Private suit filed to stop Express Scripts, Medco

WASHINGTON, Thu Mar 29, 2012 – Two pharmacy groups and several small pharmacy chains asked a federal court in Pennsylvania on Thursday to stop Express Scripts Inc. $29 billion acquisition of Medco Health Solutions Inc.

The merger partners had said on Wednesday they expected the deal could close as early as next week, indicating they believed that Federal Trade Commission approval was likely.

The National Association of Chain Drug Stores, the National Community Pharmacists Association, and nine retail pharmacy companies filed a lawsuit on Thursday arguing that the court should stop the merger because it would leave “only two significant competitors in a highly concentrated industry.”

Pharmacy benefits managers, or PBMs, like Medco handle prescription drug plans for insurance companies and employer clients, and also operate large mail-order pharmacies.

The National Association of Chain Drug Stores counts among its members such retail heavyweights as CVS Caremark Corp., Walgreen Co., Wal-Mart Stores Inc., Target Corp., Supervalu Inc. and Rite Aid Corp.

The groups argued that if the deal is allowed to go through, it would hurt retail pharmacies, specialty pharmacies which administer expensive and hard to manage drugs for conditions like hemophilia, and large employers who need full service, nationwide pharmacy benefits services.

The lawsuit was filed in the U.S. District Court for the Western District of Pennsylvania.

Express Scripts-Medco deal could close next week

ST. LOUIS, Wed Mar 28, 2012 – Pharmacy benefits managers Express Scripts Inc. said on Wednesday it expects its plan to buy rival Medco Health Solutions Inc. for $29 billion to close as early as the week of April 2, subject to the satisfaction of closing conditions.

Previously the companies said they expected the deal would be completed by the earlier part of the second quarter of 2012. Pharmacy benefits managers such as Medco and Express Scripts are hired by insurance companies to handle prescription drug plans. They sometimes provide drugs by mail order, through their own pharmacies and by contracting with chains and independent pharmacies.

The deal, announced last July, would combine two of the three largest PBMs that are big enough to manage prescription drug benefits for large, nationwide companies. The third is CVS Caremark Corp.

Express Scripts says moving on without Walgreen

ST LOUIS – Express Scripts Inc. said on Thursday it was moving forward successfully without Walgreen Co. in its pharmacy network, citing wide support from clients.

Chief Executive Officer George Paz said the pharmacy benefits manager remained open to talking with Walgreen, “but it has got to be in the best interest of our shareholders and patients.”

Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for patients in the Express Scripts network as of Jan. 1 after the companies failed to come to terms on a new contract.

“Our clients are very supportive,” Paz told analysts on a conference call to discuss the company’s fourth-quarter results. “Our phones aren’t ringing, people aren’t concerned, our clients aren’t upset, so this truly has been a good move for us.”

Express Scripts shares rose 4 percent in morning trading on Thursday.

The company also said it still expects to close its $29 billion acquisition of rival Medco Health Solutions Inc. in the first half of the year. Medco shares were up 3.7 percent.

Paz said Walgreen has not shown why they should be paid more than other pharmacies.

“Many of the things that they are offering in the pharmacy are being offered by many others out there,” he said. “So I don’t see them as differentiated, and I just can’t with a good conscience pay them a significant premium for something that everyone else is doing and doing it just as well.”

CVS raises forecast due to rival pharmacies’ rift

WOONSOCKET, R.I. – CVS Caremark Corp. expects its full-year profit to be slightly better than expected as it wins over former patrons of Walgreen Co. who fill prescriptions with pharmacy benefits manager Express Scripts Inc.

CVS, which operates the CVS drugstore chain and the CVS Caremark pharmacy benefits management business, also posted a fourth-quarter profit in line with analysts’ expectations, helped by better-than-expected revenue.

CVS is among the retailers benefitting as patients who still fill their prescriptions in the Express Scripts network go elsewhere after Walgreen stopped filling such prescriptions at the beginning of the year.

Pharmacy benefit managers, or PBMs, such as Express Scripts and CVS Caremark administer drug benefits for employers and health plans and they also run mail-order pharmacies. CVS can add the ability to pick up prescriptions at its namesake drugstores.

CVS expects to post 2012 adjusted earnings of $3.18 to $3.28 per share, raising the low and high end of its December forecast by 3 cents.

The higher forecast only reflects the expected benefit the company foresees in the current first quarter. In December, CVS CFO Dave Denton said the rift could add 8 cents to 11 cents per share to the company’s 2012 profit.

Walgreen sales hit by exit from Express Scripts

DEERFIELD, Ill. – Walgreen Co. is being hit by its withdrawal from the Express Scripts Inc. pharmacy network and by a much-weaker-than-expected flu season, leading it to temper its expectations for the number of prescriptions it will fill this year.

Walgreen said on Friday that it now expects prescriptions filled in fiscal 2012 to be around the low end of its previous forecast of 97 percent to 99 percent of the prescriptions it filled last year.

Walgreen said January sales at stores open at least a year, or same-store sales, fell 4.6 percent as it lost business following its decision to walk away from Express Scripts after failing to come to terms on a new contract with the pharmacy benefits manager.

Analysts, on average, anticipated that sales would fall only 2.7 percent, according to Thomson Reuters data.

Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for patients in the Express Scripts network on Dec. 31, 2011. Chains such as CVS Caremark Corp. and Rite Aid Corp. have been advertising to woo customers who used to fill their prescriptions at Walgreen.

CVS, in particular, appears to be “the clear winner” due to the fallout between Walgreen and Express Scripts, said Jefferies & Company analyst Scott Mushkin, who has a “buy” rating on CVS and a “hold” rating on Walgreen.

CVS stands to benefit both in its stores and in its Caremark pharmacy benefits management business, analysts say.

Walgreen profit down, says no to Express Scripts renewal

DEERFIELD, Ill. ― Walgreen Co. posted a lower quarterly profit as the largest U.S. drugstore chain’s margins were hurt by lower reimbursement rates for the prescriptions it fills, fewer flu shots and its spat with pharmacy benefits manager Express Scripts Inc.Walgreen, which has more than 7,800 U.S. drugstores, reiterated that is does not plan to renew its contract with Express Scripts, which is set to expire on Dec. 31, but CEO Greg Wasson said the chain remains “open to any fair and competitive offer.”

If the contract does expire as planned, patients who fill Express Scripts prescriptions at Walgreens stores will have to go elsewhere, cutting into Walgreen’s sales.

Walgreen estimated that it will have 97 percent to 99 percent of last year’s prescription volume in fiscal 2012, assuming it does not resolve its impasse with Express Scripts.

Walgreen earned $554 million, or 63 cents per share, in the fiscal first quarter that ended on Nov. 30, compared with a profit of $580 million, or 62 cents per share, a year earlier.

Express Scripts, Medco Health Solutions cut merger termination fee

ST. LOUIS ― Express Scripts Inc. said it agreed to cut the termination fee on its pending $29 billion takeover of Medco Health Solutions Inc.

In a regulatory filing on Tuesday, Express Scripts said the companies agreed to reduce the termination fee on the deal to $650 million. However, if either company changes its recommendation on the merger, the termination fee would still be $950 million.

In July, both companies signed the biggest ever deal in the healthcare services industry to create a pharmacy benefits  manager that has access to nearly one-third of the entire American market.

Shares of Express Scripts had closed at $47.09 Monday on Nasdaq, while Medco shares closed at $57.11 on the New York Stock Exchange.

Arbitrator denies request from Walgreen, Express Scripts for injunctive relief

DEERFIELD, Ill. ― An arbitrator denied a request from Walgreen Co and Express Scripts Inc seeking injunctive relief in their dispute, Walgreen said on Wednesday.

In June, Walgreen said it would stop filling prescriptions covered by Express Scripts at the end of the year after failing to agree on contract terms.

Express Scripts accused Walgreen of publishing false marketing materials designed to encourage Medicare recipients to leave health plans with coverage through Express Scripts.

The ruling was issued on Sunday evening, Walgreen said. The arbitrator will consider underlying merits of both parties’ claims at a future date, the largest U.S. drugstore chain said.

Express Scripts, which manages prescription drug benefits for employers and other clients, said it would not comment on the ruling.

Separately, an Oct. 18 entry in the court’s online system showed that an initial status hearing in the case is set before Magistrate Judge Maria Valdez on Nov. 3.

Express Scripts shares jump 9.5 percent as forecast reassures

ST. LOUIS ― Shares of Express Scripts Inc. jumped 9.5 percent as the U.S. pharmacy benefit manager’s profit outlook for 2011 was less dire than some investors had feared and the company offered positive financial forecasts through 2014.

Express Scripts cut its projected 2011 profit range by about 6 percent, citing higher spending and fewer prescriptions being filled because of consumer worry about the weak economy.

It said spending would rise due to a contract dispute with drugstore chain Walgreen Co. and in anticipation of integrating its $29 billion purchase of rival Medco Health Solutions Inc.

Express Scripts last month warned investors of potentially weak prescription volume, causing some analysts to lower their profit forecasts and investors to send the stock down.

“A lot of people had been expecting it was going to happen and a lot of them were saying, ‘I don’t want to own it ahead of that because it could pull back,’“ Jefferies & Co analyst Brian Tanquilut said. “But now we’re seeing that it’s not as bad … This sets the bottom for the stock.”

Separately on Thursday, Express Scripts revealed fiscal forecasts through 2014 in a securities filing on the Medco merger.

The projections, which the company said were prepared a month before the Medco deal was announced and pertained to it as a standalone company, offered earnings-per-share estimates that eclipse the average estimates of analysts, according to Thomson Reuters I/B/E/S.

“Even with a more moderated script view suggested since then, we see this disclosure as providing comforting clarification around future growth,” Barclays Capital analyst Lawrence Marsh said in a research note.

Marsh said the annual growth in EBITDA for 2012 to 2014 amounted to about 12 percent, above his expectations of average growth of 8 percent.

The merger filing also revealed that Medco approached Express Scripts about a transaction in early June, more than a month before they announced the deal, and that the companies had talked as early as 2006 about a potential combination.

Medco shares were up 5.7 percent to $48.24.

Express Scripts’ lower 2011 profit forecast is the latest sign that Americans are cutting back on healthcare spending to save money because of uncertainty in the economy.

Chief Financial Officer Jeff Hall told an investor conference last month that Express Scripts generally sees prescriptions increase 3 percent to 5 percent in an average year, but there has been virtually no growth over the past three years.

Hall also said the economy had worsened over June and July and the company did not see it improving.

Since Hall’s comments, Express Scripts shares had fallen about 16 percent, compared with a 4 percent drop for the S&P 500 Index.

Express Scripts said in a statement on Thursday, “The company now believes that it is more likely than not that the continuing stagnant economic conditions will negatively impact claims volumes to a greater extent than it had anticipated.”

It expects prescription claims will fall short of its previous forecast for 750 million to 780 million this year.

Overall, Express Scripts forecast 2011 earnings of $2.95 to $3.05 per share, down from its prior view of $3.15 to $3.25.

The company noted that its revised range still amounts to annual earnings per share growth of between 18 percent and 22 percent.

Since June, Express Scripts has been locked in a contract dispute with Walgreen, which plans to stop filling prescriptions for Express Scripts members starting in January. Express Scripts said it was spending to help clients as they transfer away from Walgreen pharmacies.

In cutting its forecast, Express Scripts also pointed to greater competition in the marketplace “resulting in increased client demands and expectations.”

Express Scripts shares were up $3.42, or 9.5 percent, to $39.36 in late-morning trading on Nasdaq.

Express Scripts sees small risk in Walgreen high-stakes dispute

ST. LOUIS, Mo. ― Express Scripts Inc. might lose a “small fraction” of its business from a dispute with drugstore chain Walgreen Co., its chief financial officer said on Wednesday, but it would not be a significant amount.

Express Scripts, which manages prescription drug benefits for employers and other clients, has been locked in a high-stakes public dispute with Walgreen since June, when the largest U.S. drugstore chain said it would stop filling prescriptions covered by Express Scripts at the end of the year after failing to agree on contract terms.

Express Scripts prescriptions are expected to be worth $5.3 billion in sales for Walgreen this year, or about 7 percent of the chain’s total expected revenue.

Speaking at an investor conference, Express Scripts CFO Jeff Hall said many of its customers support the company in the dispute because they do not want to pay a premium price to have Walgreen in the network.

“We would expect that some small fraction of our business might move away,” Hall said at the Morgan Stanley Global Healthcare Conference in New York. “We don’t think that’s a meaningful amount of our business.”

Hall said there was no cut-off deadline after which no resolution could be reached between the two sides. But he said that after Jan 1, when Walgreen stores would leave the network, some members may not return to the stores should an agreement eventually be struck.

“In general, they don’t move back,” he said.

Walgreen resolved a similar spat with CVS Caremark Corp. last year, but it appears to be digging in its heels more deeply in the dispute with Express Scripts.

Last week, Express Scripts filed an injunction in federal court in Illinois alleging Walgreen published false marketing materials designed to encourage Medicare recipients to leave health plans that are Express Scripts clients.

Walgreen, whose “white paper” to clients outlined its plan to leave its Express Scripts’ business, said it would vigorously defend itself against the suit. It said it was important to inform people about the impact should Walgreen leave the Express Scripts network.

The stakes in the dispute with Walgreen rose higher in July when Express Scripts announced its $29 billion deal to acquire rival Medco Health Solutions Inc. and create a powerhouse in managing prescription drug benefits.

However, the deal is attracting significant antitrust scrutiny, and Express Scripts said earlier this month that the U.S. Federal Trade Commission had asked for additional information about it.

Some analysts have said it is a coin flip as to whether the deal wins regulatory approval. Medco shares are trading about 24 percent below the offer price, reflecting in large part skepticism the deal will be completed.

Hall said he believes the main regulatory concern is whether the deal would be pro-competitive and reduce costs.