Shares of pharmacy benefits manager Catamaran Corp. rebounded Thursday morning after tumbling Wednesday after drugstore giant Walgreen Co.'s announcement of a big change for its employee health coverage.
THE SPARK: Walgreen, the nation's largest drugstore chain, said Wednesday that it will start sending its workers to a private health insurance exchange to pick their coverage instead of providing a few options for them. Walgreen still plans to contribute toward the benefit and administer the coverage, but it said the move will give employees more options for finding a plan that fits best.
Walgreen employees will begin using the exchange later this fall to pick coverage that starts next year.
THE BIG PICTURE: More companies are considering this approach, called defined contribution health insurance, as a way to make their annual benefits cost more predictable or reduce the contribution they make toward the cost of coverage.
Catamaran has a contract to provide drug coverage for Walgreen employees and could lose as many as 2 million annual prescriptions, according to Jennifer Lynch, an analyst with BMO Capital Markets.
Pharmacy benefits managers, or PBMs, run prescription drug plans for employers, government agencies and other clients, using their large purchasing power to negotiate lower drug prices. Catamaran also provides health care information technology services.
THE ANALYSIS: Lynch said in a Thursday morning research note that Catamaran investor reaction to Walgreen's announcement was "overblown."
Lynch said she suspects that the business it will lose had low profitability and is relatively small compared to the company's estimated base of more than 400 million prescriptions for next year. The analyst said Catamaran could wind up gaining business as private exchanges grow, and she maintained her "Outperform" rating and $63 price target on the stock.
"Losing business is disappointing, but yesterday's share performance was divorced from what we view as the economic impact of the event," Lynch wrote.
SHARE ACTION: The stock tumbled more than 8 percent Wednesday to close at $50.82. Shares then rebounded about 2.5 percent, or $1.25, to $52.07 Thursday morning, outpacing a slight gain from the Nasdaq exchange.
Catamaran shares were still up 8 percent so far in 2013 after Wednesday's close.