HR Administration

Will Walgreen Suffer Side Effects Even After New Express Scripts Deal?

By Todd Behme

Jul. 19, 2012

Now that Walgreen Co. has made amends with Express Scripts after a testy public dispute, the drugstore chain faces the work of winning back the customers it lost in the stare-down.

That won’t be easy. Deerfield, Illinois-based Walgreen put out a major communication campaign in advance of the split, and competitors likewise publicly courted customers of Express Scripts, a pharmacy benefits manager.

“Walgreen has handed a sale and traffic gift to its competitors such as CVS and Rite Aid this year,” Carol Levenson, director of research at New York-based bond research firm Gimme Credit LLC, wrote in a note today. “Whether Express Scripts prescription customers will all switch back to Walgreen now remains to be seen, but it seems likely that many have been lost permanently.”

The two sides announced July 19 that Walgreen will rejoin Express Scripts’ network Sept. 15, news that triggered a jump in Walgreen’s stock. Terms of the deal were not disclosed.

Express Scripts, like other PBMs, are third-party middlemen that negotiate prices with pharmacies and drugmakers on behalf of corporate clients and processes their claims.

When it officially bowed out of Express Scripts’ network in January, Walgreen risked more than 10 percent of the 819 million prescriptions it filled in 2011. Express Scripts clients include major names such as the U.S. Department of Defense and, closer to home, Exelon Corp., W. W. Grainger Inc. and Allstate Corp.

Since the breakup, Walgreen has watched its monthly pharmacy sales skid as much as 10 percent. To make matters worse, the Federal Trade Commission in April approved Express Scripts’ $29.1 billion acquisition of Medco Health Solutions Inc., creating the country’s largest PBM and calling into question whether Medco customers would be able to fill prescriptions at Walgreen in the long run.

CVS Caremark Corp. says it expects to retain at least 50 percent of the business gained during the fourth quarter of 2011 as a result of the contract dispute. And that gain looks to be significant: In May, Woonsocket, Rhode Island-based CVS reported a 14 percent rise in first-quarter earnings. Revenue grew 20 percent to $30.8 billion, as revenues from pharmacy increased 9.9 percent.

A Walgreen spokesman declined to comment on CVS’ claims but said Walgreen and Express Scripts “will work together to ensure a smooth transition for those members and patients who will want to choose Walgreens pharmacies.”

Overall, though, analysts say the truce is a positive for both companies.

It also quiets concerns about Walgreen’s plans to acquire a 45 percent stake in European health and beauty retailer Alliance Boots. After the deal was announced in June, Walgreen’s stock skidded as Wall Street worried about the timing: Why make an expensive purchase right when the company was dealing with the costly dispute?

“We … believe this should provide a lift to Express Scripts shares as well as Walgreen’s,” John Kreger, a Chicago-based analyst with William Blair & Co., wrote in a note July 19.

Todd Behme writes for Crain’s Chicago Business, a sister publication of Workforce Management. To comment, email

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