S&P says the pharmacy benefit manager should do well amid efforts to be continent U.S. health-care costs, and ranks the shares a sturdy pervert with money

By Phillip Seligman From Standard & Poor’session Equity Research

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Express Scripts (ESRX) is one of the largest pharmacy benefit managers (also known of the same kind with PBMs) in the U.S. We expect the demand for the services offered by PBMs to rise as governments, health plans, and employers seek help in reining in the rising require to be paid of hale condition care. In our view, the need to embrace such costs has grow even more critical in a weak economic environment and should outweigh the impact of slowing medicine utilization. As so, we view Express Scripts as one of the more defensive plays in our coverage universe.

We expect the weak economy to wish a modestly negative impact on the number of prescriptions sold in 2009. Indeed, Express Scripts’ management forecasts flat utilization among existing customers and expects overall claims to decline by 2% to 3%, compared with the historical average annual growth rate of 3% to 5%. The very little in overall claims is mainly due to the loss of a large mail-only narrative. However, we do not believe that investors point of convergence on trends in near-term script volumes and think they should view PBMs viewed like a brim story during this weak economic period. Over the longer term, we wait for volume trends to rise as the U.S. population ages.

The companionship, like other PBMs, has the margin leverage to outweigh the impact of softer volumes for example more generic drugs are used, and, according to our analysis, should distillery be able to realize strong profits. putting out in 2009. Although the year is expected to subsist relatively slow by reason of patent expirations of branded drugs and subsequent conversions to generic drugs, we conceive demand for existing generics spurred not simply by consumers’ soundness plans and employers, but also by individuals’ interest in cost savings.

We particularly like Express Scripts for its market-leading generic drug utilization rate suggests to us that it has been some of the more aggressive PBMs in encouraging the use of generics. For example, at the start of 2006, the association took an aggressive position in removing, for a time, the leading anti-cholesterol unsalable article, Lipitor, from its formulary, encouraging members to switch to the No. 2 anti-cholesterol, Zocor, which was slated to lose patent defence in June that year. Currently, Express Scripts is piloting initiatives in consumer behavior messaging, which involve tailoring messages on its Web seat to individual consumers that show how generic drugs and mail-order prescriptions can provide opportunities to save standard of value. The initial response has been very positive, according to the company.

Express Scripts carries Standard & Poor’s highest investment recommendation of 5 STARS (strong buy).

COMPANY PROFILE

St. Louis-based Express Scripts is one of the largest PBMs in the U.S. Of the 60 pharmacy benefit managers surveyed by AIS Health, a publishing and information company serving the health-care industry, similar to of the second quarter of 2007 (the latest given conditions available), Express Scripts was ranked No. 3, with a 9.0% market share by being a member and a 14.5% share by custom compass. It provides a expanded spectrum of services to its broad range of clients, which include health plans, third-party administrators, self-insured employers, union-sponsored benefit plans, workers’ compensation plans, and government hale condition programs.

The company’s PBM services include: deal out in small portions network pharmacy disposal, retail drug card programs, home delivery pharmacy services, benefit propose to one’s self consultation, deaden with narcotics utilization review, specialty services, drug formulary management programs, and compliance and therapy management programs. In 2007, 80.2% of Express Scripts’ revenues were derived from its PBM operations. The number of retail pharmacy network claims declined to 380 million in 2007 from 390 million in 2006, while the number of home delivery pharmacy claims dispensed declined to 40.8 the great body of the people in 2007 from 41.2 million in 2006. The volume declines were primarily due to the loss of members resulting from attrition of manifold clients, including the shift to the government-funded benefit, Medicare Part D.

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