CVS CVS Health Corporation

By Sharon Terlep 

After years of surging U.S. drug prices, the two largest drugstore companies said some pricey prescription medicines are becoming more affordable.

CVS Health Corp. and Walgreens Boots Alliance Inc. said Thursday that their pharmacy revenues are taking a hit from an increase in generic alternatives, particularly for some expensive specialty drugs, along with slowing price inflation for name-brand medications.

"You're going to see continued dampening going forward as you think about the pipeline of generics coming into the markets," said CVS finance chief Dave Denton, who didn't discuss specific products.

Lower prices will dent the company's revenue, but ultimately could lead to increased profits because generics generally have a higher margin than name-brand drugs. "The introduction of generics can really dampen the top line but affect the bottom line in a positive way," Mr. Denton said.

Prices for generic medicines fell sharply last year as wholesalers competed for business by discounting them. Meanwhile, some pharmaceutical firms raised branded prices at a slower rate than previous years to avoid sparking further scrutiny from lawmakers in Washington.

Some of the most eye-popping prices are for cancer treatments and genetics-based therapies that aren't sold through drugstores.

Just this week, Spark Therapeutics Inc. said it would charge $850,000 per patient for a pioneering new treatment for a hereditary form of vision loss.

CVS, which also owns Caremark, a large pharmacy benefit manager, forecast low single-digit revenue growth in 2018 and operating-profit growth of 1% to 4%. The figures don't factor in CVS's planned acquisition of health insurer Aetna Inc. The company aims to close the $69 billion deal in the second half of this year.

CVS said it expects claims volume in its pharmacy-services segment to grow by 8% in 2018, with revenue rising a slimmer 1.5% to 3.5% due largely to cheaper drugs. Walgreens, meantime, said U.S. pharmacy sales rose nearly 9% by volume in the most recent quarter, while revenue increased 7.4%.

Alex Gourlay, Walgreens co-chief operating officer, in a call with analysts, said the company has been seeing drug-price deflation due to in introduction of generics.

Walgreens, which also has operations in Europe, said the increase in prescription volumes helped lift U.S. pharmacy sales in its latest quarter. Comparable retail sales, which includes general merchandise and personal-care items, fell 0.9%.

Regulators recently approved Walgreens's $4.38 billion deal with Rite Aid Corp. to buy 1,932 of Rite Aid's stores, but the deal was smaller than originally anticipated because of regulatory concerns. The company had initially offered $9.4 billion to buy Rite Aid, which would have expanded its store count by 4,600 stores.

Walgreens shares initially jumped Thursday on its latest results but then fell after Rite Aid reported quarterly results that included a decline in store sales and a decrease in the number of prescription sales. Walgreens shares were down nearly 5% to $71.82 in afternoon trading, while CVS rose 3% to $75.43.

Write to Sharon Terlep at sharon.terlep@wsj.com

(END) Dow Jones Newswires

January 04, 2018 14:38 ET (19:38 GMT)

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