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31-07-2012 15:34:00

UPDATE: Express Scripts Chooses AmerisourceBergen as Distributor

Relateret indhold

--Express Scripts picks AmerisourceBergen as drug distributor

--Cardinal Health previously had the contract with Express Scripts

--Contract seen as offering high volume of sales but low profits

(Adds analyst comments, beginning in paragraph six.)

By Tess Stynes

Express Scripts Holding Co. (ESRX) picked AmerisourceBergen Corp. (ABC) as its drug distributor over Cardinal Health Inc. (CAH), which had been the pharmaceutical benefit manager's supplier.

AmerisourceBergen was the distributor for Medco Health Solutions, which Express Scripts recently acquired. The three-year accord, which takes effect Oct. 1, is valued at about $18.5 billion a year.

Cardinal Health, the second biggest drug-distributor in the U.S. by sales, confirmed that Express Scripts wouldn't be renewing the distribution agreement when it expires at the end of September. Cardinal said in a filing with the Securities and Exchange Commission that the pact had provided about $9 billion in annual bulk sales revenue to the company.

The contract is considered high volume but low profits. As an example of that, AmerisourceBergen said the agreement is expected to contribute approximately 23% of its revenue but only about 3% of its per-share earnings. The company added that the pact doesn't change its outlook for the current or next fiscal year.

AmerisourceBergen received about 19% of sales and 5% of earnings from Medco in its last fiscal year.

ISI analyst Ross Muken said he expects the contract to add about 10 cents to AmerisourceBergen's per-share earnings in the fiscal year ending September 2013. Analysts, on average, are projecting fiscal 2013 earnings of $3.14 a share.

The analyst added that the agreement "removes a major overhang from shares" because the company was seen as the favorite to get the contract. He sees AmerisourceBergen's stock rising 3%-5% in the near term "as investors return to a high-quality domestic growth story with an upside bias to guidance based on today's announcement."

As for Cardinal Health, Mr. Muken sees the contract loss hurting per-share earnings in the fiscal year ending June 2013 by 3 cents or 4 cents. Analysts, on average, are projecting fiscal 2013 earnings of $3.56 a share.

While the analyst sees Cardinal Health's shares falling between 1% and 3% Tuesday because of the stock's recent strength, "this has no impact on our current thesis" for the stock.

Mr. Muken noted that contract renewals at CVS Caremark Corp. (CVS) and Walgreen Co. (WAG) over the next year present "a similar psychological headwind despite a modest amount of [earnings per share] actually remaining at risk."

Under this type of deal, drug distributors provide medication to home-delivery pharmacies run by Express Scripts and Medco.

AmerisourceBergen shares rose 4.4% to $40.24 premarket, while Cardinal Health added 6 cents to $43.37. Express Scripts slid 8 cents to $57.77.

--George Stahl contributed to this report.

Write to Tess Stynes at Tess.Stynes@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

July 31, 2012 09:34 ET (13:34 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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