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CVS likely winner on Anthem move from Express Scripts

April 26, 2017

Express Scripts Holding Company ESRX‘s earnings report was dominated by a concerning disclosure that it expects lose its largest customer, Anthem Inc ANTM. Anthem alleged that it is being overcharged by billions of dollars and is not expected to renew the contract, which expires in 2019.

In a research report following Express Scripts’ earnings release, Leerink’s David Larsen acknowledged it is “unusual” that Anthem didn’t publish a press release in which it acknowledged the contract will terminate. Nevertheless, the analyst is confident that the relationship will, in fact, end on December 31, 2019.

Larsen noted that throughout 2016, Anthem contributed $2.2 billion of EBITDA for Express Scripts while Coventry & Catamaran contributed $222 million. As such, $2.5 billion, or 34 percent of Express Scripts’ EBITDA will move out of its overall portfolio. In fact, Larsen argued that the impact of the loss of business is “larger than many investors expected.”

Good News For CVS Or Prime

Anthem will likely be moving away from Express Scripts’ platform and there are only two companies that are large enough to support Anthem’s business: CVS Health Corp CVS or Prime Therapeutics, the recently combined specialty and mail businesses of Prime and Walgreens Boots Alliance Inc WBA.

The analyst added that Prime Therapeutics has a “preferred retail relationship” and if it were to win the Anthem contract, much of the incremental volumes will benefit Walgreens and AmerisourceBergen Corp. ABC, a supplier to Walgreens. Specifically, incremental volumes from AmerisourceBergen would be from more retail Rx flowing through to Walgreens along with generic products, if Prime participates in WBAD.

Bottom line, even though Express Scripts’ earnings report was “good” the Anthem announcement is the main takeaway.

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