Investors cheered this morning after WellPoint Inc. agreed to sell its pharmacy management unit to Express Scripts Inc., but
the fate of about 2,100 WellPoint employees now is up in the air.
Shares of Indianapolis-based WellPoint rose more
than 5 percent in morning trading. St. Louis-based Express Scripts’ stock price shot up 9 percent.
What’s not clear
in the $4.7 billion deal is what happens to the WellPoint employees involved. The pharmacy unit, called NextRx, employs more
than 400 at Indianapolis International Airport. WellPoint had plans to grow employment at the facility to as many as 900.
Scripts CEO George Paz said the company expects to achieve an unspecified amount of savings from the deal, but he said his
company wouldn’t rush to close facilities.
“Like every acquisition that we do, we don’t just blindly go in and start
shutting down the other side,” Paz said, according to a transcript of a conference call with analysts.
“We are very
diligent in our process of analyzing best practices, best approaches, the best people, the best facilities. … We have a
sizable footprint around the country because we decided not to shut down facilities of some of the acquired companies.”
Scripts will pay $4.7 billion in cash and stock for NextRx. WellPoint plans to spend $2 billion in proceeds from the sale
buying back shares of its own stock.
WellPoint will use $1.8 billion to pay taxes and transaction costs, $500 million
to pay down debt and $375 million for general corporate uses, including future acquisitions.
WellPoint, the nation’s
second-largest health insurer, covers 35 million individuals. WellPoint’s pharmacy subsidiaries, called NextRx, dispense and
manage 265 million prescriptions each year for 25 million people.
As part of the sale, Express Scripts has agreed to
a 10-year contract to provide services to WellPoint. Express Scripts expects that contract and NextRx’s other business to
bring it an extra $1 billion in earnings, before interest, taxes, depreciation and amortization.
this strategic alliance with Express Scripts, we will enhance the health care value we bring to our members,” said WellPoint
CEO Angela Braly. “This alliance will create an organization with greater resources and capabilities, which will provide members
with more cost-effective solutions as well as access to state-of-the-art [pharmacy management] services.”
will retain control of medical policy, formulary and integrated disease management aspects of its pharmacy benefits. A minority
of NextRx employees in Indianapolis will stay on to perform those functions and manage the contract with Express Scripts,
said WellPoint spokeswoman Cheryl Leamon.
The deal is expected to close in the second half of 2009. Express Scripts
will pay WellPoint $3.275 billion in cash and $1.4 billion in stock. The deal also includes compensation for the value of
a future tax benefit for Express Scripts based on the structure of the deal.
The deal gives St. Louis-based Express
Scripts, the third-largest pharmacy benefits manager with about 506 million prescriptions filled in 2008, an additional 265
million. That would pull it close to the No. 1 stand-alone company, Medco Health Solutions Inc.
CVS Caremark, which
also operates retail stores and pharmacies, managed about 633 million prescriptions in 2008, and would fall to the No. 3 spot
after the deal closes.
The cash part of the deal includes a mixture of cash on hand and debt financing.
aligned business model, combined with the complementary expertise and capabilities of WellPoint, creates significant opportunities
for accelerated growth for both organizations,” Express Scripts Chairman and CEO George Paz said in a statement.
is coming off of a rough 2008. The company and its peers have been hurt by investment losses and rising unemployment due to
the recession. Higher medical costs have also been eating away at profit.
In 2008, WellPoint’s enrollment rose less
than 1 percent while profit fell more than 25 percent. The company has warned that rising unemployment and falling enrollment
will hurt revenue in 2009.
In February, the company said medical enrollment could fall 3 percent, or by about 1 million
members, to 34 million people, while fully insured enrollment would drop by an estimated 6 percent, to 15.5 million.
Scripts has been benefiting from the use of generic drugs, which are more profitable for the company than brand-name drugs.
During the fourth quarter of 2008, generic drug use rose to 67.3 percent from 63.7 percent for the company. In 2008, profit
rose nearly 37 percent.
Pharmacy benefits managers, who manage prescription drug coverage, have generally done well
in the recession as more people switch to generics or look to save money by getting 90-day prescriptions filled by mail.
key competitor, Medco, also gained ground in 2008, with profit rising 21 percent. Medco had nearly double the revenue of Express
Scripts in 2008. But, NextRx, which is the fourth-largest prescription benefits manager in the nation, will give Express Scripts
another $1 billion in annual gross earnings, the company said.