Walgreen sales hit by exit from Express Scripts

Stock Market Predictions

(Global Markets) - Walgreen Co (WAG.N) is being hit by its withdrawal from the Express Scripts Inc (ESRX.O) pharmacy network and by a much-weaker-than-expected flu season, leading it to temper its expectations for the number of prescriptions it will fill this year.

Walgreen said on Friday that it now expects prescriptions filled in fiscal 2012 to be around the low end of its previous forecast of 97 percent to 99 percent of the prescriptions it filled last year.

Walgreen said January sales at stores open at least a year, or same-store sales, fell 4.6 percent as it lost business following its decision to walk away from Express Scripts after failing to come to terms on a new contract with the pharmacy benefits manager.

Analysts, on average, anticipated that sales would fall only 2.7 percent, according to Thomson Global Markets data.

Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for patients in the Express Scripts network on December 31, 2011. Chains such as CVS Caremark Corp (CVS.N) and Rite Aid Corp (RAD.N) have been advertising to woo customers who used to fill their prescriptions at Walgreen.

CVS, in particular, appears to be "the clear winner" due to the fallout between Walgreen and Express Scripts, said Jefferies & Company analyst Scott Mushkin, who has a "buy" rating on CVS and a "hold" rating on Walgreen.

CVS stands to benefit both in its stores and in its Caremark pharmacy benefits management business, analysts say.

Pharmacy same-store sales fell 7.9 percent in January, Walgreen said. Express Scripts prescriptions accounted for 12.4 percent of Walgreen prescriptions in January 2011.

"While it's no surprise (Express Scripts) had a large impact, underlying trends were also disappointing," said Credit Suisse analyst Edward Kelly.

He said that Walgreen's tone in its statement also suggested that the two parties are not close to reaching a resolution.

Walgreen is moving ahead with relationships with large and small employers, health systems, physician groups and other pharmacy benefits managers.

"With January now behind us, we are moving forward with relationships with large and small employers, health systems, physician groups and other PBMs who value Walgreen's ability to help lower overall healthcare costs," Kermit Crawford, Walgreen's president of pharmacy, health and wellness services and solutions, said in a statement.

With such relationships and once it is past the weak flu season, Walgreen expects the number of comparable prescriptions filled relative to January's result to improve in the coming months, he added.

Walgreen has administered 5.5 million flu shots so far this season, down from 6.3 million at the same time last year.

Shares of Walgreen, which operates 7,830 U.S. drugstores, were down 18 cents to $33.35 in morning trading on the New York Stock Exchange.

(Reporting by Jessica Wohl in Chicago; editing by John Wallace and Mark Porter)