Target Takes Aim At Generics, Too
Minneapolis-based Target Corp., the country's No. 2 discounter behind Wal-Mart, said it would match its rival's lower prices on generic prescription drugs in the Tampa Bay area immediately "consistent with its long-standing practice to be price competitive with Wal-Mart."
Target operates 1,443 Target stores in 47 states.
Wal-Mart Thursday said it would slash the prices of almost 300 generic prescription drugs, offering a big lure for bargain-seeking customers and presenting a challenge to competing pharmacy chains and makers of generic drugs.
The drugs will be sold for as little as $4 for a month's supply and include some of the most commonly prescribed medicines such as Metformin, a popular generic drug used to treat diabetes, and the high blood pressure medicine Lisinopril.
Wal-Mart will launch the program Friday at 65 Wal-Mart, Neighborhood Market and Sams' Club pharmacies in Florida's Tampa Bay area. It will be expanded statewide in January and rolled out to the rest of the nation next year, company officials said Thursday.
A news release issued Thursday night did not say if Target would also expand its program as Wal-Mart does so, and the company did not immediately return a phone call seeking comment, but the statement said Target's long-standing practice is to be price-competitive with Wal-Mart.
A monthly supply of Metformin costs more than $25 at a national drugstore chain, reports CBS News correspondent Anthony Mason. Wal-Mart's (and presumably Target's) price of $4 means an annual savings of more than $250.
Lisinopril, a drug that treats high blood pressure, costs $17.49 at another major chain. A price cut to $4 would save a patient $200 a year.
The news sent the shares of big pharmacy chains like Walgreen's and CVS slumping because of fears that Wal-Mart's price cuts could cost them market share. Analysts said consumers will save an average of 20 percent and up to 90 percent in some cases. Shares of prescription drug management companies and some generic drugmakers fell as well.
Analysts said the risks to Wal-Mart are slim because profit margins on most of the drugs already are low.
"They are doing something that may be good for consumers, but they don't have altruistic motives," said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle. "They are capitalists. They still need to make a profit."
The program also could help the Arkansas-based retailer address an image problem stemming from its policies on health insurance coverage for employees.
"It's clearly an intention to blunt the deserved criticism for the miserable health coverage that Wal-Mart provides its employees," Ron Pollack of Families USA told CBS News.
Tampa Wal-Mart pharmacy customer Pat Sullivan, a retired Massachusetts police officer, said $4 generic prescriptions would be a tremendous help.
"I'm on disability and my benefits run out by the end of the month," he said. "It comes down to where do I go for a $100 prescription? I have no outlet other than to break a pill in half and take half today and half tomorrow."
The $4 prescriptions are not available by mail order and are being offered online only if picked up in person in the Tampa Bay area.
"It's a clear win-win for the customer. And it's an important win. Remember, generic drugs are part of the solution to a health cost problem," David Maris of Bank of America Securities said.
Bill Simon, executive vice president of the company's professional services division, told reporters that the generic drugs would not be sold at a loss to entice customers into the stores, a strategy that has been used in Wal-Mart's toy business.
"We're able to do this by using one of our greatest strengths as a company — our business model and our ability to drive costs out of the system, and the model that passes those costs savings to our customers," he said at a Tampa Wal-Mart. "In this case, we're applying that business model to health care."
Simon said Wal-Mart is working with the 30 participating drug companies to help them be more efficient. "We are working with them as partners. We are not pressuring them to reduce prices," he said.
Maris said in a report issued Thursday that the plan could "squeeze the generic manufacturers." But Kathleen Jaeger, president and CEO of the Generic Pharmaceutical Association, disputed that, saying Wal-Mart's plan will have "little impact" on its members.
"This is a big move. This is a big bold move from the nation's largest retailer," Maris told CBS News.
The initiative follows a series of moves by Wal-Mart to improve its health benefits since last October. They include relaxing eligibility requirements for its part-time employees who want health insurance, and extending coverage for the first time to the children of those employees. Last October, Wal-Mart offered a new lower-premium insurance aimed at getting more of its work force on company plans.
Rite-Aid and Walgreens executives both noted that Wal-Mart's list of the discounted generics contains only a small percent of the 1,500 and 1,800 generic drugs each offers, respectively.
Faced with soaring drug costs, consumers are increasingly turning to generic drugs, which often are made by multiple companies after the original patent on the medicines expire. The average monthly cost for a generic drug prescription is $28.74, according to the National Association of Chain Drug Stores. For branded drugs, that figure is $96.01.
The Generic Pharmaceutical Association, a trade association, said generic medicines account for 56 percent of all prescriptions dispensed in the United States, but only 13 percent of all dollars spent on prescription drugs.