Walgreens outlines impact scenarios from Express Scripts withdrawal

DEERFIELD, Ill. — Walgreens mitigated projected repercussions out of the chain's withdrawal from the Express Scripts pharmacy network come January, as the Walgreens/Express Scripts failed negotiations again dominated the pharmacy's quarterly analyst call Tuesday morning. All told, Express Scripts represents $5.3 billion in revenue to Walgreens, but the Chicago-based pharmacy is working toward retaining the prescription business from several employers and payers, "consistent with their contractual obligations," executives emphasized.

And Wall Street investors continued to express their unease with the Walgreens/Express Scripts situation, as the stock value dropped despite better-than-antcipated fiscal 2011 results. Walgreens stock dipped as much as $1.70 from Monday's close of $36.03 per share in early morning trading. By mid-morning, the stock recovered a little as it traded for $34.75 per share.

Walgreens president and CEO Greg Wasson outlined a range of plan retention scenarios. Worst case scenario: Walgreens retains only 25% of the business presently represented by Express Scripts, or $1.3 billion, an impact that would have a negative $0.21-per-share impact in fiscal 2012 year-end results. Best case, Walgreens retains 75% of that business, or $4 billion, and only realizes a negative $0.07-per-share impact on year-end results.

"Over time, we plan to win back more and more of those plans," noted Wade Miquelon, Walgreens EVP and CFO. So any losses will have the greatest impact in the first quarter, and that impact is expected to lessen further into the year as Walgreens successfully negotiates with plan administrators. "It's a shifting payer landscape," Wasson said. "Payers, in general, are looking more holistically in how to lower healthcare costs." Without getting into detail, Wasson acknowledged Walgreens was "working with several partners" and that many of those negotiations represented "positive discussions."

"This is not going to be a single-year event," Wasson said. More and more plan administrators will have an opportunity to review their PBM contract and evaluate any impact from a PBM-sans-Walgreens as the year progresses, Wasson said.

Not included in those impact calculations is the possibility of a Express Scripts/Medco merger, though that wouldn't change anything, Wasson said. "We wouldn't accept terms similar to what Express Scripts offered from any PBM, regardless of what happens."

Before the analyst call was dominated by the PBM issue during the question-and-answer segment, Walgreens reported some strong full-year results and expressed confidence in its healthcare gameplan going into fiscal 2012. The Chicago retailer realized several key milestones in the past year, including the fact that 1-out-of-every-5 prescriptions in America were adjudicated by a Walgreens pharmacist. Those 819 million prescriptions dispensed represented an increase of 5.3% in prescription volume. And Walgreens, along with its retail clinic operation Take Care Health, delivered 6.4 million flu shots last year, second only to the U.S. government. Flu shots represent "a great example of customers coming to the [pharmacy setting] for greater healthcare services," Wasson said.

Walgreens also strengthened its retail healthcare position through several collaborative relationships with a number of hospitals and health systems "aimed at improving patient care and providing greater access to important healthcare services while lowering costs." Recently announced coordinated care partnerships include Northwestern Memorial Physicians Group, Johns Hopkins Medical Center, Ochsner Health System in New Orleans and Memorial Health in Jacksonville, Fla.

Coming into the next year, Walgreens plans to further transform its traditional drug store model into a "retail health and daily living store" as the chain continues to realize multichannel synergies from its recent acquisition of Drugstore.com and continues to expand its fresh food offerings and food oasis formats.

For the year ended Aug. 31, Walgreens reported a fiscal 2011 sales increase of 7.1% to $72.2 billion and returned $2.4 billion to shareholders through dividends and share repurchases.

For the quarter ended Aug. 31, comparable sales were up 4.4%, with a front-end same-store sales increase of 4.6%. Customer traffic in comparable stores increased 1.6% for the fourth quarter, while basket size increased 3%.

Prescription sales, which accounted for 65.4% of sales in the quarter, climbed 5.7%, while prescription sales in comparable stores increased 4.4%. The company filled 202 million prescriptions, an increase of 4% over last year’s fourth quarter. Prescriptions filled in comparable stores increased 3.4% in the quarter. The company exceeded by 2.3 percentage points the prescription growth rate of the rest of the industry during the same period, as reported by IMS Health, Walgreens noted in a press release Tuesday morning.