CVS/Walgreen Fight Heats Up and Investors Lose

June 9, 2010 1:20 PM EDT
CVS Caremark Corp. (NYSE: CVS) said Wednesday that it will remove Walgreen Co. (NYSE: WAG) from its pharmacy benefits management network in response to Walgreen’s decision on Monday to stop filling prescriptions for new CVS Caremark business.

Investors are bearish on both companies as their shares are sold off with the potential for losses on each side. Walgreen receives roughly 7 percent of its business from its pharmacy business with CVS.

"We regret any inconvenience this change may have on plan members who currently fill their prescriptions at Walgreens but are confident that through our remaining valued network partners, we will continue to provide excellent geographic coverage for our clients and their members across the country," Tom Ryan, Chairman and Chief Executive Officer of CVS Caremark, said. "We will continue to provide convenient and affordable pharmacy care to members, and we are committed to a smooth transition of affected members to other pharmacy providers in our networks."

Walgreen said Monday that it would not provide for any new or renewed drug plans handled by CVS’s pharmacy benefits management business.

CVS has retaliated, and will terminate the participation of Walgreen altogether in its retail pharmacy in the next 30 days, while adding that it will also remove Walgreen from one of its Medicare retail pharmacy networks effective at the beginning of next year.

"Walgreens' announcement was nothing more than a transparent attempt to try to raise the pharmacy reimbursement rates it receives from CVS Caremark," CVS PBM President Per Lofberg said in a statement. "We believe this approach is totally contrary to the needs of our clients who are all struggling to keep pharmacy health care affordable."

CVS said that roughly 7,000 of the 64,000 pharmacies that participate in the company's PBM business are Walgreen, which is the No. 1 U.S. drugstore chain with an 18 percent market share.

Shares of Walgreen are down 1.2 percent $30.25 in midday market movement on Wednesday, while CVS Caremark shares are down 1.3 percent cents to $30.75.

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