Loss of Anthem could make Express Scripts a takeover target | Business

NEW YORK • The loss of a multibillion-dollar contract with Anthem Inc. comes with a silver lining for some shareholders of Express Scripts Holding Co.: a higher likelihood that the pharmaceutical benefit manager gets scooped up in a deal.

Express Scripts shares have lost nearly 9 percent since the company’s announcement on Monday that its contract to negotiate drug prices for Anthem — worth around a third of its annual adjusted earnings — would not be renewed once it expired in 2019.

That cut the market value of the company, which is based in north St. Louis County, by about $3.5 billion to $37 billion — well below its highs of $53 billion at the end of last year. That, some analysts say, puts it in the crosshairs of potential buyers.

“Post the bludgeoning, we think management will have to take a hard look at the company’s prospects through the roll-off and decide the path forward… that is likely to maximize value creation,” said Evercore ISI analyst Ross Muken in a research note.

He said that another PBM, Medco Health Solutions, opted to sell itself to Express Scripts in 2011 when Medco lost a number of its largest customers.

Tim Wentworth, the CEO of Express Scripts, was an executive at Medco at the time.

After the loss of Anthem’s business, Wentworth touted the benefits of remaining independent for its customers and its bottom line. But that could change if buyer interest emerged.

His company has long been a potential target for health insurers or pharmacies looking to expand into drug benefits, but the uncertainty surrounding its contract dispute with Anthem has kept deal talks on the shelf, several investment bankers said, asking not to be identified because they were not authorized to speak with the press.

Likely buyers

Among the most logical buyers are health insurers such as Aetna and Humana, which are beginning to scout for new deals, several bankers and analysts said. Express Scripts and Aetna declined to comment. Humana was not immediately available for comment.

Insurers can leverage their large patient populations to help PBMs boost bargaining power with drugmakers. That could become more important as scrutiny of PBMs’ pricing practices puts pressure on their margins.

“We’re seeing managed care look to own more of the capability in-house,” particularly as pricey new drugs in areas such as oncology increase the benefits of coordinating insurance coverage with drug benefits, said Michael Baker, an analyst at Raymond James.

Some insurers have already adopted the model. UnitedHealth Group pioneered the strategy with its OptumRx drug benefits unit, which it doubled down on in 2015 with a $12.8 billion acquisition of Catamaran Corp.

A consortium of 14 BlueCross BlueShield plans together own Prime Therapeutics,…

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