A contract dispute between pharmacy benefits manager Express Scripts and its largest client, the health insurer WellPoint, should get resolved quickly but investors will likely overreact to the dustup, according to a Jefferies analyst.
Express Scripts, based in St. Louis, said Tuesday afternoon it was in the middle of a contract dispute with the Indianapolis insurer, and WellPoint has raised the possibility of litigation. But Express Scripts also said the companies are negotiating and it believes they can resolve the dispute.
WellPoint Inc. operates Blue Cross Blue Shield plans in 14 states and is the nation's largest health insurer based on membership. It also represents about 30 percent of Express Scripts' revenue, analyst Arthur I. Henderson said in a Wednesday morning research note.
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Henderson said the agreement between the companies is very complex, so occasional disputes should not be surprising.
"Given our belief that (Express Scripts') relationship with (WellPoint) remains solid, we expect this issue to be resolved quickly," Henderson said, adding that he remains "bullish" on the pharmacy benefits manager.
Henderson noted that Express Scripts is preparing for an upcoming shareholder vote on its $29.1 billion acquisition of fellow PBM Medco Health Solutions Inc., and its disclosure of the WellPoint dispute may have been prompted by "a higher degree of disclosure conservatism on management's part."
Express Scripts also has spent most of this year embroiled in a fight with Walgreen Co., the largest U.S. drugstore chain over a contract that expires at the end of 2011. The companies have not been able to agree how much Express Scripts should pay Walgreen to fill prescriptions. If they do not agree to a new contract, most people whose prescription drugs plans are managed by Express Scripts won't be able to fill their prescriptions at Walgreen stores.
Shares of Express Scripts Inc. fell Tuesday in after-hours trading. They also dropped 2.6 percent, or $1.15, to $43.25 Wednesday in pre-market trading.
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