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Walgreens about face on Shields Health

Illustration of a pill bottle with a hundred dollar bill for a label

Illustration: Sarah Grillo/Axios

Walgreens is considering a sale of Shields Health Solutions, a Stoughton, Mass.-based specialty pharmacy business that could fetch more than $4 billion, per Bloomberg.

Why it matters: It's a somewhat sudden reversal, considering Walgreens doubled-down on its investment in Shields less than two years ago.

The big picture: Walgreens is in turnaround mode, coming off the acquisition-heavy transformation plan executed by former CEO Roz Brewer.

  • Its shares are down 37% over the past year, including around 11% since Brewer's departure in September 2023.
  • Walgreens also has $35 billion in debt on its balance sheet, dwarfing its $20 billion market cap.
  • The company is reportedly reviving discussions to separate UK pharmacy chain Boots, which would value the business at about $8.8 billion.

Catch up quick: Walgreens took a minority stake in Shields in 2019, spent $970 million to become majority owner in 2021, and bought the rest in late 2022 for $1.37 billion.

  • The business grew 27% in Q1 of Walgreens' fiscal 2024, CEO Tim Wentworth said during its recent earnings call.

The intrigue: There was no indication Walgreens had plans to part with Shields on that call.

  • John Driscoll, Walgreen's U.S. health care president said at the time: "I think there's still a lot of runway both from a payor and from a health system perspective, and obviously, the underlying specialty drug market is only going to get larger and more complicated, which I think plays to the Shields and the Walgreens strengths."

Yes, but: Shields is a 340B specialty pharmacy — and the future of the 340B program is uncertain.

  • In recent years, drug manufacturers have begun limiting discounts available, claiming contract pharmacies force them to offer "duplicate discounts," or the decreased 340B price alongside rebates drugmakers already give pharmacies via PBMs.
  • Several cases that could determine the long-term future of the program are making their way through the courts — but a recent decision largely sided with manufacturers.
  • "Pharma is making their stance clear to the industry," one banker tells Claire. "You enable 340B and you're an enemy."

The other side: Though lawmakers are becoming increasingly wary of how hospitals and other covered entities use 340B, the program remains incredibly lucrative.

  • Indeed, 340B has grown significantly since its inception, widening from 8,100 participating safety-net providers in 2000 to 50,000 in 2020.

What's next: Walgreens is working with advisers to scope out options but could elect to keep the business, Bloomberg reports, citing sources familiar.

Our thought bubble: Given market uncertainty, the universe of likely strategic buyers for an asset like Shields is small.

  • The sponsor buyer pool is also limited, given the size of the prospective transaction, though Shields could see interest from larger foreign or non-traditional buyers, the banker says.

Walgreens declined to comment.

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