Report: Walgreen to sell pharmacy-benefits unit
Walgreen Co., the largest U.S. drug- store chain, is looking to sell its pharmacy-benefits management business and has hired an adviser to run an auction, said three people with knowledge of the matter.
The sale of the PBM unit, which Walgreen started in 1995, may fetch $500 million to $1 billion depending on what assets are included in the deal, said the people, who declined to be identified because the talks are private. Walgreen, based in Deerfield, is being advised by Bank of America Corp., the people said.
Walgreen received first-round bids for the business last week, said two of the people. Medco Health Solutions Inc., Express Scripts Inc. and CVS Caremark Corp., the three largest PBMs in the U.S., are among the companies that have expressed interest, the people said.
Michael Polzin, a spokesman for Walgreen, and Lowell Weiner, a spokesman for Franklin Lakes, New Jersey-based Medco Health, declined to comment. Julie Adelsberger, a spokeswoman for St. Louis-based Express Scripts, and Carolyn Castel, a spokeswoman for Woonsocket, Rhode Island-based CVS, also declined to comment. A spokesman for Bank of America didn't return a call seeking comment.
PBMs make their money by negotiating with retail pharmacies and drugmakers and processing a large number of claims. They pass most of those savings on to corporate, government and insurance customers.
8,000 Locations
Medco Health, Express Scripts and CVS account for about 60 percent of the PBM market, according to Adam Fein, president of Pembroke Consulting Inc., a pharmacy-distribution consultant in Philadelphia. Walgreens Health Initiatives is the ninth-largest PBM in the country, with about 2.6 percent of the market, Fein said. It will process about 108 million prescriptions in 2010, he said.
Walgreen rose 26 cents to $34.33 at 3:29 p.m. in New York Stock Exchange composite trading. The shares had declined 7.2 percent this year before today.
Walgreen has more than 8,000 locations through retail stores, hospitals and corporate health centers. Walgreen has said its strategy is to provide health-care services to patients rather than process claims. It's expanding its retail and worksite medical clinics as well as its specialty pharmacy, home health care, infusion and respiratory therapy businesses.
Contracts, Margins
Pharmacy-benefits managers compete on price to win contracts and gain market share often at the expense of margins, said Andrew Wolf, a Richmond, Virginia-based analyst with BB&T Capital Markets. Purchasing a PBM is a way to gain market share without hurting margins, he said.
Express Scripts bought Next RX, the PBM subsidiary of WellPoint Inc., last year for $4.68 billion. Aetna Inc. considered selling its 9.7 million-member PBM last year and opted instead to turn the administration of the business over to CVS Caremark.
CVS Caremark will handle $9.5 billion in annual drug spending and manage purchasing, inventory and prescription fulfillment for Aetna's mail-order and specialty pharmacy business as part of a 12-year contract. Bank of America ran the sale process for Hartford, Connecticut-based Aetna.