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Express Scripts to lose top client Anthem in legal dispute

April 24, 2017
  • Contract expires end of 2019; Express Scripts shares fall
  • Express Scripts earnings beat estimates; raises 2017 guidance

Express Scripts Holding Co. will lose its biggest customer at the end of 2019, when health insurer Anthem Inc. will drop the pharmacy benefit manager after accusing it of overcharging by billions of dollars a year.

“The company was recently told by Anthem management that Anthem intends to move its business when the company’s current contract with Anthem expires,” Express Scripts said Monday in a statement.

The Anthem contract represented 18 percent of Express Scripts’s consolidated revenues in the first quarter, according to a filing, yet the companies became embroiled in dueling lawsuits after Anthem claimed that Express Scripts overcharged it by billions of dollars. The drug benefit manager’s shares plunged in late trading, falling 15 percent to $57.25 at 6:30 p.m. in New York.

Anthem last year sued Express Scripts for about $15 billion, saying it was being overcharged by about $3 billion a year and that the pharmacy benefit manager wasn’t passing along discounts it gets from drugmakers. In the suit, Anthem said Express Scripts “has deliberately delayed the repricing process for months” and “refused to negotiate, let alone in good faith, over Anthem’s pricing proposals.”

Bonnie Jacobs, a spokeswoman for Anthem, declined to comment. Express Scripts has scheduled a conference call for Tuesday morning.

‘Incremental Pain’

Now the topic of discussion turns to “how much incremental pain will be felt on deleveraging, how many other clients/customers will also flee,” Ross Muken, an analyst with Evercore ISI, said in a note to clients. “Post the bludgeoning, we think management will have to take a hard look at the company’s prospects through the roll-off and decide the path forward.”

Express Scripts also announced its first-quarter results on Monday. Earnings, excluding some items, were $1.33 a share, Express Scripts said in the statement. That beat the $1.32 average of analysts’ estimates compiled by Bloomberg.

It raised its 2017 adjusted earnings guidance to $6.90 to $7.04 a share, up from the $6.82 to $7.02 it projected last month.

In an interview with CNBC after the news was released, Express Scripts CEO Timothy Wentworth said that his company will “be plenty big enough” without Anthem. Asked if he was worried other clients would also leave in the wake of the Anthem news, he said, “the Anthem deal is different from any of the other deals.”

Outside Options

Anthem, for its part, it doesn’t have many outside options to turn to. After consolidation in the drug benefit industry, just a handful of other major PBMs remain: CVS Health Corp., which manages drug benefits for Anthem’s competitor Aetna Inc.; OptumRx, a unit of another Anthem rival, UnitedHealth Group Inc.; and Prime Therapeutics LLC, which manages drug benefits for nonprofit Blue Cross and Blue Shield plans in many states.

CVS Health, Prime Therapeutics, and UnitedHealth didn’t immediately respond to emails sent late Monday asking whether they planned to bid for the Anthem business. Prime Therapeutics expressed interest in the business last year. CVS rose 2 percent to $81.62.

“We are always looking to grow,” CVS’s CEO Larry Merlo said in an interview last week, in response to a question about whether his company would be interested in the Anthem business. “There is nothing to prevent us from adding to our client list.”

https://bloom.bg/2pYKIkg

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