WASHINGTON – Drug distributor AmerisourceBergen Corp. doesn’t expect to lose its contract with Medco Health Solutions Inc., its biggest customer, as part of Express Scripts Inc.’s proposed takeover of Medco.
“We have a solid contract” with Medco “until mid-2013, and we expect to earn our place at the table to carry on enhancing and preserving that relationship,” said Steven Collis, CEO of Chesterbrook, Pa.-based AmerisourceBergen, on an earnings call Thursday. “We will participate vigorously in whatever happens.”
AmerisourceBergen, the third-biggest drug distributor, dropped 6 percent on July 21, the most in a year, after Express Scripts announced its $29.1 billion bid for Medco to create the largest pharmacy-benefits manager. The deal may put the AmerisourceBergen-Medco contract at risk because Express Scripts uses Cardinal Health Inc. as its primary drug distributor, A.J. Rice, an analyst with Susquehanna Financial Group in New York, said July 21 in a note to investors.
Medco accounts for 18 percent of AmerisourceBergen’s revenue and about 5 percent of earnings, said Collis, whose company reported almost $78 billion in revenue for the year ended September 2010.
Asked whether AmerisourceBergen assumes it will lose the Medco contract after it expires in March 2013, Collis said, “We don’t have that assumption at all.”
A combination of Express Scripts and Medco “would be a very large enterprise,” Collis said. “It’s not impossible that there would be several suppliers to it.”
Increased Customer Base
The Medco takeover, if cleared by U.S. regulators, would increase Express Scripts’s customer base by 50 percent to 135 million, based on current data, Art Henderson, an analyst at Jefferies & Co. in Nashville, Tenn., said last week in an interview. The companies’ biggest rival, CVS Caremark Corp., based in Woonsocket, serves 85 million people.
Pharmacy-benefits managers act as middlemen between drugmakers, pharmacies and health-plan sponsors to negotiate prices and manage consumers’ use of drugs.
The acquiring company (Express Scripts) will make the call on which drug distributor they will do business with on an ongoing basis. There are “out clauses” in all contracts and I believe AmerisourceBergen is being a bit optomistic about its future with Express Scripts. The current drug wholesaler for Express Scripts is certainly going to lobby to take on the entire expanded distribution business and will likely adjust its COG’s to win the entire contract. I doubt the exisiting contract will live out its term. AmerisourceBergen will be transitioning this business off their books within months, not years.