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Express Scripts Acquisition Improves Specialty Drug Position

Posted on: Friday, 22 July 2005, 21:00 CDT

Jul. 22--Express Scripts Inc. of Maryland Heights will become one of the nation's largest distributors of specialty-drug prescriptions with its planned $1.3 billion cash purchase of Priority Healthcare Corp. of Lake Mary, Fla. The deal was announced Thursday night.

Specialty drugs are the fastest-growing segment of prescription-drug spending, the companies said. Last year's nationwide spending of $35 billion is expected to double by 2008.

Adding Priority to Express Scripts' existing business "should also improve our bargaining position with manufacturers and wholesalers, and allow us to increase the number of preferred contracts we are able to negotiate with plan sponsors," George Paz, Express Scripts' chief executive, said Friday.

The combination couldn't be more convenient. Express Scripts runs its existing specialty-drug business, CuraScript Pharmacy Inc., out of Orlando, Fla., just southeast of Lake Mary.

Express Scripts acquired CuraScript in January 2004. Together, CuraScript and Priority will have annual sales of more than $3 billion. Express Scripts had revenue of $15.1 billion last year.

Priority adds expertise in fertility, home infusion, hemophilia, pulmonary hypertension and pulmonary fibrosis drugs to CuraScript's existing strengths in therapies for oncology, multiple sclerosis, rheumatoid arthritis, hepatitis and psoriasis.

Priority also distributes drugs that typically are sold and administered in a doctor's office, said Dom Meffe, who runs the CuraScript business and will head the combined specialty drug business.

The addition of Priority's expertise and distribution channels will allow the company to offer clients more of a one-stop shop for specialty drugs, he said in an interview.

Andrew Speller, senior health care analyst for A.G. Edwards & Sons Inc., said, "It's a good fit for Express Scripts." Express Scripts has wanted to expand its presence in the specialty-drug segment, which includes biotech and injectable products that often carry price tags of $10,000 to $200,000 a year. "This gets them to that endgame," he said.

Express Scripts is paying $28 a share for Priority, which went public in 1997. Priority has grown rapidly, but Speller said its management has been unable to deliver great earnings performance in the last three years.

Shares of Priority closed Friday at $27.57, up $1.72, while Express Scripts gained 41 cents to $48.39.

In a note to investors, Lawrence C. Marsh of Lehman Brothers called the acquisition a logical development as the specialty-drug business consolidates. Express Scripts is paying less than other companies have paid for similar businesses, he noted.

Standard & Poor's downgraded Express Scripts' ratings outlook to stable from positive after it announced the acquisition. The investment-ratings agency said it was somewhat concerned about the potential impact of changes in Medicare drug benefits on pharmacy-benefit managers like Express Scripts in the future.

Express Scripts said it doesn't expect big cost savings from combining the businesses, nor does it plan big layoffs. Some savings may be realized by eliminating duplicate corporate staffs.

Meffe said Priority has about 1,900 employees and CuraScript has 750. Each has about 600 in the Orlando area.

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ESRX, PHCC,

Source: St. Louis Post-Dispatch

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