Medco Health Solutions Inc., the pharmacy benefits manager with major operations in Indiana that has lost $3.5 billion in contracts since March, may seek acquisitions to make up for lost revenue if its biggest remaining client fails to re-sign this year.

The $11 billion contract with UnitedHealth Group Inc., representing about 17 percent of Medco’s business, expires after 2012. The insurer is reviewing the agreement and will decide whether to renew this year, UnitedHealth CEO Stephen Hemsley said on June 1. The Minnetonka, Minn.-based company is leaning toward terminating the contract and handling the work with its in-house unit, said Ana Gupte, an analyst at Sanford C. Bernstein & Co. in New York.

If so, Franklin Lakes, N.J.-based Medco will likely seek acquisitions to help make up for the lost sales by looking to purchase another pharmacy manager or diversifying beyond its core business of buying, dispensing and overseeing prescriptions for companies, analysts said.

“This is an industry where scale matters, and the loss of UnitedHealth will increase the pressure on Medco executives to fill in the revenue gap it creates,” said Helene Wolk, an analyst also at Sanford Bernstein, in a telephone interview. A potential target may be Cigna Corp.’s pharmacy unit, which the insurer tried to sell two years ago, she said.

Medco operates a $140 million automated pharmacy and distribution center in Whitestown in Boone County, and it plans to employ more than 1,400 people there by 2012. The company studies drug data, genetic testing and medical-claims data at the facility. A company spokesman said Tuesday morning that current employment in Indiana was about 430.

The loss of UnitedHealth, with its 20 million members, may drop Medco from the biggest pharmacy benefit manager by revenue to the smallest, behind Woonsocket, R.I.-based CVS Caremark Corp. and Express Scripts Inc., of St. Louis, Wolk said.

Medco shares declined $1.02, or 1.8 percent, to $56.77 each on Monday. The shares have dropped 12 percent since May 26, the day before the company announced the loss of a $3 billion contract covering 4 million U.S. government workers and 9.8 million mail-order prescriptions. Medco in March lost the renewal of a $500 million contract with the California Public Employees Retirement System.

The federal-employee contract, lost to CVS, represents less than 10 percent of Medco’s estimated earnings and won’t affect 2011 results, Jennifer Luddy, a company spokeswoman, said.

Medco is “confident in our differentiated services and competitive positioning in the marketplace,” Luddy said in an e-mail. “Our 2011 client retention rate remains at over 99 percent, a result of our focus on superior client service and the value that we consistently deliver through our advanced clinical pharmacy model.”

While Luddy declined to comment specifically on whether Medco may seek acquisitions to make up for lost contracts, she said “we are open to and explore opportunities that make strategic sense.”

UnitedHealth’s contract generates about 8 percent of Medco’s earnings per share, Bernstein’s Wolk said.

“We expect UnitedHealth is unlikely to renew that contract for 2013, bringing some or even all PBM activity in-house,” Gupte, also from Bernstein, wrote in a June 2 note to clients.

UnitedHealth has a unit that manages pharmacy benefits; taking that business in-house may increase its size by 67 percent, Bernstein’s Wolk said. Investments made in the pharmacy unit, called Optum Rx, are sufficient to handle the Medco business, UnitedHealth’s Hemsley said April 21 during an earnings conference call.

“I don’t know how the signals could be any clearer,” said Art Henderson, an analyst at Jefferies & Co. in Nashville, Tenn. “United wants to take the business in-house and Medco will have to be very competitive in price to maintain any of it.”

To make up for revenue losses, Medco may look to diversify beyond pharmacy benefits management, as it did Aug. 16 when it agreed to buy United BioSource Corp. for $730 million, said Ross Muken, an analyst at Deutsche Bank in New York.

United BioSource, which tests drugs and devices after they are approved by regulators, “was a completely new offering,” Muken said. “I think certainly things like that will be highly interesting.”

Competition intensified among pharmacy benefits managers after Express Scripts moved forward with integrating Indianapolis-based WellPoint Inc.’s pharmacy benefits unit with 25 million members. CVS, in the past year, grabbed a contract with Capital Blue Cross of Pennsylvania from Express Scripts and the federal workers plan from Medco.

“Historically, Medco has never been a fan of just buying market share,” Eugene Goldenberg, an analyst at BB&T Capital Markets in New York, said. “But over the last six to nine months, we have seen management’s tone change” toward acquiring another pharmacy benefits manager.

The number of potential targets dwindled after Hartford, Conn.-based Aetna Inc. gave a 12-year, $9.5 billion contract to CVS last July and UnitedHealth began investing in its pharmacy benefits unit.

Among those left on the market is Philadelphia-based Cigna’s pharmacy benefits unit with 6.2 million members as of March 31; Prime Therapeutics LLC in St. Paul, Minn., with about 17 million members; and MedImpact Healthcare Systems Inc. in San Diego with about 32 million participants, said Jefferies’s Henderson. Of the three, Cigna offers the most profitable business, he said.

Asked about a potential sale, Lindsay Shearer, a Cigna spokeswoman, said the insurer sees “pharmacy as a key component of Cigna’s integrated approach to health care.”

“The business has delivered strong results for us,” Shearer said in an e-mail. “At the same time, we are always evaluating opportunities to maximize its value for our customers and shareholders.”

Prime Therapeutics said it has been approached by potential buyers though it isn’t looking to sell the business. “We are very pleased with where we stand as an important player in the PBM market,” said Matt Yordy, senior vice president for business development.

Taylor Heringer, a spokeswoman for MedImpact, didn’t respond to requests for comment.