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CVS Health Corporation Message Board

  • dr_tjm42 dr_tjm42 Jul 22, 2012 10:02 PM Flag

    Did WAG cave-in to return to the ESRX network?

    5 minutes ago

    The press release states that the
    companies will not be disclosing terms of the new contract, but we believe WAG
    ultimately accepted a lower rate than it initially wanted to return to the ESRX network.
    While ESRX had some incentive to settle as it may have been difficult to win new
    business without WAG, the lack of customer disruption and seemingly good customer
    retention at ESRX and MHS so far this selling season indicate that WAG lost at least
    some leverage in the dispute.

    Structural concerns remain. While this agreement removes a large near-term
    overhang, bigger picture structural issues remain. We continue to believe that the
    confluence of retail pharmacy commoditization (proven by ESRX), PBM consolidation,
    and payers’ (both private and governmental) desire to lower costs may eventually
    result in longer-lasting profit compression in retail pharmacy (especially post the
    generic wave). Walgreens’ acquisition of Alliance Boots also creates an overhang,
    given the high valuation, concerns over the logic of the deal, and large payment to be
    made in three years. While the current valuation looks attractive, the stock is not
    nearly as cheap pro forma for Alliance Boots.

    Credit Suisse

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