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Report: Supermarket pharmacies to get lift from generics
September 28th, 2011
NEW YORK – Supermarket chains with sizable pharmacy operations will see their gross profits edge up next year as brand-name drugs lose patent protection and higher-margin generic versions of those medications hit the market, according to a report from Moody's Investors Service.
The rating agency said Wednesday that Kroger Co., Safeway Inc. and Supervalu Inc. — all of which operate food and drug combination stores under various banners — are among the large U.S. supermarket chains slated to see their profits climb as they fill a rising number of generic prescriptions.
Moody's noted in its report, "Generic Drugs Are Healthy Rx for Supermarkets," that those retailers derive about 8% to 10% of their total annual retail sales from pharmacy operations.
"We project a low-single-digit percentage increase in 2012 gross profit dollars for the three largest supermarket chains," Mickey Chadha, vice president and senior analyst at Moody's, said in a statement. "But the overall impact of the upcoming generic drug wave on supermarkets' bottom line will depend on their ability to manage inflationary pressures, increasing competition from alternative food retailers and operating costs."
The report pointed out how gross margins per prescription on generic drugs are much higher than on brand-name drugs and that even though generic drugs' lower prices depress pharmacies' sales growth, they help expand margins.
Moody's said the upcoming wave of patent expirations over the next 14 months includes seven of the world's 20 best-selling prescription drugs, including Pfizer Inc.'s Lipitor and Bristol-Myers Squibb Co.'s Plavix.
Still, the rating agency added that it expects any upside from higher-margin generics to be limited by reimbursement pressure from pharmacy benefit managers. The report noted that PBMs will likely push hard to trim reimbursement rates for generic prescriptions.