Walgreens 2014 Annual Report Download - page 19

Consolidation and strategic alliances in the healthcare industry could adversely affect our business,
competitive positioning, financial condition and results of operations.
Many organizations in the healthcare industry, including pharmacy benefit managers, have consolidated in recent
years to create larger healthcare enterprises with greater bargaining power, which has resulted in greater pricing
pressures. For example, in April 2012, two of the three largest pharmacy benefit managers, Medco Health
Solutions, Inc. and Express Scripts, Inc., merged. The resulting entity is the largest pharmacy benefit manager in
the United States. If this consolidation trend continues, it could give the resulting enterprises even greater
bargaining power, which may lead to further pressure on the prices for our products and services. If these
pressures result in reductions in our prices, our business will become less profitable unless we are able to achieve
corresponding reductions in costs or develop profitable new revenue streams. Strategic alliances in the healthcare
industry also impact our business and competitive positioning. For example, following the announcement of our
agreement with AmerisourceBergen providing for, among other things, generic drug purchasing by Walgreens,
Alliance Boots and AmerisourceBergen through the Walgreens Boots Alliance Development GmbH global
sourcing joint venture, two of our retail pharmacy competitors subsequently established relationships with other
pharmaceutical drug wholesalers relating to generic drug procurement. In addition, further consolidation among
generic drug manufacturers could lead to increased generic drug inflation in the future. We expect that market
demand, government regulation, third-party reimbursement policies, government contracting requirements, and
societal pressures will continue to cause the healthcare industry to evolve, potentially resulting in further business
consolidations and alliances among the industry participants we engage with, which may adversely impact our
business, financial condition and results of operations.
From time to time, we make investments in companies over which we do not have sole control, including
our investment in Alliance Boots and our investment in AmerisourceBergen. Some of these companies may
operate in sectors that differ from our current operations and have different risks.
From time to time, we make debt or equity investments in other companies that we may not control or over
which we may not have sole control. For example, we own only 45% of the outstanding Alliance Boots equity
interests as of the date of this report. While we have the right to appoint four designees to serve on the Alliance
Boots Board of Directors and veto rights over certain significant Alliance Boots actions under the terms of our
shareholders agreement with them, we do not have the ability to control day-to-day operations of that
company. Similarly, while we and Alliance Boots have the right, but not the obligation, to invest in
AmerisourceBergen common stock and to designate up to two members of the AmerisourceBergen board of
directors in certain circumstances if we achieve specified ownership milestones, we do not and will not have the
ability to control day-to-day operations of that company. Although the businesses in which we have made non-
controlling investments generally have a significant health and daily living or prescription drug component, some
of them operate in businesses that are different from our primary lines of business. Investments in these
businesses, among other risks, subject us to the operating and financial risks of the businesses we invest in and to
the risk that we do not have sole control over the operations of these businesses. From time to time, we may
make additional investments in or acquire other entities that may subject us to similar risks. Investments in
entities over which we do not have sole control, including joint ventures and strategic alliances, present
additional risks such as having differing objectives from our partners or the entities in which we invest, or
becoming involved in disputes, or competing with those persons. In addition, we rely on the internal controls and
financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable
standards may adversely affect us.
We use a single wholesaler of branded and generic pharmaceutical drugs as our primary source of such
products. A disruption in this relationship could adversely affect our business and financial results.
On March 19, 2013, the Company, Alliance Boots and AmerisourceBergen announced various agreements and
arrangements, including a ten-year pharmaceutical distribution agreement between Walgreens and
AmerisourceBergen pursuant to which we will source branded and generic pharmaceutical products from
AmerisourceBergen; an agreement which provides AmerisourceBergen the ability to access generics and related
pharmaceutical products through Walgreens Boots Alliance Development GmbH, a global sourcing joint venture
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