Walgreen Co. and Express Scripts Inc. have reached a multiyear pharmacy network agreement that includes rates and terms under which the nation's largest drug chain will participate in the broadest Express Scripts retail pharmacy network available to new and existing clients.

Walgreens, Express Scripts, drug chain, pharmacy benefit manager, PBM, pharmacy network, retail pharmacy, Greg Wasson, George Paz, contract renewal, Walgreens pharmacies, pharmacy care, Medco, Express Scripts-Medco merger, pharmacy benefits, prescription drug market, pharmacy benefits market, Jeffrey Woldt

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Walgreens, Express Scripts settle contract dispute

July 19th, 2012

DEERFIELD, Ill., and ST. LOUIS – Walgreen Co. and Express Scripts Inc. have reached a multiyear pharmacy network agreement that includes rates and terms under which the nation's largest drug chain will participate in the broadest Express Scripts retail pharmacy network available to new and existing clients.

In announcing their agreement Thursday, the companies did not disclose the terms of the new contract, which came after a six-and-a-half-month standoff during which Walgreens was not part of the Express Scripts network.

Walgreens last year rejected contract renewal terms proposed by Express Scripts because they included what the drug chain characterized as below-market rates and other elements that would have caused uncertainty in the retailer's prescription drug business.

As of Sept. 15, Walgreens will once again be part of the Express Scripts network. The pharmacy benefit manager (PBM) will work to ensure a smooth transition for plan sponsors that want to include Walgreens pharmacies in their network.

"As I've said, we are in the business of providing a broad range of pharmacy, health and wellness services to help meet the needs of all of our customers," Greg Wasson, president and chief executive officer of Walgreens, said in a statement. "I am pleased that Walgreens and Express Scripts have been able to reach an agreement that works for both parties and is consistent with our company's principles.

"This agreement is good for our shareholders, our employees and the patients and communities we serve every day," Wasson added. "We look forward to once again filling prescriptions and offering our health and wellness services as part of the Express Scripts network."

According to an Express Scripts spokesman, the PBM's broadest network now offers more than 64,000 pharmacies nationwide, including Walgreens, providing a wide array of quality pharmacy care options.

"We are happy to include Walgreens in our broadest network of pharmacies, and we are pleased to reach an agreement to do so," stated George Paz, chairman and CEO of Express Scripts. "Our business model is based on strong alignment with our plan sponsors — employers, health plans, unions and government health programs — providing them with a clinically sound and economically responsible pharmacy benefit."

As of mid-morning trading, Walgreens' stock price was up $3.10, or 10%, to $34.07.

Walgreens announced its plan to exit the Express Scripts network in late June 2011, citing unsuccessful contract renewal talks. The chain said that as of Jan. 1, 2012, it would cease its participation in the PBM's pharmacy provider network. Walgreens reported at the time that it expected to fill about 90 million prescriptions processed by Express Scripts in fiscal 2011, representing roughly $5.3 billion in annual sales.

About a month later, the stakes grew bigger when Express Scripts unveiled a $29.1 billion deal to buy fellow PBM Medco Health Solutions Inc., which would create the nation's largest PBM, controlling about a third of the pharmacy benefits market in terms of prescription volume.

In the months after announcing its intention to leave the Express Scripts network, Walgreens went on the offensive, including a letter-writing campaign to benefits consultants that explained its decision regarding the contract impasse with the PBM. The chain also made its case to health plans and employers in a white paper that highlighted the value of its then 7,800 drug stores and spelled out options that payers can take "to move forward with Walgreens" as of Jan. 1.

When Jan. 1 arrived and no contract agreement was reached, Walgreens unveiled a transition plan for patients who receive prescription drug benefits through Express Scripts. However, the chain's pharmacy business suffered over the ensuing months as Express Scripts members went to other retail pharmacies — notably CVS/pharmacy and Rite Aid, both of which cited the Walgreens-Express Scripts dispute as a factor behind increased pharmacy sales and script count. CVS, Rite Aid and other retail pharmacy operators, including supermarket chains, targeted Walgreens patients covered by Express Scripts in marketing efforts.

All the while, neither Walgreens nor Express Scripts had ruled out the possibility of reaching an accord, even as other events took place that changed the dynamics of the prescription drug market.

In early April, the Federal Trade Commission cleared the Express Scripts-Medco merger deal, which the two PBMs subsequently finalized. With that development, Walgreens and Express Scripts indicated that their impasse wouldn't impact the drug chain's contract with Medco. And at the start of June, Walgreens announced that it and Express Scripts agreed to drop claims in a legal dispute that began last September.

More recently, Walgreens made acquisitions that expanded its reach as the nation's biggest drug chain and laid a foundation for global growth. In late June, Walgreens announced a $6.7 billion deal to acquire a 45% equity interest in Alliance Boots, a global pharmaceutical, health and beauty retailer and wholesaler, with the option to buy the remaining 55% of the company in about three years for $9.5 billion. And earlier this month, Walgreens unveiled a $438 million deal to buy USA Drug, which operates 144 stores, mostly in the Mid-South.