Brexit and Chinese tariffs pose new risks for Walgreens

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Add geopolitical tensions to the list of worries weighing on Walgreens.

Growing fears of a ‘hard’ Brexit and an escalating tariff battle between the US and China heighten concerns for the Deerfield, Illinois-based pharmacy chain, which was already facing a potential threat of Amazon and uncertainty about its future in an evolving healthcare industry.

The combination of short-term and long-term worries, along with disappointing financial results, has sent shares of Walgreens Boots Alliance down 23% this year.

“It must be an extremely difficult time to exploit. The rules are changing very quickly,” says Philip Levy, a professor at Northwestern University’s Kellogg School of Management. “A hard Brexit has been the default since (Prime Minister) Theresa May launched Article 50. And if they don’t pull themselves together, that’s exactly where they’re going.”

Parliament’s failure to approve an exit deal increases the chances that the UK will leave the European Union without a deal, which could rumble across border trade and trigger a recession in the country. Both would hurt Walgreens, which does business across Europe and operates 2,485 Boots pharmacies in the UK.

Boots is already facing tight reimbursement rates under austerity measures enacted during the 2008 financial crisis, which led the UK’s National Health Service to cut payments to pharmacies. These reductions “continue to put pressure on pricing and reimbursement times,” Walgreens said in its recent annual report.

It could get worse if a hard Brexit weighs on the UK economy and forces the NHS to squeeze harder. According to the Bank of England, a no-deal exit could send UK gross domestic product down 8%, worse than the depths of the Great Recession.

“It’s already a big problem; there’s not a lot of money for the NHS. If this continues, it will make the situation worse (for reimbursement rates),” says Lorand Bartels, international trade expert at the University of Cambridge. “When it comes to buying drugs, the (NHS) basically has monopoly power. They say how much it will cost.”

A spokesperson for Walgreens said that “there are currently supply chain agreements in place for WBA (Walgreens Boots Alliance) which would not change on Brexit. However, as the Brexit terms and conditions are still ongoing negotiation by the UK Government and the European Union, it is not possible to predict the impact at this time.”

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