- The Washington Times - Tuesday, April 14, 2009

INDIANAPOLIS | Express Scripts Inc. stands to gain considerable negotiating clout from its $4.68 billion deal to buy the pharmacy-benefits management businesses of health insurer WellPoint Inc., and experts say that could mean savings for customers buying prescription drugs.

St. Louis-based Express Scripts said Monday it planned to buy WellPoint's NextRx subsidiaries in a cash-and-stock deal. Express Scripts is the third-largest pharmacy-benefits manager, and the deal likely would vault it past No. 2 CVS Caremark and push it close to the top stand-alone company, Medco Health Solutions Inc., based on prescriptions managed.

The increased bargaining power that comes from that size should translate into better pricing for existing employer customers and more aggressive pricing for prospective new ones, said David Dross, a principal with the human resources consulting firm Mercer.

That could help employees by lowering co-payments for drugs or softening increases in the contributions they have to make to their health plans. But Mr. Dross said that depends on how or if the employer passes along any savings.

Pharmacy-benefits managers pay prescription-drug claims through large networks of chain pharmacies and independent drugstores. They also manage mail-order businesses that ship drugs directly to patients, a practice that is becoming popular for people who need steady medications to deal with chronic conditions.

Shares of both Express Scripts and WellPoint climbed steeply Monday after the deal was announced, as several analysts said they saw positives for both companies.

WellPoint will receive at least $3.28 billion in cash and the balance in Express Scripts stock. The insurer will use about $2 billion of that to buy back shares.

“The expected share-buyback program reflects our belief that our stock is undervalued, based on the company's fundamentally strong financial position, including predictable earnings, including predictable earnings with strong cash flow from operations,” WellPoint Chief Financial Officer Wayne DeVeydt said during a conference call with analysts.

The transaction also includes a 10-year contract for Express Scripts to provide services to WellPoint following closing of the transaction.

The NextRx subsidiaries provide services to about 25 million WellPoint customers. WellPoint executives declined to say how much revenue the business generates, but they did say it represented less than 10 percent of the company's total operating profit before taxes.

Investors smiled on the deal. Express Scripts shares rose 15.5 percent, or $7.64, to close at $56.81 Monday. WellPoint stock climbed more than 8 percent, or $3.24, to $43.58.

The companies expect the deal to close in the second half of 2009.

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