(Bloomberg) — Express Scripts Holding Co. (Nasdaq:ESRX) sank in early trading Wednesday after health insurer Anthem Inc. (NYSE:ANTM), its biggest client, threatened to ditch it for a competitor unless the pharmacy benefit manager can deliver $3 billion a year more in savings on drug costs.
Losing Anthem would depose Express Scripts as the U.S.'s biggest manager of prescription drug benefits, and the threat sent the stock down as much as 6.1 percent to $80.32 in New York. It was the biggest intraday drop since April 2014.
Taking a contract dispute between the two companies public, Anthem Chief Executive Officer Joseph Swedishsaid Tuesday that Express Scripts should be passing along more of the savings it negotiates from drugmakers. If it doesn't, the health insurer may look for another pharmacy partner. Express Scripts disputed Swedish's description of the terms between the two companies, and the $3 billion figure.
"We are entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion," Swedish told investors Tuesday at the J.P. Morgan Health Care Conference. "To be clear, this is the amount by which we would be overpaying for pharmaceuticals on an annual basis." Much of those savings would be passed on to clients, he said.
Anthem and Express Scripts have an unusual arrangement that stems from Anthem's sale of its pharmacy-benefits business to Express Scripts in 2009. The insurer is entitled to periodic reviews of how much it pays for drugs, a process the companies last went through in 2012. They haven't yet reached a deal on the most recent talks.
'In good faith'
Express Scripts said that Anthem was mischaracterizing the situation.
"Express Scripts has consistently acted in good faith and is in full compliance with the terms of its agreement," said Brian Henry, a spokesman for the company. "While the contract calls for good faith negotiations regarding a pricing review, it does not mandate specific price adjustments. Furthermore, Anthem is not entitled to $3 billion."
The two may be running out of time. "We have a very involved dispute resolution process in the contract that has been fully exhausted," Thomas Zielinski, Anthem's general counsel, said Tuesday after the investor presentation. "That said, we remain in dialogue."
Zielinski said Anthem took the dispute public because the company wasn't getting the savings it needed to offer more competitive products, such as Medicare drug plans.
Unrealistic?
Anthem's $3 billion savings estimate appears unrealistic, given the overall size of its relationship with Express Scripts, said Garen Sarafian, an analyst at Citigroup Inc. Anthem accounted for about 14 percent of Express Scripts' $100.9 billion in revenue in 2014. Still, he said investors will be nervous until the outcome of the dispute is clearer.
