Company to focus on consumer-centric health solutions
DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) on Thursday announced a new long-term growth strategy based on delivering consumer-centric health care. As part of that effort, the company is launching a new business segment, Walgreens Health, that is enabled by investments in VillageMD and CareCentrix and designed to accelerate the company’s capabilities in primary care, post-acute care and home care.
The strategic plan was unveiled at the company’s virtual investor conference on Thursday, and followed the announcement of its fourth quarter and fiscal 2021 earnings. The WBA leadership team shared details on its new strategic priorities to deliver advantaged growth in community health care, including:
- Transform and align the core by building the pharmacy of the future to support and enable its healthcare strategy; Reimagining retail through expanded health and wellness offerings and mass personalization; Accelerating WBA brands and digital offerings; Expanding the Transformational Cost Management program
- Build the next growth engine with consumer-centric healthcare solutions: Accelerating the path to become a leading provider of local clinical care services; Leveraging a consumer-centric technology and pharmacy network to deliver and enable others to deliver value-based care; Strengthening partnerships with payors, providers and patients
- Focus the portfolio and optimize capital allocation: Prioritize core assets and healthcare ambitions and maintain the commitment to return cash to investors
- Build a high-performance culture and a winning team: Attract and retain a best-in-class, diverse team
“I am pleased to announce WBA’s new strategy to transform our core businesses, focus our portfolio and launch our next growth engine of consumer-centric healthcare solutions, enabled by a high-performance culture and winning team,” said Roz Brewer, chief executive officer, Walgreens Boots Alliance. “Our strategy leverages an ecosystem including our trusted brands, exceptional assets, healthcare expertise and scale, integrated with a range of new talent, capabilities, resources and an intensified focus on operational excellence to drive long-term sustainable profit growth.”
At the center of WBA’s consumer-centric health care strategy is the launch of Walgreens Health. The new business segment is a technology-enabled care model powered by a nationally scaled, locally delivered health care platform. Walgreens Health will bring equitable, personalized, whole-person health care to local communities across America, wherever and however it’s best for consumers – in-store, at home, in the doctor’s office and via mobile app. Working alongside payors and providers across the country, Walgreens Health will create a better experience for consumers, improve health outcomes and lower costs by leveraging Walgreens strengths and assets, including trusted consumer relationships and community presence, national scale, care teams and partnerships with payors and providers across the country.
Investments in VillageMD and CareCentrix will accelerate Walgreens Health capabilities in primary care and post-acute care to uniquely impact the patient care journey continuum, especially for high-risk patients with chronic conditions. These investments build upon the newly launched physical and digital Walgreens Health Corners, which provide in-person and virtual clinical and non-clinical services from licensed Health Advisors.
Earlier this year, Walgreens partnered with Clover Health to begin serving their members and recently announced a partnership with Blue Shield of California to launch new products and services to their members in the coming months. These payor relationships allow Walgreens Health to serve a patient population comprised of more than two million lives, with the plan to grow more partnerships and markets in the coming years.
Investment in VillageMD
WBA announced this morning that the company has agreed to make an additional investment in VillageMD to advance its strategic position in the delivery of value-based primary care, a $1 trillion, fast-growing segment of the healthcare system.
The investment increases WBA’s ownership stake in VillageMD to 63 percent from 30 percent. The investment will accelerate the opening of at least 600 Village Medical at Walgreens primary care practices in more than 30 U.S. markets by 2025 and 1,000 by 2027, with more than half located in underserved communities.
Walgreens is the first national pharmacy chain to offer full-service primary care practices with primary care physicians and pharmacists co-located at its stores all under one roof at a large scale.
VillageMD currently operates over 230 practices across 15 markets, with plans to expand nationally over time. The company has experienced rapid growth, increasing revenues from $217 million in 2017 to $1.3 billion expected in 2021.
WBA and VillageMD currently have 52 co-located primary care practice locations, and plan to have more than 80 open by the end of this calendar year.
Investment in CareCentrix
WBA has also agreed to purchase a majority investment in CareCentrix to support the company’s new healthcare strategy, expanding reach into the growing home care sector for Walgreens. The investment provides a new platform to coordinate home care for patients transitioning from hospital to home for health plans, patient and providers, while further integrating Walgreens pharmacies into a patient’s journey.
CareCentrix is an industry leader in the post-acute and home care sector, providing care coordination and outsourced benefit management services. The U.S. post-acute care market represents approximately $75 billion in healthcare spend annually and is considered one of the fastest growing segments in healthcare today. CareCentrix provides one of the foundational and critical components to support value-based care on behalf of health plans and providers. It currently manages care for more than 19 million members through over 7,400 provider locations.
The investment of $330 million gives WBA approximately 55 percent ownership of CareCentrix at an $800 million enterprise valuation, with an option to acquire the remaining equity interests in the future. CareCentrix’ other equity holders will also have the option to require WBA to purchase the remaining equity interests, under the agreement.
The transaction is subject to the receipt of required regulatory clearances, approvals and other customary closing conditions and is expected to close by the end of WBA’s second quarter of FY 2022.
Transformational Cost Management Program
WBA also announced that its Transformational Cost Management Program delivered in excess of $2 billion in annual cost savings by the end of fiscal year 2021, one year ahead of schedule. As a result, the company announced today that it is raising its savings goal to $3.3 billion by fiscal year 2024, based upon achieving higher savings from existing programs and a comprehensive funnel of new initiatives in place to drive incremental savings.
Long-Term Growth Model
Over the next three years, the company expects annual adjusted earnings per share (EPS) core growth of around four percent, with flat growth in fiscal 2022 and acceleration each year thereafter, as Walgreens Health generates increasing returns.
Beyond fiscal 2024, the company’s long-term growth algorithm leads to adjusted EPS growth of 11 to 13 percent, as the faster growing and higher margin Walgreens Health achieves scale.
Fiscal Year 2022 Guidance
The company introduced fiscal 2022 guidance of flat growth in adjusted EPS at constant currency rates. The company’s new Walgreens Health segment will be in investment mode, which should drive significant future revenue and adjusted operating income growth. The company anticipates core growth of 4 percent offset by investments in Walgreens Health.
Details on financial guidance including analysis and assumptions as well as the Investor Day presentation are available through WBA’s investor relations website at http://investor.walgreensbootsalliance.com.