This was a happening week for the drug retailers as the FTC allowed two of U.S.’s three largest Pharmacy Benefit Managers Express Scripts (NYSE:ESRX) and Medco Health Solutions (NYSE:MHS) to merge with each other, creating a PBM giant with one-third market share. The merger has realigned the industry dynamics, in particular for the drug retailers who might feel more heat on their bottom-line with tougher negotiations over reimbursement rates with the PBMs.
While there was curiosity regarding the future of Walgreen‘s (NYSE:WAG) Medco contracts, there were revived expectations that Walgreen may renegotiate a new deal with Express Scripts. Meanwhile, Rite Aid (NYSE:RAD) posted solid March sales and CVS Caremark (NYSE:CVS) increased its Medicare Part D business by buying Medicare PDP business from health insurer Health Net.
The market seemed particularly eager to weigh the implications of the merger for the drug retail giant Walgreen, in terms of the future of its contracts with Medco after having parted ways with Express Scripts. Walgreen says it expects to honor its existing contracts with Medco, unless the new company took some extraordinary actions to change or cancel them. There were also renewed expectations that Walgreen may give another shot to mending ties with the estranged Express Scripts post merger. Read more here - Walgreen Could Mend Ties With Express Scripts Post Medco Merger
Rite Aid announced its March results with solid earnings and continued its streak of improving same store sales. It posted 3.6% higher same store sales, indicating gradual improvements in profitability. It is expected to announce its fourth quarter results next week. Read more - Rite Aid Posts Solid March Sales.
Meanwhile, CVS Caremark bought the Medicare Prescription Drug Plan (PDP) business from the health insurance company Health Net, continuing the gradual expansion of its Medicare business. Medicare business is set to get a boost from the ageing U.S. population and health reforms, that would increase prescription utilization. CVS has been trying to acquire a leading position in Medicare Part D that represents a significant growth opportunity for its PMB and retail businesses. It also acquired the Medicare PDP business of Universal American in April 2011.