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Rite Aid executives Wednesday said the smaller pharmacy chain will focus on eight states on the West and East coasts and grow its pharmacy benefit manager following the sale of nearly 2,000 stores to Walgreens Boots Alliance.
The smaller Rite Aid plans to use its EnvisionRx PBM as a key “growth engine for the entire enterprise,” Rite Aid President Kermit Crawford told analysts on a 70-minute conference call Wednesday evening to discuss its fiscal third quarter earnings. Rite Aid said its PBM is growing rapidly and will add more than 100,000 customers who purchase Medicare Part D drug benefits this year, growing a business that has already “surpassed 500,000 lives.”
PBMs are middlemen between drug makers and their employer and insurer clients when it comes to purchasing prescriptions. Lately, PBMs have been forming closer ties with larger insurers given CVS Health, which operates a PBM, is buying Aetna, the nation's third largest health insurer, and UnitedHealth Group, the nation's largest health insurer, already owns the OptumRx PBM. Some have questioned whether PBMs are passing along all of the savings they could to employers, taxpayers and consumers so insurers have been seeking closer ties to improve transparency and make sure they are getting the best deals for their customers.
In Rite Aid’s case, company executives said clients and customers are looking for alternatives to the “jumbo” PBMs . Rite Aid said it plans to invest more in EnvisionRx in the future.
Still, Rite Aid executives said they were pleased with the performance of EnvisionRx despite the uncertainty of the PBM’s future during the last two years. During this time, Walgreens was trying to buy all of Rite Aid amid antitrust scrutiny from the Federal Trade Commission that ultimately led to the deal’s undoing.
Instead, Walgreens and Rite Aid agreed to a smaller deal that involved Walgreens buying about 1,900 stores for $4.3 billion. Walgreens is buying the Rite Aids through the early part of this year. over a period of time, ending later this year.
Going forward, Rite Aid will have more than 2,500 stores located in eight states: California, Pennsylvania, Michigan, Ohio, New York, New Jersey, Washington and Oregon. Though Rite Aid is a smaller company, executives said the markets they are remaining in have greater share than the stores that they are selling.
“I am confident we will succeed in building the new Rite Aid,” said Crawford, who joined Rite Aid three months ago after working at private equity firm, Sycamore Partners. Before that, he was with Walgreens for more than 30 years, mostly recently in senior executive positions.
Crawford and CEO John Standley are working to turn Rite Aid into a more profitable smaller firm. In the company’s fiscal third quarter, which ended Dec. 2, 2017, Rite Aid reported net income of $81 million, or 8 cents per share. Revenues were down 5.6% to $5.4 billion.
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"The third quarter was a busy time for our team in preparing for and beginning the transfer of stores and related assets to Walgreens Boots Alliance," Standley said in a statement accompanying the earnings report. “To date, we have transferred 357 stores and have received approximately $715 million in proceeds, which we have used to pay down debt. Looking forward, in addition to completing the transfer process, we will continue to focus on our most significant business-building opportunities as we work together to deliver a great experience to our customers and patients."
