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Walgreen says it will split with Express Scripts

Tue, 06/21/2011 - 4:45am
MARLEY SEAMAN - AP Health Writer - Associated Press

Walgreen Co. is tangling with another major pharmacy benefits manager, saying Tuesday it will end a $5.3-billion-per-year relationship with Express Scripts Inc.

The announcement follows a similar contract fight a year ago with CVS Caremark Corp. that was eventually resolved.

The disclosure of the impasse with Express Scripts overshadowed news that Walgreen's profit climbed 30 percent in its third fiscal quarter.

Walgreen, the biggest drugstore chain in the U.S., said contract negotiations with Express Scripts have failed, and it will stop participating in the St. Louis company's prescription plans starting Jan. 1.

It said Express Scripts processes about 90 million prescriptions that will be filled at Walgreen stores in fiscal 2011, which will bring Walgreen about $5.3 billion in revenue.

Express Scripts pays Walgreen to fill each prescription. Walgreen said Express Scripts wanted to cut those payments so they were less than the cost of providing the prescriptions, and said those rates were "unacceptable." Walgreen also said Express Scripts wanted to define contract terms including definitions of name-brand and generic drugs, and transfer of prescription drug plans to different networks.

The announcement hit shares of both companies. Walgreen stock lost $1.68, or 3.7 percent, to $43.50 in pre-market trading. Shares of Express Scripts Inc. fell $1.54, or 2.8 percent, to $53.25.

The struggle comes almost exactly a year after a similar struggle between Walgreen and CVS Caremark. In June 2010, Walgreen said it wanted to transition out of CVS Caremark's network by the start of 2011. Walgreen wanted Caremark to pay it more for filling prescriptions, and it wanted Caremark to drop policies encouraging members to fill prescriptions at CVS's stores. CVS Caremark had said it would end the relationship in July.

A breakup with CVS Caremark would have cost Walgreen about $4.5 billion in annual revenue. But within about a week, the companies agreed to a multi-year deal. They did not disclose terms.

Deerfield, Ill.-based Walgreen also reported it net income grew to $603 million, or 65 cents per share, during the three months ended May 31. That's up from $463 million, or 47 cents a share, a year ago when its results were weighed down by costs associated with the health care reform law, its acquisition of the Duane Reade chain, and restructuring costs.

Walgreen said its third-quarter results included a penny per share in restructuring costs.

FactSet says analysts expected a profit of 62 cents per share.

Revenue climbed to $18.37 billion from $17.2 billion. Analysts expected $18.38 billion.

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