Business

Tuesday April 14, 2009

US pharmacy benefit manager in US$4.7b deal


NEW YORK: Express Scripts Inc will buy health insurer WellPoint Inc’s NextRx prescription business for US$4.68bil in a significant expansion for the large US pharmacy benefit manager.

The deal would give Express Scripts new bulk to compete against chief rivals Medco Health Solutions and CVS Caremark Corp.

“From a long-term perspective … I think it’s going to be very good for the company,” said Jefferies & Co analyst Arthur Henderson. “It enhances their size to give them long-term viability as an independent.”

NextRx subsidiaries provide pharmacy benefits management services to about 25 million Americans and manage more than 265 million adjusted prescriptions annually.

The possibility of health insurers divesting their drug-benefit units has long been fodder for Wall Street speculation, and analysts have said the companies might be pressured to spin off the units if their shares continue to languish.

The NextRx purchase price will be a mixture of cash and up to US$1.4bil in Express Scripts common stock.

The deal would generate more than US$1bil of incremental earnings before interest, taxes, depreciation and amortisation, Express Scripts said in a filing with the US Securities and Exchange Commission.

The companies said the deal included a 10-year contract for Express Scripts to provide services to WellPoint, the largest US health insurer by membership, which will retain control of medical policy and aspects of designing the drug benefits.

Express Scripts said it expected the deal to be neutral or “slightly” add to its earnings in 2009, and “moderately” add to earnings in 2010.

Pharmacy benefit managers, or PBMs, administer prescription drug benefits for employers and health plans and operate large mail-order pharmacies. The companies often drive much of their profits through their mail-delivery prescriptions. — Reuters

With the WellPoint deal, “Express Scripts has a nice opportunity here to convert people from that retail side to the mail,” Henderson said.

Health insurers endured a tough 2008, marked by profit warnings and questions about their financial positions in a shaky economy, and their shares have been battered in recent weeks on worries about potential health reform measures.

WellPoint said in a separate filing that Express Scripts might have to pay a breakup fee of US$50mil if the deal fails.

The deal is expected to close in the second half of the year. — Reuters


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