EUR 850.00 For Business Accounts Only

Morningstar | Express Scripts Is Well-Positioned in the Pharmacy Benefit Manager Industry

The pharmaceutical supply chain encompasses many companies and stakeholders with various interests. Out of all of these entities, we believe Express Scripts is one of the most dominant and critical players. Even with a tumultuous last several quarters, we believe Express remains in a solid long-term position as its cost saving and efficiency services will be needed by drug benefit plan sponsors for years to come. From our perspective, there has been a significant amount of negative sentiment tied to the name, and we believe it has been easy for certain investors to view it as an impaired asset. However, we believe the absolute need of drug benefit payers to curb the overall costs of treating their members will drive the use of Express’ pricing leverage and member management expertise.Understanding this need, Cigna has made an acquisition offer for Express and will look to incorporate the firm's PBM services into its MCO operations. This development solidifies our outlook for Express and the value it provides its payer clients. The deal is expected to close toward the end of 2018 and we expect only moderate (if any) regulatory pushback. Historically, the federal government has looked favorably upon PBM deals and recently approved a similarly large acquisition when UnitedHealth purchased Catarmaran in 2015. This fact, combined with the government's own extensive PBM contracts for its own employee health insurance plans, gives us confidence a Cigna/Express merger will likely be approved by the Justice Department. We also believe the deal will offer both firms an opportunity to drive value creating synergies and give them an enhanced service portfolio to compete with UnitedHealth and a potential CVS/Aetna tie-up. Independently, the three major PBMs (CVS, Express, UnitedHealth) control close to 80% of all prescription volume in the U.S., and this dynamic allows these firms to directly negotiate discounted drug pricing with manufacturers, distributors, and retail chains. As a result, clients are able to obtain drugs more cheaply than they could on their own.