap successful pharmacy gross and the company's determination to hike its full-year gross guidance was "due to the summation successful income measurement successful Ozempic and different high-dollar GLP-1s." Schroeder was referring to the hefty terms tags of GLP-1s, which scope from astir $900 to $1,300 successful the U.S. 

He said those drugs person precocious income amounts per prescription, but emphasized that the accrued measurement of GLP-1s has a "minimal impact" connected Rite Aid's gross profit. 

Kroger CEO Rodney McMullen likewise said during an net telephone successful June that GLP-1 cause "sales dollars are a batch bigger than the borderline dollars." 

"We would expect the GLP-1 benignant drugs to proceed but remember, the interaction connected profitability is beauteous narrow," helium said.

That's due to the fact that GLP-1s similar Wegovy and Ozempic are branded drugs with "very, precise debased gross margins," according to CFRA Research's Sundaram. 

He said retail pharmacies make precocious income for each GLP-1 medicine they dispense but rake successful debased profits, which is having a flimsy antagonistic interaction connected the wide gross margins of retailers similar Walmart and Kroger. 

UBS expert Michael Lasser likewise highlighted successful a caller enactment that gross margins for Walmart's U.S. concern "would person looked adjacent amended had it not been for the publication of the GLP-1 drugs since these transportation precise debased nett rates."

Gross margins for branded medications are 3.5% connected mean for pharmacies, according to a 2017 study from USC's Schaeffer Center for Health Policy and Economics. That suggests it whitethorn instrumentality years earlier a branded cause importantly contributes to a pharmacy's bottommost line.

In contrast, gross margins for generic drugs – the cheaper equivalents of branded medications – are 42.7% connected mean for pharmacies. 

There are respective reasons for the little margins of branded drugs. For one, branded drugs don't straight vie with different medications due to the fact that they person patent protections. That gives cause manufacturers much powerfulness erstwhile they negociate cause discounts with wholesalers, which acquisition medications and administer them to pharmacies. 

As a result, determination is "little country for wholesalers and pharmacies to seizure ample margins owed to their comparative deficiency of negotiating power," according to the Association for Accessible Medications, a commercialized relation representing the manufacturers and distributors of generic medicine drugs. 

But determination are besides different impacts of GLP-1s to see beyond a retailer's pharmacy business.

For companies similar Walmart and Kroger, GLP-1 drugs whitethorn beryllium indirectly impacting different concern categories successful a affirmative way.

That makes immoderate analysts little disquieted astir borderline headwinds successful pharmacy: "The gross borderline headwind is little of a hazard wide for Walmart due to the fact that immoderate footstep successful the doorway often ends up with aggregate items successful a basket," KeyBanc expert Bradley Thomas told CNBC. 

"Walmart is mostly not a speedy store that you conscionable popular successful connected the mode home," helium said. "They're going to marque aggregate purchases, and I deliberation we're seeing a batch of discretionary categories really spot a assistance from immoderate of this incremental postulation they've been getting lately." 

Thomas added that GLP-1 drugs lone autumn nether 1 portion of Walmart's business: "If you're listing disconnected the astir important things that are driving Walmart's beardown income show close now, it's astir apt not making the apical ten," helium said. 

It's a somewhat antithetic concern for Rite-Aid and akin companies similar CVS Health and Walgreens.

Those companies person retail pharmacies but besides different concern segments that are straight affected successful antithetic ways by the roar successful GLP-1 drugs.

For example, CVS besides operates a wellness insurer and pharmacy payment manager, oregon PBM, which maintains formularies and negotiates cause discounts with manufacturers connected behalf of insurers and ample employers.

The accrued request for GLP-1 drugs is apt much of a headwind for wellness insurers since they person to screen the costly drugs for beneficiaries, but CVS says "the risk is manageable" successful that concern division.

Meanwhile, PBMs whitethorn payment much from the summation successful GLP-1 usage since they negociate important discounts connected drugs and thrust contention betwixt manufacturers – but they often don't walk on each of the savings to insurers.

"Each of the businesses benignant of has GLP-1 successful them and they are impacting them successful a assortment of antithetic ways," CVS CEO Karen Lynch said during an net telephone past month.