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Express Scripts (ESRX) Likely to Lose Anthem (ANTM) Contract - Wedbush

May 31, 2016 8:27 AM EDT
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Wedbush analyst, Sarah James, conducted proprietary research interviewing industry experts and believes Express Scripts (NASDAQ: ESRX) is likely to lose the Anthem (NYSE: ANTM) contract. No change to Neutral rating.

The majority of experts the analyst spoke to believe it is likely Anthem and Express Scripts have reached a point at which the relationship is no longer salvageable. Some experts on the sales side indicated negotiations can get heated at times but none had seen a negotiation deteriorate to this point or be played out so publicly. Over the past month they have spoken to PBM industry experts including former PBM executives, senior managers on sales teams selling PBM products to large insurers, and directors of payer strategy relations. None are/were involved with the ANTM/ESRX contract but they provided industry knowledge from their vast background of previously held relevant positions at large PBMs such as CVS, Prime, Optum, and at insurers on the pharmacy side such as Anthem, United, CIGNA, and Aetna.

The analyst thinks private PBM Prime is the likely alternative, CVS (NYSE: CVX), second most likely, and United (NYSE: UNH) as unlikely. The private, PBM Prime Therapeutics, serves most blue cross blue shield plans. It emerged as the most likely winner in the expert’s opinions. They were somewhat surprised at the number of experts that believed CVS to be a strong candidate. Granted CVS has the scale to garner good pricing and likely excellent rebate contracts in place, but they are also the vendor for Anthem’s competitor Aetna and Aetna’s contract would have asked for some exclusivity in return for the 10 year term. United’s PBM offering, Optum, was noted as a small possibility, most agreed it was unlikely to win the contract.



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