AmerisourceBergen wins crucial contract with Express Scripts

In crucial deal for AmerisourceBergen, Inc., the Valley Forge-based drug wholesaler said it won a three-year contract worth approximately $18.5 billion per year in revenue in exchange for supplying pharmaceutical products to Express Scripts.

“We are honored that Express Scripts has chosen AmerisourceBergen to supply the brand pharmaceuticals it needs for its recently combined mail order and specialty pharmacy business,” Steven H. Collis, AmerisourceBergen president and chief executive officer, said in a statement.

This was important for Collis and AmerisourceBergen's 13,000 employees - including 1,100 in three local facilities - because the revenue essentially replaces that which came from Medco Health Solutions. Losing 19 percent of revenue would hurt any company and perhaps prompt layoffs.

Medco was bought out by Express Scripts, making it the largest mail-order drug company and the largest pharmacy benefits manager, sometimes referred to in the industry at PBMs.

PBMs are paid by companies to manage the drug portion of employer-sponsored health insurance programs.

With the acquisition of Medco completed, St. Louis-based Express Scripts requested proposals from the three largest wholesale drug companies: McKesson, Cardinal Health and AmerisourceBergen.

Though 29th on the Fortune 500 list with $80 billion in revenue, AmerisourceBergen is the smallest of the three wholesalers and $19 billion of that revenue came from its Medco contract.

In a filings with the Securities and Exchange Commission and in a May interview with the Inquirer, Collis said the biggest corporate uncertainty for AmerisourceBergen was the outcome of negotiations with Express Scripts.

Collis was not specific, but he was mildly optimistic about the status of negotiations when he spoke with stock market analysts on July 26, when the company reported its quarterly earnings. The revenue for the quarter was $19.8 billion, a drop of 1.9 percent, from the same period in 2011. The Express Scripts contract begins on Oct. 1 of this year.

In the statement Tuesday, AmerisourceBergen said it expected the revenue from the new contract to contribute approximately 23 percent of the company’s revenues, and about 3 percent of its earnings per share.

The company's stock was up 3.53 percent to $39.89 in mid-afternoon trading Tuesday.

The decision was bad news for Cardinal Health, which is based in Dublin, Ohio, but has offices in the Philadelphia area.

In a filing with the SEC, Cardinal Health said the prior contract with Express Scripts provided $9 billion in revenue.