Dive Brief:
- Walgreens is reportedly in talks to buy drug distributor AmerisourceBergen, according to the Wall Street Journal. Walgreens already owns 26% of the distributor and has a representative on Amerisource's board.
- Amerisource is one of the largest drug distributors in the U.S., with a market value of $19.6 billion, and Walgreens is the largest drugstore chain in the world, with 13,000 stores in 11 countries.
- Sources told WSJ the talks between Walgreens and Amerisource are still in the early stages, and there's no indication the acquisition would happen imminently.
Dive Insight:
Walgreens' potential move to buy Amerisource is a step toward vertical integration in the supply chain, as the drug retailer would be acquiring the drug distributor.
The proposed takeover is arguably a response to the CVS-Aetna merger announced in December 2017. That deal allows CVS to control numerous parts of its drug supply chain, which streamlines operations and cuts costs — and perhaps most importantly, allows it to compete with rival drugstore Walgreens.
Walgreens may also be looking to compete with Amazon, which has indicated an interest in the healthcare and pharmaceutical businesses.
Should the deal go through, big costs savings for Walgreens could follow. Ownership of Amerisource would eliminate middle-man costs that Walgreens usually pays to a distributor, thereby enabling Walgreens to keep a greater share of its margins from drug sales.
Streamlining operations is both a blessing and a curse, however. If Walgreens owns its distributor, it will be more likely to single source its drugs from Amerisource. The decision would leave little to no fallback options for alternative suppliers if an issue were to arise within Amerisource. It could also limit the variety and types of drugs Walgreens is able to buy and sell to consumers.
