Walgreens is gearing up for a strategic review of its business, including the role of its retail pharmacy stores and its healthcare assets, as company leadership and the board plot the future direction of the company, CEO Tim Wentworth said this week.
The drugstore retail giant is making moves to improve its financial performance and boost profitability after a massive growth spurt in which it acquired home healthcare business CareCentrix and VillageMD's acquisition of Summit Health-CityMD.
The company is on track with cost-cutting initiatives that aim to cut $1 billion in expenses this year. That effort also includes slashing capital expenditures by about $600 million. Walgreens plans to close 60 underperforming VillageMD clinics and exit five markets as part of an effort to improve profitability. It has already announced the closing of VillageMD clinics in Florida and plans to close clinics in Illinois next month.
"We are now meaningfully looking at the entire portfolio of assets that we have to ensure that everything we have is going to drive to the growth that we aspire to deliver," Wentworth, who took the reins at Walgreens about five months ago, said at the 44th Annual TD Cowen Health Care Conference.
"We've got some very interesting things inside the company; the work that particularly we are doing with payers and also in pharmacy services, the work we are doing with pharma in clinical trials and supporting vaccines and drug launches. We are looking to build a plan for 2025 and beyond that is not only believable, but executable," said Wentworth, who previously was CEO of both Evernorth, the health services division of Cigna Group, and Express Scripts.
He added, "We've done some very heavy lifting; we got more to do. This is not a quick story, but I believe that it will be a highly sustained story because the other thing that's very clear to me in every conversation I have is that a large-scale, community-based, engagement-driven, trusted brand has a meaningful role to play in healthcare over the next 20 or 30 years."
As he positions for a turnaround, Wentworth cautioned investors that the company's work to improve its financial performance would not be a "12-month turnaround story."
"There will not be a big bang after [the April strategic review] where we unveil some incredibly new Walgreens," he said, noting that the strategic review will be the "starting gun" for the work to be done and will result in a "road map" to demonstrate where Walgreens plans to invest.
As part of the review, Walgreens will evaluate its footprint of 8,600 retail stores and its healthcare assets including primary care provider VillageMD; Summit Health/CityMD, a provider of primary, specialty and urgent care; CareCentrix, a post-acute and home care provider; and specialty pharmacy Shields Health.
"The stores are central to our strategy. Now, it does not mean 8,600 stores are central to our strategy. We need to get the footprint right. We need to look at the fleet not based on what it's doing today, but what we need it to do in five years given our services aspirations and then reverse engineer what that footprint should look like, both the footprint in terms of the number of stores and the footprint in terms of types of stores by market, whether that's urban, suburban, rural, and whether that's a store that's delivering incremental health services, or one that's simply functioning more as a community pharmacy," Wentworth said.
Talking about the front of the store, or the retail section with over-the-counter products, Wentworth said Walgreens is focused on "engaging with a consumer where she or he wants to engage with the company."
"If she wants to drive through the drive-thru today, or she wants to order online and pickup in store next week, or she wants to order online and have it delivered to her home or she wants to come in the store and have a good experience. We have got to be able to deliver on all four of those well from a technology-supported perspective. And we aren't there all the way. The digital omnichannel experience is something that we can evolve meaningfully, and we've got some resources internally now that I think will put us a long way down there," he said.
Back in January, during Walgreens' first-quarter earnings call, Wentworth said the company was committed to its primary care business with VillageMD along with Summit Health and CityMD, but does not plan to invest in additional primary care assets.
Wentworth pushed back on media reports that Walgreens was exploring a sale of its specialty pharmacy company Shields Health. "Shields is a terrific asset, and I love the fact that we've got it and so from that standpoint, whatever you may have read, don't believe it. We are not announcing we're selling Shields. We are looking at Shields to make sure we think about the best way to get the most value for the marketplace and for ourselves by owning that."
But he did float the idea of a potential separation from Walgreens Boots Alliance.
"Even if we were making a decision today, which we've not, to execute some sort of separation with Boots, that is probably a 15-month transaction," Wentworth said.
Walgreens leaders are bullish on future growth in the healthcare businesses, he added. "That's not the question. The question is, are we the most appropriate place for that to sit as 100% owners in the case of most of those, not Village, do they belong in a different place? And how do those relationships enable us to grow our services business in the ecosystem in a complementary way?" Wentworth said.
The company also will evaluate its smaller assets, or what he referred to as "green shoots" in the business, such as its two-year-old clinical trials recruitment unit and its central services and investment in its multisite fulfillment facilities. The company has signed more than 35 clinical trial contracts with drugmakers including Freenome and Prothena.
"We're able to recruit diverse patient panels four times faster than pharma can do it themselves. Speed matters when you're doing trials. And, we get paid for it and it's a variable cost business. We hire humans and we use our data to deliver that value to pharma. We aren't buying clinics and building brick-and-mortar do it," Wentworth said. "These sorts of things, while any one of them may not look like it's 10% of our underlying earnings, is highly capital efficient, and two or three of those added together suddenly starts becoming a meaningful part of our growth story."
Back in January, Wentworth signaled the drugstore retail giant is exploring new pharmacy models as cost-plus drug pricing gains momentum. Competitor CVS announced in December it was overhauling the way it reimburses its pharmacies for prescription medications as the healthcare industry faces increased scrutiny for high drug prices.
"I think things like a cost-plus model will offer what I believe the market wants and I think what CVS was doing was responding to what the market is increasingly wanting at the payer level. I think that, therefore, to the extent that the market wants to pull these models forward, that's going to be good for us and pay us for the services we provide," he noted during the TD Cowen Health Care Conference.
The company's second-quarter earnings call is scheduled for March 28.