This note updates our argument that US retail pharmacy networks are likely to narrow, compressing pharmacy dispensing margins – and in particular focuses on our belief that a WBA/RAD or CVS/RAD NEWCO is better able to withstand such margin pressures
If we assume no payor is willing to construct a retail pharmacy network that violates the TriCare/CMS standards for pharmacy proximity, then as of today 19.1% of the US population lives in a geography where WBA must be included in pharmacy networks (because to exclude WBA would require violating minimum access standards). For CVS this value is 17.6%
After controlling for divestitures, 28.8% of the US population lives in a geography where a WBA/RAD NEWCO could not be excluded from the pharmacy network, and 26.6% live in a geography where a CVS/RAD NEWCO could not be excluded
We reiterate our viewpoint that RAD is a highly valuable strategic asset to either WBA or CVS, and so is reasonably likely to be acquired. We further reiterate that either deal is likely to be highly accretive, despite RAD’s recent outperformance
For our full research notes, please visit our published research site
