How COVID-19 has transformed the pharmacy sector

Yahoo Finance’s Myles Udland, Julie Hyman, and Brian Sozzi discuss M&A outlook in the pharmacy sector with Syed Husain, PJ Solomon Managing Director.

Video Transcript

MYLES UDLAND: Welcome back to Yahoo Finance Live on this Friday morning. Myles Udland here in New York, again, watching markets that are lower, all the action happening in some of those heavily shorted names. We're going to stay on that story all day.

But let's take a step back and talk about another sector of the market that we've certainly watched closely over the last year and could have a very interesting year ahead, and that is what's happening over in the pharmacy space. Joining us now to discuss everything happening within that business, we're joined by Syed Husain. He's a managing director over at PJ Solomon. Syed, thanks for joining the show this morning. And I'd love to just start with how COVID changed what the pharmacy sector thought of itself, what businesses thought they could do, should do, need to do, and how we're starting to see that maybe play out.

SYED HUSAIN: Well, thank you very much for having me. And COVID has had a huge impact on the world of pharmacy. And really, what I think it's done is it's hastened the transformation that was already occurring in pharmacy to a really front line, health care accessible location. And what I mean by that is I think when you look at the availability of testing and how it was ramped up so quickly, and then ultimately the plan to really leverage the pharmacy footprint for the vaccination, that really has shown the tremendous need for the pharmacy footprint, as well as the pharmacies themselves.

BRIAN SOZZI: How big a risk do you think Walmart's role in the pharmacy space is to the likes of a CVS and a Walgreens? Walmart, I would say, has very been-- has been out in front of trying to get people into its stores, whether it's for a vaccine or first testing. What type of risk does that present to the big pharmacy chains?

SYED HUSAIN: Well, I think Walmart's always been there. I think they've now gotten into broader offerings that really CVS Health and Walgreens had already begun. For example, the CVS Health Hubs and really leveraging other usage for their footprints, as well as Walgreens' recent alignment with VillageMD and leveraging their footprint along to be primary care access points. So Walmart has now gotten into that.

So I don't know that there's dramatic risk. I think the big pharmacy chains always expected Walmart to be a stronger player. And they were already a pharmacy player.

JULIE HYMAN: Syed, what do some of the business combinations going forward potentially look like? I mean, there are definitely some startups that are in the pharmacy business now. You also have all these telehealth players that have come out. Does it make sense for some of the big pharmacy chains to make those kinds of acquisitions?

SYED HUSAIN: Yeah, that's a really good question, Julie. When I think about M&A activity in the pharmacy space, I really look at kind of three reasonings-- one, economic headwinds and tailwinds, tailwinds being margin compression and-- I'm sorry, headwinds being margin compression, and the tailwinds really being the amount of capital that's available to invest in health care and pharmacy.

And then, to your point, competitive disruption, right? New players like Amazon getting into pharmacy, Medly Pharmacy, a digital player that's out there, as well as things like Hims & Hers that have more of a direct-to-consumer kind of platform. I think what that's really done is it's caused the large strategics to really take a step back, and rather than talk about it, really invest and have an omnichannel presence.

I don't think that the future is one or the other. It's not going to be all digital or all physical. I think you have to have an omnichannel presence, because one thing we've learned through COVID is consumers want a choice. They want a choice that's convenient for them. They want accessibility that is convenient for them. And a true omnichannel gives them that. So I think what you'll do-- you'll see is M&A activities, and with financial sponsors, as well as large strategics, looking at filling in those gaps so that all of-- that everyone has that true omnichannel presence.

BRIAN SOZZI: We learned this week that Roz Brewer is coming in as the CEO of Walgreens. Do you think mission critical for her is splitting up the Walgreens Boots Alliance business and just getting Walgreens focused on its US core pharmacy operations?

SYED HUSAIN: I do. I think that that's a good way to look at that. I think her mission critical is probably doing that, but at the same time very quickly getting familiar with the US pharmacy and health-care business in preparation for vaccination efforts and the transformation within the pharmacy business model to get pharmacists to practice at the higher end of their license. So I think those are really the primary things that she needs to jump over. I think corporate will handle kind of the separation and the transition of the wholesale business.

But she very quickly-- and now is the time, right? Now is the time. And she really needs to become an expert on the pharmacy business per se, especially as the pharmacy business model transitioned for less of a dispensing role and more of a primary-care health-care role, where pharmacists are practicing at the higher end of their license with adherence programming, vaccination, and assisting payers with improving star ratings and lowering health-care costs.

Remember, one of the key things is specialty pharmacy is growing at a bigger amount than any other segment within pharmacy for that pharmacy dollar. And those specialty drugs are expensive. They're great breakthrough therapies, but they're expensive and they require high touch usage. And so clinical pharmacists need to be involved in ensuring that those products are used correctly.

MYLES UDLAND: Really interesting stuff, Syed, and I think something that we maybe don't think enough about the role that pharmacists play in this whole system. And it certainly sounds like it's going to be a larger role within the health system as we go forward in the years ahead. And I hope we'll stay in touch to talk about that. Syed Husain, managing director at PJ Solomon, really appreciate you taking the time this morning.

SYED HUSAIN: Thank you so much for the opportunity. Have a great day.