No win for ESRX

While the loss of 90 million annual prescriptions (out of over 700 million) will certainly hurt the Walgreen (WAL) top line, we believe that the medium to long term effect of the WAL and Express Scripts (ESRX) fall out will be more detrimental to ESRX. In a report previously commissioned for a client by Pharmascan, we discovered that the average person in the Greater New York area will travel 50 miles for a hairdresser, 10 miles for a dentist, 5 miles for a general internist and 1 mile for a pharmacy. The truth in healthcare is that the overwhelming majority of patients do not travel for routine care or prescriptions. If patients cannot fill their ESRX managed prescriptions in their neighborhood, they will switch health plans. ESRX cannot afford to lose any more retail pharmacy chains and reduce patient access. Further losses will result in a flight of ESRX’s health plan customers. ESRX is stuck. Hold a firm line with pharmacies and they risk losing insurance plans. Give in on pharmacy contract negotiations, and the bottom line is hurt. This gives better to CVS Caremark (CVS) and other retail pharmacies in their negotiations with ESRX.