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Walgreen sales dip, contract exit still helps CVS


    (Reuters) - Walgreen Co's same-store sales fell 5.8 percent in May, hurt by a drop in prescriptions filled at its drugstores, but it said things have "improved" as more employers and health plans are finding ways to maintain access to the chain.

    Meanwhile, rival CVS Caremark Corp continues to see a lift from Walgreen's continued rift with pharmacy benefits management company Express Scripts, CVS Chief Executive Larry Merlo told reporters in Boston on Tuesday.

    Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions in January for members of Express Scripts Holding Co , which manages prescription drug benefits for employers and other clients, after the two companies failed to agree on terms to renew their contract.

    Walgreen's pharmacy sales at stores open at least a year fell 8.5 percent in May, it said on Tuesday. The spat with Express Scripts hit comparable store prescriptions by 10.8 percentage points, Walgreen said.

    Speaking to reporters after a speech to Boston College's Chief Executives' Club, Merlo said that while the situation between Express Scripts and Walgreen remains "fluid," he believes CVS has won more than its share of new business.

    "One of the things we have always believed about the pharmacy customer is, it's the hardest person to lose, but once you've lose them, it's the hardest person to win back," he said. "We hope to retain a high percentage of those customers."

    CVS operates the CVS drugstore chain and the CVS Caremark pharmacy benefits management business. Pharmacy benefits managers, or PBMs, such as Express Scripts and CVS Caremark administer drug benefits for employers and health plans and run large mail order pharmacies.

    Still, Walgreen expects its pharmacy business to be helped by employers and health plans changing benefits managers or adding details to new contracts to ensure continued access to its drugstores, Chief Financial Officer Wade Miquelon said in a statement. Those comments followed Walgreen's announcement on Monday that it had extended its partnership with OptumRx, a PBM owned by UnitedHealth Group Inc .

    "The agreement with OptumRx is not significant in our opinion because the market was not expecting OptumRx to exclude (Walgreen) from its pharmacy network," said Barclays analyst Meredith Adler.

    CVS said in early May that the Walgreen-Express Scripts impasse should lift its second-quarter earnings by 3 to 4 cents a share.

    Merlo said the disruption caused by the Walgreen-Express Scripts dispute was less severe than might have been expected and is having an impact on how PBM customers view the lineup of services they are willing to provide their members.

    "One of the things we have seen that is different from past selling seasons is that in responding to the RFPs (request for proposals) clients are interested in looking at an opportunity for a more restricted network versus a full network," Merlo said. "It's something that is getting a lot more focus and attention than in prior years."

    Merlo said Express Scripts "did an exceptional job of minimizing member disruption."

    Walgreen said its total third-quarter sales fell 3.3 percent to $17.77 billion. Overall same-store sales fell 6.5 percent, while same-store pharmacy sales plunged 9.8 percent.

    Shares of Walgreen rose 0.2 percent to $30.58 on Tuesday. Shares of CVS slipped 0.2 percent to $44.03.

    (Reporting By Phil Wahba in New York, Toni Clarke in Boston and Jessica Wohl in Chicago; Editing by Gerald E. McCormick, Bernard Orr)