Express Scripts' profit grows despite dwindling revenue from Anthem
Pharmacy benefit manager Express Scripts Holding saw its second-quarter profit increase by 11% despite its total prescription drug claims remaining flat and waning revenue from its biggest client, Anthem.
The largest PBM in the country processed 350 million prescription drug claims after adjusting for certain network and home delivery claims in the second quarter this year, matching the second quarter of 2016. Still, the St. Louis-based company reported a net income of $801.8 million on revenue of $25.3 billion, up from $720.7 million income on revenue of $25.2 billion last year.
Its contract with Anthem generated $52.6 million in revenue for the second quarter, compared with $106.6 million in the second quarter of 2016. Anthem's share accounted for about 19% of Express Scripts' total consolidated revenue and 33% of its EBITDA for the quarter, the company said in regulatory filings. Under the current terms of the contract, Express Scripts expects that revenue and EBITDA attributable to Anthem will increase as the contract nears its termination in 2019.
Express Scripts said in May that Anthem, which sued the company last year for allegedly not passing along billions of dollars in savings from negotiated drug prices, will likely not renew its contract come 2019. PBMs, which process drug claims and negotiate drug discounts with pharmaceutical companies on behalf of payers, have been criticized for operating under the veil of nondisclosure agreements and a general lack of transparency throughout the pricing process.
"If we do enter into a new contract with Anthem, it would be on terms significantly less favorable to us than our current contract," the company said in Securities and Exchange Commission filings.
Express Scripts' network pharmacy revenue decreased $691.2 million on the quarter, or 5%, primarily due to filling more generic prescription claims. However, home delivery and specialty revenue increased $544 million, or 5%, primarily due to ballooning prices on branded drugs and a higher proportion of specialty claims, which have been the drivers of double-digit increases in pharmaceutical spending. The company made a profit of $5.21, including interest, taxes, depreciation and amortization, for every processed claim in the second quarter, up from $5.15 last year.
Generally, filling more generic prescriptions reduces PBM revenue, as generics are typically cheaper than branded alternatives. But since ingredient costs paid to pharmacies on generics is lower than the price charged to clients, filling more generic prescriptions bolsters gross profit, the company said in regulatory filings.
Analysts expect Express Scripts to benefit from increased use of generics, a shift toward mail orders and significant growth in specialty and branded drugs.
"We are currently developing a multi-year, enterprise-wide initiative to transform our organization by the end of 2021," Express Scripts Chief Financial Officer Eric Slusser said in a statement. "We are investing to deliver an improved experience with better engagement and greater efficiency, which will evolve the way we do business with patients, providers and our clients. Based on our work to date, we estimate the initiative will deliver savings of approximately $550 million to $600 million annually by 2021."
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