Walgreens 2015 Annual Report Download - page 9

AmerisourceBergen began to supply and distribute all branded pharmaceutical products that we historically
sourced from distributors and suppliers to the division’s retail stores as of September 1, 2013, and during
calendar 2014, it began to supply and distribute increasingly significant levels of generic pharmaceutical
products that, in the past, we self-distributed. This transition to AmerisourceBergen was substantially complete
as of August 31, 2014. We purchase our non-pharmaceutical merchandise from numerous manufacturers and
wholesalers.
Our sales, gross profit margin and gross profit dollars are impacted by, among other things, both the percentage
of prescriptions that we fill that are generic and the rate at which new generic drugs are introduced to the market.
Because any number of factors outside of our control can affect timing for a generic conversion, we face
substantial uncertainty in predicting when such conversions will occur and what effect they will have on
particular future periods.
The current environment of our pharmacy business also includes ongoing generic inflation, reimbursement
pressure, and a shift in pharmacy mix towards 90-day at retail (one prescription that is the equivalent of three 30-
day prescriptions). In fiscal 2014 and fiscal 2015, we experienced cost increases on a subset of generic drugs that
historically experienced deflation, some of which were significant. We expect this generic inflation to continue
into fiscal 2016.
We continuously face reimbursement pressure from PBM companies, health maintenance organizations,
managed care organizations and other commercial third party payers; our agreements with these payers are
regularly subject to expiration, termination or renegotiation. In addition, plan changes with rate adjustments often
occur in January and our reimbursement arrangements may provide for rate adjustments at prescribed intervals
during their term. We experienced lower reimbursement rates in fiscal 2015 as compared to the same period in
the prior year. Further, we accepted lower Medicare Part D reimbursement rates in calendar 2015 compared to
calendar 2014 in order to secure preferred relationships with Medicare Part D plans serving senior patients with
significant pharmacy needs.
Our 90-day at retail prescription drug offering is typically at a lower margin than comparable 30-day
prescriptions, but provides us with the opportunity to increase business with patients with chronic prescription
needs while offering increased convenience, helping facilitate improved prescription adherence and resulting in a
lower cost to fill the 90-day prescription. We expect that these factors will continue to have an adverse impact on
gross profit dollar growth in our pharmacy business in fiscal 2016.
Retail Pharmacy International
Our Retail Pharmacy International division (excluding equity method investments) has pharmacy-led health and
beauty retail businesses in eight countries, each focused on helping people look and feel their best. We operated
4,582 retail stores in this division as of August 31, 2015 (see “Properties” in Part I, Item 2 below for information
regarding geographic coverage), and have grown our online presence significantly in recent years. Our principal
retail pharmacy brands are Boots in the United Kingdom, Thailand, Norway, the Republic of Ireland and The
Netherlands, and Benavides in Mexico and Ahumada in Chile. In Europe, we are a market leader and our retail
stores are conveniently located and our pharmacists are well placed to provide a significant role in the provision
of healthcare services, working closely with other primary healthcare providers in the communities we serve.
The Boots omni-channel offering is differentiated from that of competitors due to the product brands we own,
such as No7, Boots Pharmaceuticals, Botanics, Liz Earle, Soap & Glory, and ‘only at Boots’ exclusive products,
together with our long established reputation for trust and customer care. Our brands portfolio is enhanced by our
in-house product research and development and manufacturing capabilities.
Our retail store networks are typically complemented by on-line platforms. In the United Kingdom, our
transactional website, boots.com, and our consumer health and wellness portal, BootsWebMD.com, continued to
be two of the most visited health websites, receiving on average approximately 19 million and 11 million visits
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