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2013

    As the cost of some lifesaving cancer drugs continues to spiral upwards, I was interested to read an article in which The New York Times reports more than 100 influential cancer specialists from around the world have taken the unusual step of banding together in hope of persuading some leading pharmaceutical companies to bring prices down.

 

     The doctors and researchers, who specialize in the potentially deadly blood cancer known as chronic myeloid leukemia, contend in a commentary published online by a medical journal that the prices of drugs used to treat that disease are astronomical, unsustainable, and perhaps even immoral, according to the NYT article. It goes on to report that they suggested charging high prices for a medicine needed to keep someone alive is profiteering, akin to jacking up the prices of essential goods after a natural disaster.

 

     In Blood, the journal of the American Society of Hematology, the doctors began by writing:

 

The doctrine of Justum Pretium, or just price, refers to the “fair value” of commodities. In deciding the relationship between price and worth (or value), it advocates that, by moral necessity, price must reflect worth. This doctrine may be different from the doctrine of free market economies where prices reflect “what the market bears” or what one is willing to pay for a product. Which doctrine is better? One could argue that when a commodity affects the lives or health of individuals, just price should prevail because of the moral implications.

 

     While noting that the cost of drugs for many other cancers were just as high, the doctors focused on what they know best: The medicines for chronic myeloid leukemia, like Gleevec, which is enormously profitable for Novartis. Gleevec entered the market in 2001 at a price of about $30,000 a year in the U.S., the doctors wrote. Since then, the price has tripled, even as Gleevec has faced competition from five newer drugs. And those drugs are even more expensive.

 

     Novartis counters that few patients actually pay the full cost of the drug and that prices reflect the high cost of research and the value of a drug to patients. Additionally, Novartis said in a statement that it provides Gleevec or Tasigna free to 5,000 uninsured or underinsured Americans each year and to date, has provided free drugs to more than 50,000 people in low-income countries.

 

     Prices for cancer drugs have been part of the debate concerning health care costs for several years. Indeed, Last fall, two Mayo Clinic physicians wrote a commentary in the journal Mayo Clinic Proceedings, saying that among the reasons cancer drugs cost so much in the U.S., is that a virtual monopoly is held by some drug manufacturers due to the way drug treatment protocols work. Cancer care is not representative of a free-market system, and the traditional checks and balances that make the free-market system work so efficiently in all other areas are absent when it comes to most cancer treatment because cancer drugs are administered to patients sequentially or in combination—creating a virtual monopoly for each drug, wrote the authors, Mustaqeem Siddiqui, M.D., an oncologist, and Vincent Rajkumar, M.D., a hematologist.

 

     In the article, they suggested a determination needs to be made at the time of a new drug approval whether the drug will operate in a monopoly environment. Drugs that are considered to be in such a niche need to be subjected to price controls or more competition. For example, if a drug is approved for the treatment of an advanced cancer for which there is no cure and it is believed that at some point almost every patient with the given cancer will need that drug, it should be considered a monopoly even if multiple options exist for that cancer. In such cases, the given monopoly drug should be subject to some legally mandated price control after the drug is approved, the doctors wrote.

 

     The NYT article reports that many of the roughly 120 doctors who were co-authors of the commentary in Blood— about 30 of whom are from the U.S.—work closely with pharmaceutical companies on research and clinical trials. The doctors say they favor a healthy pharmaceutical industry, but think prices are much higher than they need to be, and merely call for a dialogue on pricing to begin.

 

     It will be interesting to see what—if any—industry response occurs. Will Novartis and other companies lower the price of some cancer drugs? Will the articles at least spur some dialog?

     This has been somewhat of a turbulent year for Boeing, since all 50 of its 787 Dreamliner planes in service were grounded globally after a series of overheating problems with the cutting-edge plane’s lithium-ion battery system. In positive news, however, Boeing has announced approval of battery system improvements for the 787 Dreamliner by the U.S. Federal Aviation Administration (FAA). That will permit the return to service of 787s in the U.S. upon installation of the improvements. For 787s based and modified outside the U.S., local regulatory authorities provide the final approval on return to service. The approval also means Boeing may resume new production deliveries.

 

    The FAA’s approval of the improved 787 battery system was granted after the agency conducted an extensive review of certification tests.  The tests were designed to validate that individual components of the battery, as well as its integration with the charging system and a new enclosure, all performed as expected during normal operation and under failure conditions. Boeing explained that the new steel enclosure system is designed to keep any level of battery overheating from affecting the airplane or even being noticed by passengers.

 

     Boeing says it has deployed teams to locations around the world to begin installing improved battery systems on 787s. Kits with the parts needed for the new battery systems are staged for shipment and new batteries also will be shipped immediately. The teams have been assigned to customer locations to install the new systems.

 

     Boeing will also begin installing the changes on new airplanes at the company’s two 787 final-assembly plants, and deliveries are expected to resume in the weeks ahead. Despite the disruption in deliveries that began in January, Boeing expects to complete all planned 2013 deliveries by the end of the year. Boeing further expects that the 787 battery issue will have no significant impact to its 2013 financial guidance.

 

     Reuters reported yesterday that Boeing has begun installing the systems on five 787 jets in Japan, which should make the first commercial Dreamliners ready to fly again in about a week. The first five jets to receive the new strengthened battery system all belong to All Nippon Airways—the world’s largest operator of the aircraft, with 17 of the planes. The next-biggest is Japan Airlines Co. with seven jets, followed by United Airlines and Air India with six each.

 

     Reuters also reported that ANA plans about 100 to 200 round trip test flights in May of its repaired aircraft before carrying passengers again. The test flights are aimed at checking the safety of the aircraft, as well as having about 200 of ANA’s Dreamliner pilots get accustomed to flying the planes again after more than a three-month break, a source said. For some pilots, the test flights will allow them to renew their qualifications that have expired while the jet was grounded, the source said.

 

    There are still two points that stand out for me. One is that despite the progress, and that the plane is now deemed safe to fly, investigators in the U.S. and Japan have yet to determine what—exactly—caused the problems with the batteries in the first place. Indeed, the National Transportation Safety Board is holding public hearings to advance its probe into the cause of a fire that destroyed a 787 battery in Boston in January. Furthermore, a Boeing spokesperson admits in the Reuters story that “It’s possible we will never know the real cause.”

 

    The second point is the financial impact. As the Chicago Tribune noted earlier this year, it’s estimated that Boeing was losing an estimated $50 million per week in lost income and compensation payments to airlines while the 787s is grounded.

 

    Be all that as it may, it has been an interesting story to watch unfold. And it certainly comes as good news to Boeing, its suppliers, and customers that the 787s will be able to take to the skies again.

     I’m interested in many aspects of expanding the Panama Canal, from the actual expansion  project itself, to larger supply chain concerns, such as evaluating port performance and the connectivity of ports in Central America, and working to determine what impact use of larger ships and more water routes will have on reducing companies’ carbon dioxide footprint. There also are significant concerns regarding whether U.S. West coast port operators will see a drop in volume, and if East coast seaports will be able to deepen their ports sufficiently to accommodate the larger ships.

 

    That’s why I was interested to see an article that ran in AirCargoWorld, which explains that, according to recent analysis by commercial real estate firm Colliers International, an expanded Panama Canal will result in a smaller number of North American air cargo centers. Colliers’ report, “CapEx or Capsize,” states air cargo’s role in global trade will be defined by the tug-of-war between energy/infrastructure costs and e-commerce growth in the first post-Panamax decade (2015-2025). Thanks to SupplyChainBrain, by the way, for pointing me to the article.

 

     The Panama Canal expansion project, which was scheduled to be completed by October 2014 but has been pushed back to 2015, is building new locks and wider and deeper channels that are expected to double the canal’s capacity. This will allow megaships carrying 14,000+ containers to move through the Canal. Shipping containers through the Canal on these larger ships could reduce costs by as much as $75 to $100 per container per voyage.

 

    “What we’re trying to do is evolve the understanding of what’s going on,” says K.C. Conway, the Colliers economist who authored the report.

 

     The real story now is moving cargo inland, and determining which regions have the greatest opportunity, Conway says. If, for example, cargo is moved to ports but it can’t get moved inland because the airports don’t have the infrastructure, growth will be impeded in that particular region, Conway says.

 

     Within three to five years, there will be just a half dozen dominant U.S. air cargo markets, according to the Colliers report. Likely candidates for those markets include Memphis, Louisville, Columbus, Miami, New York, Miami, Los Angeles, Seattle, and Denver. Due to the costs involved, air cargo in the U.S. will most likely follow the same hub-and-spoke model adopted by passenger air carriers to maximize traffic. Airports that lack a port partnership won’t be a dominant air cargo market in five years, the report continues.

 

     The Colliers report cites Memphis as being North America’s top air cargo port, and Conway says e-commerce has made Memphis the king of air cargo. For example, he cites Nike’s recent decision to move a key distribution center to Memphis, which was based on the city’s air cargo and intermodal advantages.

 

     “The ports that get it and have the air cargo linkage will be much more valuable because cargo doesn’t need to be delayed,” Conway says. “That’s one of the advantages developing in the Southeast and Mid-Atlantic states. Louisville and Memphis are good examples. There are also opportunities that exist with manufacturing returning to the U.S. Medical devices, pharmaceuticals, and other lighter-weight cargo are well-adapted to move by air.”

 

     In the end then, there still are concerns to address regarding the Panama Canal expansion project. Chief among them is simply how to get cargo from ports to, ultimately, consumers quickly but also efficiently. I’m interested in watching how companies’ strategies evolve.

     If you have a successful product, should you be forced to sell samples directly to a competitor so they can make a copycat version of the product?

 

     I ask because that’s the crux of an issue outlined in an article that ran this week in The New York Times. It explains that brand-name drug makers are refusing to sell their products to generic companies, who need to analyze the drugs so they can create copycat versions. Traditionally, the generic drug makers purchased samples from wholesalers. However, due to growing safety concerns, an increasing number of drugs are sold with restrictions on who can buy them, which forces the generic manufacturers to ask the brand-name companies for samples. When they do, some claim the brand-name firms refuse to sell them samples.

 

     The issue has its roots in a 2007 law—called The Food and Drug Administration Amendments Act of 2007—which gave FDA the authority to require a Risk Evaluation and Mitigation Strategy (REMS) from manufacturers of drugs with serious side effects or the potential for abuse to ensure that the benefits of a drug or biological product outweigh its risks. In many cases, those programs simply direct the company to educate doctors or patients about risks. But in other cases, they require that distribution be limited to approved pharmacists and health care providers. And there’s the rub.

 

     So on the one hand, the law said the programs shouldn’t be used to block development of generic drugs but brand-name companies said the language was vague, and began restricting access to drug samples soon after the law was passed. Their reasoning is that it isn’t clear under the applicable laws and regulations that they are permitted to sell certain drugs to any person or entity without a prescription.

 

     Advocates for generic drugs say the practice could limit access to the low-cost drugs, which they say have saved more than a trillion dollars over the last decade, according to the NYT article. Other advocates say it’s just the latest tactic drug makers are using to block generic rivals as long as possible.

 

    “We definitely see this as a significant threat to competition,” said Markus Meier, who oversees the Federal Trade Commission’s health care competition team, in the NYT article.

 

     Brand-name manufacturers also sometimes limit access to drugs even when the government doesn’t require it. In a federal lawsuit filed April 1 in Florida, Accord Healthcare, an Indian generics manufacturer, said the drug company Acorda refused to turn over samples of its multiple sclerosis drug Ampyra, even though there are no restrictions on its distribution.

 

     In a letter to Accord from Acorda that was submitted to the U.S. District Court for the Southern District of Florida, in Fort Lauderdale, Acorda echoed some other companies’ positions, and said it was under no obligation to sell its products to another manufacturer.

 

     Representative Henry A. Waxman, Dem CA, said Congress needs to remove the loophole that allows branded drug makers to deny generic manufacturers access to their products. The purpose of these post-market safety plans was to protect consumers from risky drugs, not to allow brand companies to thwart generic competition, says Waxman in the NYT article. Incidentally, Rep. Waxman co-wrote the landmark law in 1984 expanding access to generic drugs.

 

     Don’t get me wrong, when it comes time to purchase a prescription, I’m just as in favor of using a substantially cheaper generic substitute as anybody else. Nevertheless, I wouldn’t say that adhering to a strict reading of the law is necessarily a stalling tactic. What’s more, the larger issue seems to concern a company’s right to choose for itself with whom to deal and to whom it should supply its products. If the law, as it currently stands, enables companies to refuse to conduct business with others, then there doesn’t seem to be much that can be done—unless Congress or regulators step in.

 

     It is a thorny situation, and I do see both sides. What are your thoughts?

     I was interested to see that demand for continuous improvement talent continues to be robust, according to the results of new research. As reported on prnewswire, executive recruiting firm The Avery Point Group reviewed 7,097 recent Internet job postings, and found that the combined demand for Lean and Six Sigma talent remained more than double 2010’s recessionary demand levels—for the third consecutive year. However, it did stay almost flat compared to last year’s overall talent demand levels.

 

     While this year’s study illustrates the on-going robust talent market for continuous improvement skills, there also is an unexpected finding. Tim Noble, managing principal and partner of The Avery Point Group, says that for the first time in the study's history, the group saw a very noticeable improvement in the year-over-year demand for Six Sigma talent, which stops years of demand erosion versus Lean talent.

 

     Based on this year’s study, the group found that demand for job postings looking exclusively for Six Sigma talent, with no mention of Lean in the job specification, rose to 27 percent of the postings reviewed. That’s up from last year’s record low of only 20 percent of the postings. This marked the first time in the study’s history where demand for pure Six Sigma talent saw a noticeable year-over-year improvement relative to Lean.

 

     At the same time, Six Sigma also became a stronger requirement within Lean Job postings. In the group’s 2012 talent study, only 34 percent of the Lean jobs posted sought candidates that also had a Six Sigma skill set. Today, that requirement rose to 43 percent of the postings.

 

     Notwithstanding, this year’s study still reinforced Lean’s standing as the more desired skill set over Six Sigma. The research found that demand for Lean talent exceeded that of Six Sigma by slightly more than 24 percent, which was a marked drop from last year’s record-setting 68 percent. Interestingly, this year’s results marked the first time in the study’s history where The Avery Point Group saw a year-over-year decline in the relative demand for Lean talent versus Six Sigma.

 

     Noble believes several factors are at work. To begin with, Six Sigma still has an important place in the overall corporate continuous improvement landscape, despite previous years’ declining trends. He says that with Six Sigma’s focus on variation reduction and powerful statistical tools, companies may be realizing their recent heavy focus on Lean may not have sufficiently met all their continuous improvement needs.

 

     Secondly, companies are still essentially focused on hiring a purer Lean skill set—with 41 percent of the reviewed job postings seeking pure Lean skills and only 27 percent seeking pure Six Sigma skills. Some companies may still feel the need to focus their limited resources around Lean as a hedge against the steep challenges of today’s economic climate, which they believe may be better served by Lean’s more immediate and practical focus on waste, flow, and flexibility, Noble says.

 

     Although Lean continues to remain the more sought after experience in today’s continuous improvement landscape, Six Sigma still has an on-going important role in corporate continuous improvement efforts. In the end though, as Noble says, we may need to wait until next year to see if the Six Sigma resurgence seen this year is a one-time aberration or, instead, is indicative of a more balanced post-recession execution of Lean and Six Sigma.

 

     To me, the good news in all this, is that demand for continuous improvement talent remains high. So whether companies or interested in Lean, Sig Sigma, or a combination, they obviously are working on continuous improvement. That’s also good for job seekers because demand for their talent remains robust.

 

     Is your company working on Lean, Six Sigma, or both?

     Rather than China increasing its competitiveness, what has me thinking, is news that Mexico is looking to penetrate the Chinese market. This comes as a result of Mexican labor costs falling below those of China.

 

     USAtoday reported that President Enrique Pena Nieto recently visited Hong Kong, and said “I’m convinced that Mexican products should take advantage of the dynamism of China’s markets.”

 

     A few years ago, the idea of Mexico exporting much to China seemed difficult to believe. That’s because at the time, Mexican average labor costs were almost double China’s. But a new report by a chief economist for Bank of America Merrill Lynch estimates that Mexico’s labor costs are now 19.6 percent lower than China’s. The study, by chief economist Carlos Capistran, cites the bank’s own estimates and official data indicating that a big increase in China’s costs have now turned the balance.

 

    Indeed, a Reuters article reports that according to the research by Bank of America Merrill Lynch, flat salaries in Mexico, fueled by strong population growth, will give Latin America’s second-biggest economy an edge over China in the U.S. market. Furthermore, Mexico can maintain that competitive advantage for at least five years, thanks to a growing labor market that puts downward pressure on wages, says Capistran. Consequently, Mexico’s wages as a proportion of economic output are lower than those in Indonesia, the Philippines, Thailand, South Korea, Hungary, Poland, and Brazil, where labor costs have risen dramatically.

 

     The report notes that, according to forecasts by the International Labor Organization, Mexico’s economically active population will grow by 20 percent from 2010 to 2020, compared to a 2.9 percent increase in China over the same period.

 

     Also adding to Mexico’s appeal is that government—under President Nieto, who took office in December—has already passed major education and labor reforms. Additionally, lower transportation costs and projected productivity gains in manufacturing will also bolster Mexico’s competitiveness, Bank of America said. That, in turn, can help compensate for the currency’s rapid rise, which tends to hurt exporters.

 

     There are other factors that continue to add to Mexico’s appeal. For instance, Mexico now boasts free-trade deals with 44 countries—more than any other nation. Secondly, the cost of shipping goods continues to rise, which increasingly spurs companies to consider manufacturing closer to markets. For companies considering near-sourcing close to the U.S., it’s worth noting that goods shipped from Mexico can reach Chicago by truck in as little as three days. So, as an article in The Economist last fall noted, consulting firm AlixPartners explains that the joint effect of pay, logistics, and currency fluctuations make Mexico the world’s cheapest place to manufacture goods destined for the U.S.

 

     Companies have noticed. When you wipe away the PR and look at the real numbers, Mexico is startlingly good, says Louise Goeser, the regional head of Siemens, in The Economist article. Mexican workers also are well qualified—more engineers graduate in Mexico each year than in Germany, she points out.

 

     Consider, for example, that Mexico is the world’s fourth-largest auto exporter. Nissan, Mazda, Honda, Audi and others have all been building factories (or additional factories) in Mexico lately.

 

     Furthermore, about 80 percent of the parts in each Nissan car are also made in Mexico. By using local suppliers, the company is “armored” against currency fluctuations, says José Luis Valls, head of Nissan Mexico, in The Economist article.

 

     “If you are localized, you can navigate through floods and storms,” Valls says. “If you depend on imports of components, you are very fragile.”

 

     Given that the case for Mexican operations continues to strengthen, it certainly makes sense to consider operations there. Maybe it doesn’t make sense to relocate operations but perhaps it makes sense to add operations there.

 

     Is your company considering Mexico for operations or expanding additional facilities?

    Improving fuel efficiency isn’t just a concern for automotive and pickup truck manufacturers. Cummins and Peterbilt Motors Company released test results last month showing their demonstration tractor-trailer achieved a 54 percent increase in fuel economy, averaging nearly 10 mpg under real-world driving conditions.

 

    In 2010, the U.S. Department of Energy awarded millions of dollars to companies to fund research on more efficient and clean transportation-related technologies to develop a so-called “SuperTruck” that would be significantly more fuel efficient than current designs. The goal of the SuperTruck program is to improve long-haul Class 8 vehicle freight efficiency through advanced and highly efficient engine systems and vehicle technologies that also meet prevailing emissions and Class 8 tractor-trailer vehicle safety and regulatory requirements.

 

     Cummins is a prime contractor leading one of four vertical teams under the SuperTruck project. The truck developed by Cummins and Peterbilt is a Class 8 Peterbilt 587 powered by a Cummins ISX15 engine. In testing last fall in Texas, the truck averaged 9.9 mpg. Testing of the tractor-trailer, which had a combined gross weight of 65,000 lbs., was conducted during 11 runs meeting SAE International test standards along a 312-mile route.

 

     Today’s long-haul trucks typically achieve between 5.5 mpg and 6.5 mpg. Cummins says the 54 percent increase in fuel economy would save about $25,000 annually based on today’s diesel fuel prices for a long-haul truck traveling 120,000 miles per year. It would also translate into a 35 percent reduction in annual greenhouse gases per truck, according to Cummins.

 

     While the company didn’t estimate what the impact on mileage would be for a fully weighed-out truck, Cummins did say the truck demonstrated a 61 percent improvement in freight efficiency—based on payload weight and fuel efficiency expressed in ton-miles per gallon—during testing compared to a baseline truck driving the same route. That clearly exceeded the 50 percent SuperTruck program goal set by the Department of Energy.

 

     “Aerodynamics has been a significant contributor to the efficiency gains,” says Scott Newhouse, senior assistant chief engineer of product development at Peterbilt. “We’re very pleased with what our team has been able to accomplish using a comprehensive tractor-trailer approach.”

 

     In addition to the truck’s aerodynamic tractor-trailer that significantly reduces drag and its higher-efficiency engine, Peterbilt and its partners have been working on improvements in the drivetrain, idle management system, weight reduction, and vehicle climate control. Eaton’s advanced transmission facilitates further engine downspeeding for additional fuel economy benefits.

 

     It’s worth noting that, as an article on Wired points out, the demonstrator averaged 9.9 mpg over 312-mile test runs from Fort Worth to Vernon, Texas. While that’s significant, some truckers wonder how the truck would handle on hilly routes or when it’s stuck in big-city rush-hour traffic. Nevertheless, even if the fuel economy gains aren’t quite as high in real-world use as in the test runs, the truck’s technology proves that it’s possible to squeeze significant mileage out of existing technologies.

 

     Indeed, an article on Supply Chain Digest notes that improved mileage at this level could also change the equation between natural gas trucks and traditional diesel vehicles. Currently, trucks powered by natural gas have the advantage in terms of operating costs and reduced CO emissions. All things being equal though, if the mileage improvements from the SuperTruck are realized on the road, it would change that equation tremendously. However, the article also notes that it’s likely many of the improvements in the SuperTruck design—such as the improved aerodynamics and improved transmission integration with the drivetrain—should be applicable regardless of which fuel technology is used.

 

     So in the end, it appears substantial fuel savings could be on the horizon for all trucks. The SuperTruck though, with its improved fuel efficiency, shows how companies could continue using trucks running on diesel fuel yet dramatically reduce transportation costs, and consequently, lower supply chain costs. At the same time, they would reduce greenhouse gases per truck, making the strategy even more appealing.

     You may have seen that retail drugstore giant Walgreen Co. announced that it and Alliance Boots, an international pharmacy-led health and beauty group, have entered a long-term partnership with AmerisourceBergen—one of North America’s largest pharmaceutical services companies. AmerisourceBergen will replace Cardinal Health, whose distribution contract with Walgreen ends in August. Walgreen explains that the relationship will enable the companies to benefit from greater scale and global opportunities and work together on programs to improve service levels and efficiencies, while reducing costs and increasing patient access to pharmaceuticals.

 

     In making the announcement, Gregory Wasson, president and CEO of Walgreen, said that the move establishes “an efficient global pharmacy-led, health and wellbeing network.” In a later phone conference with reporters, he added that the move will make “some of these high-cost, complex medications available” in stores.

 

     There are a number of consequences worth noting. For instance, an Eye for Transport article points out that the $400 bn 10-year agreement will create what Forbes magazine coined the “Earth’s Drugstore.” Furthermore, the agreement appears to create one of the largest and most influential global supply chains.

 

     Steven Collis, president and CEO of AmerisourceBergen, explained during the announcement that the companies “have entered into a unique opportunity to unlock value in the pharmaceutical supply chain by collaborating to leverage all of our proven strengths.” He went on to add that the agreement not only expands the company’s U.S. business but also provides opportunities to grow its specialty and manufacturer services businesses internationally.

 

     Indeed, AmerisourceBergen has serviced Walgreen’s specialty business for years. However, as it gets set to replace Cardinal Health, it will expand its services to include distribution of branded and generic pharmaceuticals to Walgreen’s 11,000 plus retail stores, mail order, and specialty pharmacies. Daily deliveries of drugs will also be provided to Walgreen’s stores, which will reduce inventory in Walgreen’s existing warehouses.

 

     There are several interesting aspects to the deal. For starters, the contract is for 10 years, considerably longer than the usual three-year or five-year deals, explains an article on Pharmaceutical Commerce.

 

     Then of course, there is the relationship between Walgreen and Alliance Boots, which has locations in 25 countries. Walgreen already entered a multi-year agreement to acquire UK-based Alliance Boots outright—it currently owns 45 percent of Alliance. The two companies also have formed Walgreens Boots Alliance Development GmbH, which enables the two organizations to supply each other products globally.

 

     Another interesting part of the agreement is that Walgreen and Alliance Boots together have been granted the right to buy a minority position in AmerisourceBergen, starting with the right to purchase up to seven percent of its outstanding stock. AmerisourceBergen also granted to Walgreen and Alliance Boots warrants exercisable for 16 percent of the company’s equity. A Walgreen executive will be appointed to AmerisourceBergen’s board upon Walgreen and Alliance Boots together acquiring a five percent equity stake, and an Alliance Boots executive will be appointed upon exercise in full of the first warrants.

 

     In the end though, the agreement is sure to have an impact on others in the industry, such as generic manufacturers and independent pharmacies that compete with Walgreen. However, there is increasing pressure on the healthcare industry—from pharmaceutical makers to pharmacies—to cut costs. Consumers have also reduced their own spending on prescriptions, making it even tougher to increase profitability in the business. The agreement addresses many of these challenges.