Walgreen Co. is looking to sell its pharmacy benefit management business and has hired an adviser to run an auction, according to published reports.

Walgreens, PBM, pharmacy benefit management, Walgreens Health Initiatives, Bank of America, CVS Caremark, Medco, Express Scripts, Mark Miller, William Blair & Co., drug store, pharmacy, work-site medical clinics, Andrew Wolf, BB&T Capital Markets, prescriptions, Bloomberg News

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Reports: Walgreens has PBM on the block

October 26th, 2010

DEERFIELD, Ill. – Walgreen Co. is looking to sell its pharmacy benefit management business and has hired an adviser to run an auction, according to published reports.

Citing people with knowledge of the matter, several news agencies said this week that the drug store chain has hired Bank of America Corp. to handle the sale of Walgreens Health Initiatives.

According to sources cited by Bloomberg News, the 15-year-old PBM could sell for $500 million to $1 billion, depending on what assets are included in the deal.

The reports said that Walgreen received first-round bids for the business during the third week in October with Medco Health Solutions Inc., Express Scripts Inc. and CVS Caremark Corp. — the nation’s three largest PBMs — among the companies showing interest.

"We have heard rumblings in the marketplace over the past few quarters that Walgreens might sell its PBM, especially after the company announced the departure of Stan Blaylock, former president of Walgreens Health Services, back in March," analyst Mark Miller of William Blair & Co. wrote in a research note Tuesday regarding the news.

"We believe there are three key implications from a sale of Walgreens' PBM unit," Miller said in the report. "First, it creates added certainty that Walgreens will not buy a large PBM to mimic CVS Caremark's integrated retail/PBM strategy. Second, we suspect that Walgreens is having success in obtaining access to the payer community through other, non-PBM channels, such as its work-site clinic program and/or its direct-to-employer
program. Third, Walgreens could use proceeds from the sale of its PBM to repurchase shares."

Walgreens executives have said for some time that they weren't sure if a PBM fit the company's strategy, which they have emphasized is to provide patients with health care services rather than process claims.

Along those lines, Walgreens has been focusing much of its energy over the past few years on expanding its retail and work-site medical clinics, specialty pharmacy, home health care, infusion and respiratory therapy businesses.

"Strategically, their business model never relied on a PBM," analyst Andrew Wolf of BB&T Capital Markets told Bloomberg. "They've always approached the market differently. They have looked to increase their breadth of services so that they are in direct conversation with payers."

Walgreens Health Initiatives is the industry's ninth-largest PBM, with about 2.5% of the market and about 100 million prescriptions processed every year. Medco Health, Express Scripts and CVS Caremark together account for a market share of about 60%, and each processes more than 600 million prescriptions annually.