I miss you, Walgreen -- not!
This is Express Scripts' first quarterly earnings release since its highly publicized split with Walgreen
The quarterly results seem to indicate that Express has managed to preserve the business which it held with the drugstore operator. In fact, the number of prescription claims processed increased by 3.6% to 192.8 million. CEO George Paz made a confident statement that "eliminating Walgreen from our network was better-received, quite frankly, than even we expected and the clients had virtually no disruption."
The question we're trying to answer is: Is this just a short-term phenomenon or a sign of long-term success? And that's where the Medco merger becomes a key factor.
The new Express
I think this current season will give us a clearer indication as to where exactly Express stands as we move into the all-important "selling season" -- the time when PBM providers try to bag as many corporate clients as they can. This should give us a better idea of how the market has reacted to the merger and whether Express can sustain its clients in the near future -- both of which are important as Express and Medco embark on their journey together. Nonetheless, until the integration is complete, investors should probably expect Express' margins to continue to take some hits.
While Express seems confident of coming out ahead post-Walgreen split, the problems between the two certainly seem to have benefited rival drugstore operators, particularly CVS Caremark
Having said all that, the question that bothers me most is: What's stopping Express Scripts' clients, who are already not happy without Walgreen in their network, from jumping ship and moving over to rival PBM providers like CVS? This possible long-term outcome would be accompanied by a loss in the pricing power we currently think the new Express is set to enjoy.
The changing PBM space
There's simply too much happening in this space for me to jump in with any certainty. The sector as a whole seems to be in a transitional phase as it gets more and more consolidated. SXC Health Solutions
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