CHSI Catalyst Health Solutions, (MM)

Recently, Walgreens (WAG) and Johns Hopkins Medicine have entered into an agreement to promote population-based research as well as jointly participate in review and development of protocols to improve outcomes of patients suffering from chronic diseases. Furthermore, both the companies together aim to innovate new models to improve patients care. However, financial terms of the contract were not disclosed.

Johns Hopkins Medicine helps improve the community health by creating and transmitting innovative knowledge for medical education, research and clinical care. Its Center for Innovation in Quality Patient Care is creating new models of health care delivery, which will improve patient safety as well as quality and efficiency at Hopkins and in hundreds of hospitals across the US and around the world.  

The collaboration will enable Walgreens to access John Hopkins Medicine’s expertise in health care, thus helping to improve research, protocols and training programs for better patient outcome through Walgreens’ vast nationwide network of medical team. Moreover, John Hopkins Medicines will get access to vast patient base to develop and advance large-scale studies, banking on Walgreens.

Over the past several years, Walgreen has been taking a number of steps to align its assets with core strategies. The recent steps include the divestment of its PBM business and the potential acquisition of drugstore.com.  Walgreens decided to sell its PBM business to Catalyst Health (CHSI) in order to better focus on its drug stores. Additionally, the benefits from CCR rollout and rewiring initiative will be experienced over a period of time.

During the second quarter of fiscal 2011, the company’s total sales accelerated 8.9% year over year to $18.5 billion. Moreover, the company also increased its retail pharmacy market share to 20.1%. We expect the company to continue with its growth momentum going ahead. Furthermore, leveraging on its strong cash balance, the company is well equipped to pursue suitable acquisitions in future.

However, Walgreen has been impacted over the past few quarters by high unemployment levels and lower discretionary spending. Also, it faces the headwinds of increased competition from major players like CVS Caremark (CVS) and Rite Aid Corporation (RAD). Currently we have a ‘Neutral’ recommendation on the stock.

 
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