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Walgreen expects to lose most Express Scripts biz

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Drugstore operator Walgreen Co. said Thursday it expects to lose almost 90 percent of prescriptions handled by pharmacy benefits manager Express Scripts Inc. after it leaves Express Scripts' networks on Jan. 1.

The Deerfield, Ill., company said the break will hurt its sales, earnings and cash flow during fiscal 2012, although it did not specify the impact in a filing with the Securities and Exchange Commission. But it noted that Express Scripts processed about 88 million prescriptions filled by Walgreen in fiscal 2011. That represented about $5.3 billion of the drugstore operator's sales out of $72.18 billion in total sales.

Based on deals it has made with individual Express Scripts clients, Walgreen said it expects about keep about 10 million of those prescriptions. The company said it filled about 26 million prescriptions for Express Scripts over the first four months of its current fiscal year, which started Sept. 1.

Express Scripts pays Walgreen and other drugstore operators to fill prescriptions. The companies have said since June that they were preparing to stop business once their three-year contract ends this year. Walgreen has said it would rather give up the revenue it gets from Express Scripts than continue filling unprofitable prescriptions. When the contract ends, most Express Scripts members won't be able to fill prescriptions at Walgreen stores.

The nation's largest drugstore chain also has said it will try to keep as many of the Express Scripts prescriptions as possible by making its own arrangements with companies and health plans. Walgreen said more than 100 Express Scripts clients have either changed pharmacy benefits managers or altered their contracts to keep Walgreen in their networks. It said it believes that employers and health plan sponsors will want to keep its stores in their networks.

Walgreen has not made deals with Express Scripts' biggest clients, however, including the Tricare military health plan and Indianapolis-based health insurer WellPoint Inc.

In the meantime Walgreen said it will try to counteract the loss of Express Scripts' business by cutting costs. However the company has acknowledged that it will not be able to cut enough costs to make up for all of the revenue it will lose. Walgreen recently completed a three-year initiative that was intended to cut its annual spending by $1 billion.

Walgreen reiterated in the filing Thursday that it expects to keep 97 to 99 percent of its fiscal 2011 prescription volume in the new fiscal year. Walgreen fills one out of every five prescriptions in the U.S., and it filled about 819 million prescriptions in its last fiscal year. The company has approximately 7,800 stores.

Walgreen said earlier this month the Express Scripts decision cost it a penny per share in sales at pharmacies open at least a year and a penny per share in expenses during its fiscal first quarter.

Walgreen acknowledged it could lose more business or face more pressure to cut its prices if Express Scripts is able to buy Medco Health Solutions Inc., one of its biggest pharmacy benefits management competitors. Express Scripts agreed to buy Medco in July for $29.1 billion. Antitrust regulators are reviewing the deal, and the companies hope to complete the sale in the first half of 2012.

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  • Employee
    Walgreens isnt pulling out of inner cities at all. This decision was a hard one and had to be done.
  • Hey Dave
    Dave, please reread the 2nd post which simply responded to the first one regarding the pull out of Walgreens in inner city locations. It didn't necessarily agree that they are pulling out and I was merely stating an obvious business fact for why Walgreens may pull out of any location. I have no affiliation with any of the pharmacy companies other than as an extremely minor shareholder of Walgreens.
  • Protaganistic comments?
    I see at least two comments that mention "Walgreen's pulling out of inner city neighborhoods." Wow. Seriously? Those comments could mean something, if they were actually true. 38th and Post is not an inner city neighborhood in the strictest tense but it sure seems like one - urban blight, decay, crime, you name it - if it's bad news, it's 38th and Post. Is walgreens closing their store? Nope. They are remodelling and offering groceries, since the Kroger in the area closed. That does not sound like one that is pulling out. I would say that the commenters must work for Express Scripts or, maybe CVS, lol. Seriously?
    • Others
      And the good news is that there are a host of others willing to fill Rx:
      CVS, Rite-Aid, Kroger, Walmart, your local pharmacy, your insurance companies mail order plan.

      The problem is that in this fight the customer has choices. Hopefully Walgreen's knows what it is doing.
    • Business is Business
      Remember, Walgreens is in business to make money for their shareholders. They pull out of inner cities or other locations because the theft & lower sales make it unprofitable to stay there. No one in their right mind would let a store bleed if they are trying to make money and a neighborhood is going downhill or not turning around.

      The issue with Express Scripts is that they aren't willing to pay appropriate prices for the services Walgreens provides. Once again, if what they are doing isn't profitable then as a shareholder you should want them to stop it. The customers should be reaching out to their insurance providers and demanding that they work something out with Walgreens. Your complaints should be with Express Scripts & the insurance companies, not Walgreens.
    • Extreme Conservatism
      It is shameful that Walgreen is basically turning it's back on customers and forcing them to pay higher prices elsewhere. It is my understanding that Walgreen also plans to pull out of inner city neighborhoods.Being a stockholder with Walgreen I am seriously concerned and ashamed of it's actions.I emplore them to re-think this antisocial action.

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