Introduction

Background on Walgreens and CVS

In the pharmaceutical retail landscape, Walgreens and CVS are two giants, dominating the market with their extensive offerings. However, a common question arises: why don’t these retailers manufacture their own generic drugs or acquire a generic drug company? This article delves into the reasons behind this decision, considering both financial and operational factors.

Financial Constraints

Walgreens’ Financial Struggles
In recent years, Walgreens has faced significant financial challenges. The COVID-19 pandemic exacerbated these issues, leading to shutdowns of some branches. This situation highlights the financial constraints that Walgreens must navigate, making it difficult for them to allocate resources to new ventures like drug manufacturing.

Complexity of Generic Drug Manufacturing

Regulatory Challenges

The journey to manufacturing generic drugs is fraught with regulatory hurdles. In 2013, the average approval time for a generic drug was 42 months. This time frame underscores the extensive regulatory scrutiny and approval processes that must be endured. Sweeping changes in just a few years can significantly impact the timeline, making it harder to stay ahead of the curve in the pharmaceutical market.

Resource Intensive Venture

Resource Requirements
Manufacturing generic drugs is an extremely resource-intensive process. Walgreens and CVS would need to hire a large number of process engineers, chemists, and quality control specialists—positions that are not typically part of their employee base. Building a dedicated supply chain from scratch would be a monumental task, requiring additional logistics, infrastructure, and administrative support.

Operational Efficiency
Pharmacies generally source their generic drugs from established suppliers. These suppliers often deliver orders every couple of days, aligning with the pharmacy's operational needs. The current system is finely tuned for efficient and cost-effective operations. Deviating from this system would not only be costly but also disruptive to the existing supply chain.

Market Dynamics and Commercial Viability

Small Savings vs. High Costs

Even if Walgreens and CVS managed to manufacture generic drugs, the savings per bottle would be minimal, especially for common medications. For example, doxycycline is a relatively expensive generic drug, and by the time Walgreens enters the market, other companies with similar products would already be established. The price of doxycycline would have significantly declined, reducing the potential profit margins.

Competition

The pharmaceutical industry is highly competitive. By the time Walgreens or CVS develops their own supply chain and manufacturing capabilities, other generic drug manufacturers, many of whom have a head start, would already be well-established. First-mover advantage is critical in this sector, and the fast pace of innovation often leaves new entrants at a disadvantage.

Conclusion

Walgreens and CVS have made strategic decisions based on their financial constraints, operational efficiencies, and market dynamics. While manufacturing their own generic drugs or acquiring a generic drug company might seem like an attractive proposition, the reality of the pharmaceutical industry indicates that such ventures are not financially viable or operationally feasible at this time. As the industry continues to evolve, these giants will likely focus on optimizing existing supply chains and leveraging their strengths in other areas to sustain their business success.