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Express Scripts Cuts Profit and Prescription Views

From Associated Press (October 6, 2011)

ST. LOUIS -- Express Scripts Inc. cut its annual profit forecast Thursday, saying fewer people are seeing doctors and filling prescriptions while the economy remains stagnant. The pharmacy benefits manager also said its planned purchase of Medco Health Solutions Inc. and a contract dispute with Walgreen are increasing its costs.

The company lowered its profit forecast to $2.95 to $3.05 per share from $3.15 to $3.25 per share. Express Scripts now anticipates handling fewer than the 750 million to 780 million adjusted claims initially expected this year. Medication use is down because many people are saving money by skipping doctors' visits or not filling prescriptions.

Express Scripts said it is making less money per prescription. That's because it has increased spending on some projects ahead of its planned acquisition of Medco, one of its biggest competitors. It is also spending more to support its clients as they shift their business from pharmacies operated by Walgreen Co., the largest drugstore chain in the country. The companies' contract runs out at year end and talks on a renewal have broken down. Without a new deal, people whose prescription drug plans are handled by Express Scripts won't be able to fill prescriptions at Walgreen pharmacies.

Pharmacy benefits managers administer prescription drug benefits for health plan sponsors and members. They make their money by reducing costs for plan sponsors by negotiating drug prices and filling prescriptions through the mail, and keeping some of the savings.

Express Scripts plans to buy Medco for $29.1 billion in cash and stock in a deal that, if approved by regulators, would create the largest pharmacy benefits manager in the country. The bigger Express Scripts would have a lot of power in negotiating drug prices with drug makers and drugstores. A House of Representatives committee recently held hearings on the sale, and some critics have said the Federal Trade Commission should block it.

The company is now projecting a profit of $3.55 to $3.70 per adjusted claim, down from $3.70 to $3.90. In 2010, Express Scripts filled 753.9 million adjusted claims and reported a profit per adjusted claim of $3.19.

The company also said it won't buy back any shares until after the Medco deal closes. In May, Express Scripts said would buy back $1.7 billion in stock from Morgan Stanley.

Shares of Express Scripts fell as much as 6.2 percent in premarket trading, but have recovered to rise 55 cents to $36.49. The stock shares have dropped 35 percent since the Medco deal was announced. The S&P 500 is down about 16 percent in the same time period.

Posted: October 2011