Express Scripts stock rises after 1Q growth report

[May 12, 2012]  DALLAS (AP) -- Shares of Express Scripts Holding Co. outpaced the broader market Friday, after the pharmacy benefits manger detailed the prescription growth it has seen in its first quarter since splitting with drugstore chain Walgreen Co.

Express Scripts, based in St. Louis, said adjusted prescriptions totaled nearly 193 million in its first quarter, up 3.6 percent compared to last year. That figure treats 90-day mail-order prescriptions as three regular, 30-day prescriptions.

Walgreen had filled prescriptions for Express Scripts before a contract between the companies ended last year. Express Scripts officials told analysts on Friday the split has helped their mail-order business. It also steered more of the PBM's customers to new, narrow pharmacy networks that have drawn "tremendous" customer interest, according to Express Scripts CEO George Paz.

"I think eliminating Walgreens from our network was better received, quite frankly, than even we expected," Paz said.

JMP Securities analyst Constantine Davides said Express Scripts prescription totals looked "quite solid" after the breakup with Walgreen.

"They seem to have weathered the storm quite well within their own book of business," he said.

Pharmacy benefits managers, or PBMs, run prescription drug plans for employers, insurers and other customers. They process mail-order prescriptions and handle bills for prescriptions filled at retail pharmacies, using large purchasing power to negotiate lower drug prices. They make money by reducing costs for health plan sponsors and members.

Express Scripts has said it ended the contract with Walgreen because the drugstore chain wanted a premium compared to what Express Scripts paid other pharmacies. Walgreen, in turn, has seen sales slump for several months due to the split, but has said it would rather give up the revenue than continue filling unprofitable prescriptions.

The relationship between the companies may be headed for another split. Express Scripts completed the $29.1 billion acquisition of a larger PBM, Medco Health Solutions Inc., last month, and Medco has an ongoing contract with Walgreen. Express Scripts CEO George Paz told analysts they haven't decided yet whether to extend that relationship, but some Medco customers have already dropped Walgreen on their own.

Ultimately, moving on without Walgreen is not the preferred approach for Express Scripts, said Dave Shove, a BMO Capital markets analyst who covers the company.

He noted that CVS Caremark Corp. has gained Walgreen customers since the split. CVS operates both drugstores and a PBM business. Shove said a larger CVS will be harder for Express Scripts to negotiate with in the future.

"Express, we believe, needs both large chains in their network in order to keep a balance, get more competitive rates," he said.

Express Scripts released its prescription totals as part of a broader first-quarter earnings report distributed Thursday after markets closed. Overall, company earnings fell 18 percent compared to last year's first quarter. It earned $267.8 million, or 55 cents per share, in the first three months of 2012, as revenue climbed 9 percent to $12.13 billion.

Express Scripts said costs tied to the Medco deal affected its performance. Adjusted earnings, which exclude those costs and other items, were 73 cents per share. That fell short of analyst expectations of 77 cents per share.

Express Scripts shares climbed 2.6 percent, or $1.40, to $55.74 in afternoon trading, while the Nasdaq exchange rose less than 1 percent.

[Associated Press; By TOM MURPHY]

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