1. Important disclosures appear on the last page of this report.
The Henry Fund
Henry B. Tippie School of Management
Charles Schaller [Charles-Schaller@uiowa.edu]
Express Scripts Holding Company (ESRX) April 10th, 2016
Healthcare – Pharmacy Benefits Management Stock Rating Hold
Investment Thesis Target Price $70-75
We issue a HOLD recommendation for Express Scripts Holding company, a St.
Louis based Pharmaceutical Benefits Management company. Mergers and
Acquisitions have been the largest source of revenue growth within the PBM
industry and we believe that there are no more sizeable candidates for M&A.
This, paired with slow demand growth, significantly hinders future growth
potential.
Drivers of Thesis
Highly Concentrated Industry. Revenue growth in the industry has been
strongly tied to Mergers and Acquisitions. Due to M&A the number of PBM
companies has shrunk from 93 to 56 since 2006 with the top 3 companies
owning nearly 80% of the market share. ESRX is the largest PBM but there
are few candidates for further M&A.
Muted revenue growth of 2% over the next 5 years is likely, due to fewer
patent expirations and the recent rise of “Blockbuster Drugs” which
command a high price and earn very low profits for PBM’s.
Relatively thin profit margins (3%) combined with demand factors that are
largely out of control make dramatic income growth unlikely.
Lack of diversification of product and service offerings compared to peers.
Risks to Thesis
An (unlikely) merger with one of ESRX’s 2 large competitors (CVS Caremark
or UnitedHealth Group) would lead to massive market share and
significantly increased bargaining power with drug companies. This would
be a very favorable development for ESRX and likely lead to higher margins
and doubled revenues.
Congressional action to dramatically shorten the patent lives of high priced
drugs. A government created patent cliff would greatly benefit ESRX as it
would lead to widespread release of generic drugs, which are highly
profitable to PBM’s
Henry Fund DCF $73.02
Henry Fund DDM $63.29
Relative Multiple $62.02
Price Data
Current Price $70.09
52wk Range $65.55 – 94.61
Consensus 1yr Target $82.85
Key Statistics
Market Cap (B) $44.35
Shares Outstanding (M) 632.8
Institutional Ownership 98.10%
Five Year Beta 1.01
Dividend Yield 0%
Est. 5yr Revenue Growth 6.98%
Price/Earnings (TTM) 19.7
Price/Earnings (FY1) 11.1
Price/Sales (TTM) 0.5
Price/Book (mrq) 2.7
Profitability
Operating Margin 10.79%
Profit Margin 2.43%
Return on Assets (TTM) 4.65%
Return on Equity (TTM) 14.25%
Earnings Estimates
Year 2013 2014 2015 2016E 2017E 2018E
EPS $2.45 $2.76 $3.66 $3.98 $4.56 $4.86
growth 49.39% 12.68% 32.32% 8.68% 14.68% 6.56%
12 Month Performance Company Description
Express Scripts is a St. Louis based Pharmacy
Benefits Management company. Express Scripts
works as a third party administrator of
prescription drug programs. They are responsible
for negotiating discounted drug rates, processing
and paying prescription drug claims. Founded in
1986, Express Scripts has grown through mergers
and acquisitions to become the largest PBM in the
country by revenue.
-25%
-15%
-5%
5%
15%
25%
A M J J A S O N D J F M A
ESRX S&P 500
Data Source: FactSet
Data Source: FactSet
2. Page 2
EXECUTIVE SUMMARY
We give a hold recommendation for Express Scripts
Holding Company. The Pharmacy Benefits Management
(PBM) industry is heavily concentrated. Demand is largely
dictated by the number of prescriptions written by
Doctors, which is forecasted to slow to 2% growth in the
next 5 years. PBM’s can boost profitability through
negotiating lower drug prices with drug manufacturers but
with profit margins as thin as 3% it will not make enough
of a difference to offset the slow-down in demand.
Over the last 10 years. the most significant revenue growth
has happened through Mergers and Acquisitions. As a
result the number of PBM’s in the US has shrunk from 93
in 2006 to 56 in 2015. This has left 3 companies owning
nearly 80% of the market share.1
With few profitable potential mergers remaining and
facing slow prescription growth Express Scripts finds itself
with no clear ways to increase revenues. Express Scripts
will likely continue to see over $100 billion in yearly
revenue and remain the largest PBM in the nation.
However in light of their future growth reality we believe
that the stock is fairly valued at $70. Thus, we issue a hold.
Pharmacy Benefit Management Industry
Pharmacy Benefit Managers (PBM’s) are companies that
manage prescription drug benefits for over 200 million
insured Americans. They use their size and access to tens
of millions of clients as leverage in negotiating reduced
rates and rebates on drug prices from drug manufacturers.
While PBM’s tend to perform similar services there is not
a typical structure for a PBM. Some companies (Such as
Express Scripts) focus exclusively on the pricing and
delivery of prescription drugs. Other companies (such as
CVS Caremark and UnitedHealth Group) function as the
PBM wings of a larger healthcare company. Additionally
some smaller PBM’s specialize on offering services at
multiple levels of the prescription drug supply chain
In general, PBM’s create value for their customers in 5
ways:
1. Negotiating drug prices with drug manufacturers
for discounts or rebates on behalf of their
customers.
2. Creating formularies of preferred medicines,
offering tiered prices based on negotiating
discounts.
3. Establishing networks with pharmacies for drug
dispensing.
4. Developing automated processes for determining
eligibility at point of sale.
5. Providing mail order drug services.2
PBM’s generate revenue through membership fees they
collect from their customer contracts. Their profitability is
dependent on the number of contracts they are able to
generate and maintain as well as the margins they are able
to sustain between their negotiated price with drug
manufacturers and the price they ultimately charge the
customer for the medication. As a result of this client
retention is an important issue for PBM’s. This issue is
further compounded by the fact that every year Express
Scripts must renegotiate contracts with about one-third of
its customer base. PBM companies set extremely high
customer retention goals. A retention goal of 97% would
not be uncommon for a major PBM.
PBM’s rarely manage plans for individual clients, but
rather manage thousands of large client groups including:
Insurance Carriers
Employers
Third-Party Administrators
Public Sector Employees
Workers Comp
Union-Sponsored Benefit Plans
Managed Care Organizations.3
PBM’s are shown to be a very effective means of lowering
drug costs. In a study commissioned by the PCMA it was
found that PBM’s can reduce prescription drug plan costs
by about 35% on average for a PBM member.4
COMPANY DESCRIPTION
St. Louis based Express Scripts is the nation’s largest
pharmacy benefit management company. Express Scripts
provides a wide variety of pharmacy benefit related
services, including claims processing, home delivery,
specialty benefit management, benefit-design
consultation, drug utilizations review, formulary
management and medical & drug data analysis services.5
3. Page 3
Unlike many of their competitors who are diversified in
their service offerings across the healthcare industry,
Express Scripts works exclusively in the PBM space.
Company Analysis:
Key Statistics6
:
26,000 employees
3,500 client groups
1.3 Billion Prescriptions filled annually
82.9% generic dispensing ratio
$101.7 Billion in revenue for 2015
As a PBM Express Scripts earns nearly all of their revenue
through three means:
Monthly membership fees: These fees are charged to
their client groups (usually a company or organization’s
healthcare plan) in exchange for drug price benefits. Most
clients receive PBM benefits through their health
insurance provider, who in turn outsource the role to
Express Scripts. As such many of Express Scripts tens of
millions of customers may not even know they are Express
Scripts customers.
Prescription drug price spread. The key role of a PBM
from the customer perspective is their ability to negotiate
discounted prices on prescription drugs. PBM’s negotiate
a lower price on the drugs with the drug company and then
structure a tiered lists of drugs, separated by price scales,
which is called a formulary.
When an Express Scripts customer goes to a pharmacy to
fill a prescription they pay a co-pay and Express Scripts
covers the rest of the charge (although the client actually
pays a good deal more when you factor in their annual
PBM membership fee). The amount that a PBM pays the
pharmacy is based on a pre-determined pricing agreement
with the drug manufacturers. Therefore the profitability
of a PBM is negotiating good enough discounts so that
they can offer the drugs at a lower price point, plus a profit
margin for themselves and still be perceived as offering
enough value to their customers to continue receiving
their business.
Service / Other revenues: In addition to the two
previously mentioned revenue sources Express Scripts
brings in a small amount of revenue (about 2-3%) through
PBM services. These include point of sale devices,
computer and payment services and drug counseling
plans.
Express Scripts delivers drugs to their clients in two ways,
pharmacies and mail-order shipping:
Pharmacies have long been the standard means of
dispensing drugs to prescription holders. PBM’s have a
complex and somewhat contentious relationship with
pharmacies. After all, in an idea world, if the PBM’s do
their job well the drug companies sell more drugs, the
customers save money on prescriptions and the PBM
makes a profit. In the midst of this is the Pharmacy, who
functions as a middle man between the drug companies
and the customers. Pharmacies purchase the drugs from
the drug companies which they sell to the customer
through the intermediary of the PBM. They sell the drugs
at a predetermined price (plus their service fee), however
they have no say over the predetermined price. We
forecast that Pharmacy revenues as a % of sales will drop
by about 3% each year, reaching 40% by 2020 ( $44,143 B).
Pharmacies are obviously a crucial part of the prescription
drugs supply chain, but they are also the most expensive
means of getting the drugs to the end user. PBM’s invest
large amounts of money in payment systems, insurance
validation, consultation and benefit management services,
not to mention the pharmacy fees they pay through doing
business with the pharmacy. In recent years a new
development has presented a more attractive delivery
option, PBM run mail-order shipping.
Mail-Order Shipping. PBM’s have seen a significant
growth in business conducted through mail-order
shipping. If a customer is on a long-term medication (such
as Albuterol for Asthma or Omeprazole for Acid Reflux),
PBM’s can offer a bulk subscription delivery service for
their prescription drugs.
2015 Revenue by Product Line
Network
Home Delivery
Other
Service
Data Source: ESRX 2015 10K
4. Page 4
This delivery method’s benefits are myriad. First of all they
are able to simplify the supply chain by removing the
overhead-heavy retail pharmacy from the equation. They
are able to centralize all of their benefits management,
payment and distribution to a few specific hubs located
across the country. Additionally these services are offered
at considerable discount (increasing perceived value) in
exchange for purchasing in bulk. The previously
mentioned customer can get 3 albuterol inhalers for $35
each instead of a single inhaler for $50 each. Express
Scripts even offers free prescriptions for certain generics
(again increasing perceived value).
The reason they are able to offer these details is the
increased scale it brings. A customer is much more likely
to forget to fill a prescription if they have to get it renewed,
drive to the pharmacy and fill it. Express Scripts maintains
relationships with Doctors’ offices, requesting and
obtaining continued prescription renewals in certain
cases. This is a much more financially advantageous
situation for a PBM to be in, and as such we have seen
consistent growth in their Home Delivery revenue stream.
Just 5 years ago Home Delivery made up less than one-
third of Express Scripts total revenue. We forecast that by
2020 it will make up more than half of total revenue.
Generic Fill Rate
Generic drugs are the key to profitability in the PBM
industry. When a company’s drug patent expires, it is no
longer possible for them to charge premium prices as
competitors enter the market. Generic drug price points
allow Express Scripts to offer them at a very low price
(often $5 – $25) while still maintaining a healthy margin
for themselves. This is not the case with high priced drugs,
which are sometimes sold at extremely low margins or
even a loss for the company. As such the Generic Fill Rate
is an important statistic for PBM’s. This is the percentage
of total prescriptions filled that were generic drugs. All
other things being equal a PBM with a higher generic drug
fill rate will be more profitable. Express Scripts Generic Fill
Rate has climbed to the 85%7
in 2015 and with it profit
margins have also risen.
As seen on the previous chart profit margins seem to grow
almost in tandem with Generic Fill Rate. Unfortunately for
Express Scripts the chart also indicates that Generic Fill
Rates are currently nearing 90% (meaning that 90% of
prescriptions filled are generic) which begs the question
many analysts are asking “how much more bigger and
more profitable can Express Scripts really get?”
Notable M&A’s
Like the other major players in the PBM industry Express
Scripts owes the majority of its major revenue growth to
M&A activity. Notable Mergers and Acquisitions include:8
1998: 12 year old company Express Scripts
acquires ValueRX from Columbia/HCA Healthcare
Group.
1999: Express Scripts purchases Diversified
Pharmaceutical Services from SmithKline
Beecham
2006: Express Scripts fails to purchase Caremark
after CVS enters late-stage negotiations. This
acquisition would lead to the creation of CVS
Caremark, who would become one of Express
Scripts biggest competitors. This was a significant
loss for Express Scripts
2007: Express Scripts acquires ConnectYourCare,
they would later divest in 2012
2009: Then the 3rd
largest PBM in the country
Express Scripts purchases the subsidiaries of
Wellpoint for $4.6 Billion.
0%
1%
1%
2%
2%
3%
3%
74%
76%
78%
80%
82%
84%
86%
2012 2013 2014 2015
ProfitMargin
GenericFillRate
Generic Fill Rate vs. Profit Margin
GFR Profit Margin
Data Source: ESRX 10K 2015
5. Page 5
2012: In their largest deal to date Express Scripts
acquires Medco Health Solutions for $2.9 Billion.
This acquisition solidified Express Scripts’
position as largest PBM in the industry, a position
they have now held for 4 years.
Sizeable Clients
Express Scripts manages thousands of client groups of
varying size. Notable among their clients are their
contracts with Health Services company Anthem and the
United States Department of Defense (DoD). These two
clients collectively represented 29.4% and 25.9% of
Express Scripts revenues during 2015 and 2014
respectively.9
Both of these contracts are up for renewal
in 2019, which leaves a sizeable amount of future revenue
uncertain.
In December 2009 Express Scripts purchased 100% of the
shares and equity interests of NetRx, a subsidiary of
Anthem that provides PBM services. Express Scripts also
entered into a 10 year contract with Anthem under which
Express Scripts will provide PBM services for Anthem’s
health services members.
Costs and Expenses
Nearly all of Express Scripts’ costs are COGS. This makes
sense as they are effectively the party paying the majority
of the drug cost provided to their customers. A look at the
chart below shows Revenue vs. COGS.
Two things are visible in this chart: First, the significant
growth that Express Scripts experienced through M&A in
2012, paired with the relatively leveling off in the M&A
free years that followed. Second, the additional profit
margin created by the additional growth. Notice the
visible growth in the cap between revenue and COGS. This
is attributable to the additional bargaining power gained
through more customers as well as the growing Generic
Fill Rate.
RECENT DEVELOPMENTS
A number of recent developments have significantly
impacted the PBM industry.
2010 – 2015 The Patent Price Cliff
The PBM industry saw historic revenues between 2010
and 2015. This was largely due to a large number of
popular drug patents expiring in the same time period
(known as a patent cliff). Traditional pharmaceutical
patent lives run for 20 years and during that time the drugs
can command a premium price. Upon the expiration of
the patent the formula for the drug can be reproduced by
other drug companies which all but eliminates the price
premium. The new drugs (known as generics) are not
nearly as profitable for the drug companies, however they
are much more profitable for PBM’s.
A flood of new generic drugs into the market led to a boom
for PBM’s. The industry saw revenues more than double
over 5 years, growing from 147 billion in 2010 to 365 billion
in 2015. The potential to own a greater share of this
growing revenue was a great impetus for mergers and
acquisitions.
16%
13%
71%
Major Clients as % of Revenue 2015
Anthem
Dept. of Defense
Other
40000
60000
80000
100000
120000
2011 2012 2013 2014 2015
Revenue vs COGS
Revenue COGS
Data Source: ESRX 10K 2015
Data Source: ESRX 10K 2015
6. Page 6
2014 -2015 – The Rise of “Blockbuster Drugs”
A large portion of increased revenues (although not
profits) in recent years is attributed to the rise of
“Blockbuster drugs.” Some drug companies, specifically in
the biotech, have begun to specialize on treatment of
more obscure, chronic diseases that impact a smaller
portion of the population. The result has been several
highly successful drugs that have commanded extremely
high price premiums.
A hot topic within the specialty drug world continues to be
Hepatitis C medications. Only a few years ago treatment
could take nearly a year and had a cure rate of only 50%.
Now there is a nearly 100% cure rate in 8-12 weeks. Along
with those better results come a much higher price tag.10
Specialty drugs pose a significant risk to PBM’s. First,
because they command such a high price PBM’s tend to be
unsuccessful at negotiating discounts and as a result
specialty drugs are not very profitable for PBM’s.
Additionally, they are expected to continue to increase as
a percentage of healthcare spending. Specialty drug
spending is projected to increase by 17-20% each year,
accounting for 50% of plan budgets by 2018.11
One of the only bargaining pieces that PBM’s have in their
specialty drug price negotiation is exclusion from their
formulary. If a drug is excluded from a PBM’s formulary
their customers will be forced to pay full price or use a
competitor’s drug instead. Notably, Express Scripts has
opted to exclude Gilead Science’s breakthrough Hepatitis
C drugs (Harvoni and Sovaldi) from their formularies.
2015 - 2020 – Strong Patents, High Prices
The patent cliff has largely ended for the foreseeable
future. Industry wide 2015 – 2020 will be a period in which
we do not see another wide-spread patent expiration
event. As a result there will be fewer new generics
entering the market, which will likely lead to slower
revenue growth.
INDUSTRY TRENDS
Mergers and Acquisitions
The largest cause of increased revenues over the last 10
years has been through mergers and acquisitions. A
company which acquires another also acquires their full
client roster, which drives up revenues. Rapid
consolidation has shrunk the number of PBM’s in the
United States by 40% (93 in 2006 to 56 in 2015).12
This
trend is expected to continue, reducing the number of
PBM’s to 35 by 2020.13
There are multiple reasons that Mergers and Acquisitions
are attractive to PBM’s. First, they increase their
bargaining power and as a result increase their
profitability. The more client groups a PBM manages the
more economy of scale they can offer drug manufacturers.
Indeed, the size of their customer base is their biggest
leverage in the negotiation of drug prices. Lower
negotiated prices ensure a larger price spread which
increases their profitability.
Additionally, revenue growth is one of the only ways to
significantly increase revenues during times of slow or
stagnant product demand. PBM revenue is dependent on
prescription drug demand, which in turn is tied to a large
number of factors outside of the control of PBM’s. A
strategic merger or acquisition could double revenues
without having to attempt to woo client groups away from
the competition.
Extreme Consolidation
As a result of widespread M&A the PBM industry has
become very consolidated with three companies (Express
Scripts, CVS Caremark and UnitedHealth) holding nearly ¾
of the market share. This industry reality has positives and
negatives.
0
20
40
60
80
100
Number of PBM's Operating In US
Historical Estimated
Data Source: IbisWorld
7. Page 7
Pro’s of Consolidation: Larger firms will have much more
bargaining power with drug manufacturers. Better
negotiated rates allow for a higher profit spread for the
PBM. This creates a win-win for both the PBM and their
clients as the clients save more on drug purchases and the
PBM’s are able to earn higher profits.
Con’s of Consolidation: It is extremely difficult for a
smaller PBM to compete with the larger companies and
even more difficult for a company to enter into the
industry. As a result these smaller PBM’s are not likely to
grow and we are not likely to see many new entrants into
the market. In an industry that has used M&A’s as a key
strategy in revenue growth this is problematic for the Big
Three PBM companies. We are rapidly approaching a
point in time in which there will be no more attractive
M&A prospects. This rationale is one of the major reasons
analysts have given such a low P/E to Express Scripts.
Our model forecasts no significant M&A activity over the
next 5 years. A merger of equals with either CVS and
UnitedHealth is unlikely as they are parts of larger parent
companies. The next potential candidate would be Aetna,
who only makes up 2% of the market share. As such all of
our forecasted revenue growth is due to increased drug
revenues.
Cost Cutting
Profit margins are relatively thin in the PBM industry
(around 2%). As such cost cutting is an important means
of maintaining profits and PBM’s are under constant
pressure to reduce costs. There are a number of strategies
PBM’s can employ to reduce costs.14
Reduce service costs through mail-order. A
growing trend in the PBM industry is the rise
of mail-order pharmaceutical delivery. This is
a cost effective to using pharmacies for a
number of reasons. First it cuts the middle
man out of the picture, as pharmacies have
high overhead whereas mail-order is relatively
cheap with few added costs. Additionally mail
ordered prescriptions often deal in bulk,
delivering 3 months’ worth of medication
instead of one. Customers are billed as soon
as the medication ships and due to the nature
of their medications once a product has been
shipped it cannot be returned by the
customers. This serves to create a sort of
prescription drug prescription service which is
not dependent on the customer remembering
to go to the pharmacy and renew their
prescription. Mail order is steadily growing as
a percentage of total revenues. We project it
to bypass Network Revenues to become the
largest generator of revenues in 2018.
Reduce payments to pharmacies. This is an
effective strategy in terms of reducing costs,
however Express Scripts cannot play this card
too often, as their continued relationship with
pharmacies is vital, competition is fierce and
they cannot risk alienating their pharmacy
relationships.
Demand higher rebates from drug
manufacturers. A PBM’s profitability comes
from the spread between the price they are
able to negotiate with drug manufacturers
and the price they charge their customers. In
the PBM industry size equals leverage, which
means the largest companies can often
negotiate the best drug deals. In recent years
this concept has been upended with the rise
of Blockbuster Drugs which command an
extremely high price premium. In response to
extremely high prices Express Scripts has
excluded a number of ultra-high priced drugs
from its formulary.
Implementation of step-therapy programs to
drive patients to use generics. Step-therapy is
when a patient is first prescribed and
approved for the cheapest and most likely to
be effective drug. If that treatment does not
28%
27%
17%
2%
26%
Major PBM Players by Market Share
Express Scipts
CVS Caremark
UnitedHealth/Catamaran
Aetna
Other
Data Source: IBISWorld
8. Page 8
work the patient step up to the next slightly
more costly, slightly more risky option.15
Porter’s Five Forces:
Threat of Entry: Very Low. Size guarantees leverage
in negotiation with drug companies. Because of this
a new entrant would find it very difficult to succeed
in the industry, especially with the narrow profit
margins.
Supplier Power: Medium – High. The entire PBM
business model is based around negotiating the best
possible detail with suppliers and profiting from the
spread between negotiated discount and amount
charged to customers. Because of this negotiation
with suppliers is a complex bargaining game. As
blockbuster drugs come onto the market supplier
power becomes even more powerful.
Extent of Rivalry: High. The highly consolidated
market sets the stage for intense rivalry. Proprietary
drug deals are set up to the exclusion of competitors.
Attractive M&A deals are broken up at last minute as
a competitor steps in to offer a more attractive offer.
This rivalry will only intensify as prescription rates
slow and attractive M&A opportunities have been
exhausted.
Substitutes: Low. The most logical substitute to
using a PBM would be not having insurance and
saving for your own prescription drugs. The
Affordable Care Act makes this a fineable strategy,
making it more unattractive. Anyone who has
insurance likely also has a client relationship with a
PBM.
Buyer Power: Medium. Clients do not have the
power to price the drugs, but they do have the power
to leave one PBM for another if their drug prices
prove to be unattractive. This is the case with
Anthem, who is currently seeking the freedom to
leave their contract in search of better rates.
Summary of Porter’s Five Forces:
The stage has been set in the PBM industry for 3 major
players to duke it out in the coming years for the best deals
with drug companies. Express Scripts, CVS, and
UnitedHealth’s growth options will now come from
attempting to woo each other’s current customers based
on more attractive deals.
MARKETS AND COMPETITION
Prescription Benefit Managers manage prescription drug
programs. They act as the intermediary between health
plans, drug companies, retail pharmacies and patients.
Initially PBM’s worked exclusively in processing
pharmaceutical claims for health plans. Over the last
several decades they have expanded their services and
now offer reimbursements for drug claims, processing and
cost control for members. They have experienced strong
growth with likely continued growth in the industry.16
Relationships and size are vital factors in the success of a
PBM. A PBM may manage hundreds or even thousands of
client group accounts, each of which may itself contain
thousands or millions of clients. Size allows greater
negotiating leverage with drug companies as PBM’s can
offer scale to drug companies through huge networks as a
concession for price discounts. Price is often the
determining factor for which PBM is chosen and PBM’s are
under constant pressure to cut costs and get a better value
for their clients.
In light of the increased power that comes with size the
PBM industry has experienced aggressive consolidation
over the last decade. Three large PBM’s now own nearly
80% of the market share: Express Scripts, CVS Caremark
and UnitedHealth.
0
2
4
6
8
10
New Entrants
Buyer
SupplierSubstitutes
Rivalry
Porter's Five Forces Analysis:
PBM Industry
Data Source: Henry Fund
9. Page 9
CVS Caremark
CVS Health (Formerly CVS Caremark)’s BPM division is
a one of several strategic business units in addition to
retail pharmacy ownership, online pharmacy and
MinuteClinic. CVS operates over 7,800 pharmacies
under the names CVS Pharmacy, Longs Drugs and
Navarro Discount Pharmacies.17 A notable difference
between CVS and Express Scripts is the diversified
nature of CVS’ business model. While Express Scripts
functions exclusively as a PBM, CVS owns 3 vital steps
of the supply chain, the writing of the prescriptions
(MinuteClinic), the dispensing of the drugs (CVS
Retail) and the benefits management. The argument
could be made that this puts CVS in a more opportune
position to profit in the PBM industry. Additionally
the argument could be made that a potential conflict
of interest exists as doctors working for CVS owned
clinics may be pressured to prescribe drugs which are
more financially beneficial to CVS through their PBM
contracts.
CVS has been active in the trend of M&A. Notable
acquisitions in the last 10 years include:18
2006: CVS acquires Minneapolis-based
MinuteClinic, the company which pioneered the
concept of retail-based health clinic.
2006: CVS steps in to prevent an acquisition of
Caremark Rx by Express Scripts, presenting a more
attractive offer CVS successfully acquired
Caremark Rx. This acquisition was touted as a
merger, although CVS’ management team and
philosophy have reigned supreme over the
culture.
2008: CVS acquires Longs Drug Stores, which
operates 521 stores in the United States,
specifically focused on California.
2014: CVS purchases Navarro Discount Pharmacy,
the largest Hispanic-owned drug store un the
United States.
2015: CVS enters into a deal with Target to acquire
their pharmacy and retail clinics. This will effect
1,660 pharmacies and rebrand all Target Clinics as
MinuteClinic.
CVS has made significant expansions in the previous
decade. They continue to make inroads into new retail
markets and should be considered a serious competitive
threat to Express Scripts.
UnitedHealth Group
Like CVS, UnitedHealth’s PBM business group is one of
many services offered by the health giant. Minnetonka,
Minnesota based UnitedHealth Group is 14th
on the
Fortune 500. UnitedHealth provides health insurance,
specialized care serices, Medicare & retirement programs,
transplate care management, dental and vision programs
and many other assorted specialized services. Notable
M&A’s:
2005: UnitedHealth receives regulatory approval
to purchase PacifiCare Health Systems for $9.2
Billion.
2009: UnitedHealth acquiresHealth Net Inc.
2015: UnitedHealth acquires CatamaranRx. This
was a noteable acquisition as Catamaran was the
last remaining PBM’s that owned more than 5% of
market share in the industry.19
Through their
purchase of Catamaran UnitedHealth solidified
(and potentially stratified) the Big Three
competitors and raised the question: Where will
growth come from now?
Aetna
Aetna is a Fortune 100 managed health care company
which provides a wide variety of health care insurance
plans, including medical, pharmaceutical, dental,
behavioral health, long-term care, and disability plans.20
Whereas some large health insurance companies opt to
outsource their PBM services (Blue Cross Blue Shield, for
example outsrources to Express Scripts), Aetna has opted
to offer PBM along with their other services. Aetna
occupies a very small portion of the PBM market, holding
about 2% of total market share.
Peer Comparison – Notable Items
Peer comparison in the PBM industry is difficult. This is
due to the small number of major players and the differing
business structures of each group. While Express Scripts
functions almost exclusively as a PBM, CVS operates as a
PBM in the scope of a larger business model involving
retail clinics and retail pharmacies. Additionally
UnitedHealth has a greater emphasis on insurance and
health services than either of the other major competitors.
10. Page 10
These differing structures give each company unique
strengths and weaknesses as they face changing market
conditions. In spite of these differences, there are several
notable obvervations that can be made.
In spite of being the largest PBM, Express Scripts has the
lowest EPS, the second lowest P/E multiple and the
lowerst forward P/E. Additionally all four companies’ P/E’s
are projected to drop by 20-30% with Express Scripts’ P/E
falling nearly 50%. As analysts are not forecasting
significant growth in EPS this shows that the street’s
opinion is we will likely see a price decrease in the coming
year. Additionally, Express Script’s low forecasted P/E is a
sign that the market feels it will be particularly vulnerable
to the slow growth as they are not diversified in their
offerings. Whereas their competitors can seek growth
through retail or medical service revenues ESRX is relient
exclusively on their PBM revenues. Express Scripts’ clients
will likely be aware of Express Scripts’ increased
vulnerability to market forces which could give them
additional bargaining power, further driving down Express
Scripts’ profits.
EPS P/E FY15 P/E FY16E
ESRX 3.56 19.69 10.5
CVS 4.63 21.93 15.36
UNH 6.01 20.91 14.43
AET 6.78 16.06 12.6
Another notable observation is that Express Scripts has the
second lowest ROA, and the lowest ROE and Profit Margin
of its peers. This is further evidence of the hazards Express
Scripts faces by being undiversified in their service
offerings. In an industry in which size commands
bargaining power Express Scripts should have the highest
profit margins, and they should certainly be higher than
tiny competitor Aetna. These narrow margins
demonstrate just how small the spread is in the PBM
business. A profit of 2.5-3% is actually quite impressive in
the PBM industry. Higher peer profit margins are due to
diversified product offerings (CVS’s includes profits from
MinuteClinic, etc.).
ROA ROE Profit Mar.
ESRX 5.74% 13.35% 2.43%
CVS 7.27% 13.91% 3.42%
UNH 6.97% 16.93% 3.70%
AET 5.57 15.59% 3.97%
Net income for all companies has risen slowly over the last
three years. Net incomes for all 4 companies reveal the
extent to which each company is invested in business units
outside of the PBM industry. Aetna (AET) for example has
only 5% the revenue of Express Script, yet their net
incomes are almost identical. This is due to Aetna’s
diversification of services provided, drawing income
through its various insurance offerings in addition to its
PBM business. Additionally we see that while CVS and
UnitedHealth trail Express Scripts in PBM revenues they
dwarf Express Scripts in terms of actual income. This could
spell trouble for Express Scripts in the future. During a
period of economic downtown and low earnings both CVS
and UnitedHealth could fall back on other business units
to supplement their PBM revenue, while Express Scripts
does not have this option. This diversification could also
be a hindrance to UnitedHealth and CVS, as their future
success is also tied to retail sales and competition within
the retail market. CVS, for example must compete with
Wallgreens, Walmart, and a host of grocery stores while
Express Scripts only has to fight off competition on a single
front.
ECONOMIC OUTLOOK
Future revenues in the PBM industry are dependent on
prescription drug spending. Prescription drugs have a
fairly strong correlation with the healthcare sector which
itself share a strong correlation with the US GDP. An
analysis of the last 6 years of financial data shows that
Healthcare has consistently hovered at about 17.4% of the
US GDP (st. dev of .001) while prescription drugs have
amounted to an average of 9.6% of healthcare costs (st.
dev of .003). This allows us to forecast prescription drug
expenditures as 1.6% of GDP (st. dev of .002). Using
government forecasts for GDP growth we can forecast
0
2000
4000
6000
8000
ESRX CVS UNH AET
Net Income of Top Four PBM's
2013 2014 2015
Data Source: FactSet
Data Source: FactSet
Data Source: FactSet
11. Page 11
prescription drug expenditures steadily growing by 4%
(about $350 million) annually into the future.21
CATALYSTS FOR GROWTH
Number of Physician Visits
Prescription drugs, by definition must first be prescribed
by a medical professional. Therefore the number of
physician visits per year is an important factor in industry
growth. According to the Centers for Disease Control and
Prevention, 75.1% of patient visits to physician offices
involve the use of drug therapies.22
Furthermore as more
Americans gain healthcare through the Affordable Care
Act it is expected that the number of physician visits will
likely increase.
Number of People with Private Health
Insurance.
The Affordable Care Act of 2010 greatly impacted the
Healthcare industry. The ACA sought to lower healthcare
prices through increasing competition by creating a
number of federal and state health insurance exchanges.
Additionally the ACA mandated the purchase of private
health insurance. Individuals faced a tax penalty for not
having private insurance by 2015.23
As a result the number of uninsured Americans has seen a
marked drop. According to studies conducted by the
National Health Interview Survey the number of uninsured
Americans fell by about 8% to 41 million people in the first
quarter of 2014. This drop represents 3.8 million
Americans gaining private health insurance.24
The 3.8
million people are now under a PBM, which will boost
membership fees as well as number of prescriptions filled.
0.0%
5.0%
10.0%
15.0%
20.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Health Care and Rx As a Percentage
of GDP
Health Care as % of GPD Rx as % of Healthcare
-
5,000
10,000
15,000
20,000
25,000
30,000
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Projected GDP Growth
-5
0
5
10
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
%Change
Number of Physican Visits
Data Source: Bureau of Economic Analysis
Data Source: IBISWorld
Data Source: Bureau of Economic Analysis
12. Page 12
Insured Americans are more likely to be able to afford
medical treatment, prescription drugs and therapies.
Therefore the decline in uninsured Americans is a growth
indicator for the PBM industry.
Aging Population
There is a strong statistical correlation between age and
medical costs. The Agency for Healthcare Research and
Quality reports that more than 91% of seniors and 58% of
adults had prescription medication expenses in 2011. As
the median age of the United States grows as will the
demand for prescriptions and PBM services.
The older population – persons 65 years or older – is
projected to grow significantly in the coming decades. As
of 2013 there were 44.7 million Americans over the age of
65, the US Department of Health and Human services
forecasts that number to more than double to 98 million
by 2060.25
This spike in age as well as the fact that many
age-related medications such as statins and heart
medication are available in generic forms and are
therefore more profitable for PBM’s (as opposed to
biotech antivirals, which tend to be for more rare, non-age
related illnesses). Long terms this will lead to increased
demands for prescription drugs and increased revenues
for PBM’s.
Chronic Illness
The treatment of chronic illnesses pose consistent revenue
streams through long-term care therapies. According to
the CDC two-thirds of adults in the United States are either
overweight (31.1%) or obese (34.9%).26
This has
contributed significantly to a number of chronic issues
which have in turn led to an increase in medical and
prescription drug costs. Obesity related diseases include
high blood pressure, heart disease, liver problems and
Type 2 diabetes; all of which are maintained through long
term prescription drugs. This creates a long-term revenue
stream for PBM’s.
INVESTMENT POSITIVES
Express Scripts has Strong client retention. CEO is
raising their client retention rate forecast to 96-
97%, up from 95-97%.27
Customer groups are
under contract which creates strong revenue
security.
Largest PBM in an industry where size is a
significant factor to success. Express Scripts size
allows them significant bargaining power which in
turn yields a stronger profit margin.
Projected low but steady growth in revenues.
Demand in the healthcare industry is not likely to
drop due to the nature of their services.
INVESTMENT NEGATIVES
Low growth in prescription volume. We forecast
low growth of 1-2% over the coming five years.
Revenues are tied to the number of prescriptions
being written each year. Low growth in volume of
drugs prescribed will have a direct impact on
revenue growth.
Most growth through acquisition opportunities
have been exhausted. Opportunities to double
revenues by acquiring a competitor of nearly
equal size are not possible outside of merging with
their 2 remaining competitors.
Each year Express Scripts renegotiates contracts
with one-third of their client base. While they
maintain the majority of their customers these
negotiations frequently involve price concessions.
Lack of merger alternatives will likely lead to more
intense competition between Express Scripts, CVS
Caremark and UnitedHealth. This will lead to
competing to woo each other’s current customers
through price concessions and rebates. This
competition would cut into profits across the
industry.
Lawsuit with Anthem. ESRX is currently in an ugly
contract dispute with one of their largest clients,
health insurance provider Anthem. ESRX is
currently in a 10 year contract with Anthem,
ending in 2019. Under the conditions of the
contract there is a renegotiating period in 2016.
Anthem does not feel that ESRX has provided
enough of a value and is suing Express Scripts,
seeking to recover damages they claim came as a
result of Express Scripts overcharging for
products. The lawsuit also seeks the right to
terminate the companies’ agreement. Losing
anthem would be a significant blow to Express
Scripts revenue. The CEO of anthem recently
13. Page 13
announced he was unsure if Anthem would
continue their relationship with Express Scripts
after the 2019 contract expires.28
The outcome of
this lawsuit factors significantly into our valuation,
which we will now elaborate on.
VALUATION
Our valuation model used a 5 year Raw Beta of 1.0129
We
then calculated a WACC of 6.77%. We assume a CV growth
of 2% annually beginning in 2021.
Revenue Growth and Contract Expiration
Revenue over the next 5 years will grow modestly but
steadily. We forecast revenue growth of about 2%
annually leading up to 2019. This depressed growth is due
to 2019 will be a significant year for Express Scripts as it is
the year that their contract with Anthem expires. Anthem
is one of Express Scripts largest customers and is currently
in the middle of a contentious lawsuit with Express Scripts.
Anthem alleges that they have been overcharged by $3
billion and is currently suing for both damages and the
legal right to terminate the contract at their discretion.
Analysts are split on whether Anthem will renew their
contract with Express Scripts, however we feel that it is
likely that they will. For one, Anthem is going to be looking
for a large PBM company to cover their benefits needs,
especially as they eye a large merger with Cigna.
UnitedHealth is one of Anthem’s largest competitors, so
they are unlikely to turn to UnitedHealth for their PBM
needs. The only alternative would be CVS Caremark.
Express Scripts will face one of three scenario’s in 2019:
Anthem will leave Express Scripts for CVS
Caremark after a bidding war between the two
PBM giants. This would lead to a 16% drop in
revenue for Express Scripts (a drop of about 18
billion in revenue). This would lead to the lowest
revenues in nearly a decade and would drop the
EPS from $5.15 to $3.96.
Anthem now merged with Cigna will follow
UnitedHealth’s lead and switch to becoming their
own in-house PBM service as a cutting costs by
occupying multiple levels of the health care supply
chain. This would lead to the same 16% drop in
revenue for Express Scripts.
Anthem will continue with Express Scripts,
however they will negotiate a significant discount
as a means of staying. Anthem is currently
accusing ESRX of cheating them out of $3 billion
through overcharges which equates to requesting
$300 million for each year of their decade long
contract.
We forecast that the third option is most likely (we would
give it 75% likelihood) and that Express Scripts will retain
Anthem’s business contract beyond 2019. We forecast
Anthem negotiating discounts of approximately 20% from
their current prices. This is a little less than the amount
that Anthem is currently suing Express Scripts for, alleging
overcharging. This would reduce revenue attributed to
Anthem from $18 Billion in 2019 to $14.6 Billion in 2020.
While we believe this to be the most likely scenario,
regardless of Anthem’s decision Express Scripts faces an
almost certain dip in revenues heading into 2020.
Additionally the Department of Defense’s TriCare contract
with Express Scripts ends in 2020. We believe that the
Department of Defense will renew their contract after this
period as they do not have the contentious relationship
with Express Scripts that Anthem has.
Operating Expense Assumptions
Express Scripts has a high COGS. Over the 5 years leading
up to 2015 COGS has averaged around 90% of revenues,
slowly declining at about 0.6% per year. We forecast COGS
to remain at 89.5%, stopping the slight decline in response
to the increasing cost that blockbuster drugs may have on
COGS. Nearly all of Express Scripts’ intangible assets are
contracts which are amortized on a schedule over the life
of the contract. As such they are able to specifically
schedule amortization expenses. As such a large portion
10000
12000
14000
16000
18000
20000
2013 2014 2015 2016 2017 2018 2019 2020
Annual Revenue from Anthem
Historical Projected
Data Source: ESRX 10K 2015
14. Page 14
of Express Scripts’ assets are intangibles depreciation
makes up a very small portion of expenses, forecasted at
0.60%. We forecast SGA to continue just above the 5 year
average at 3.20%.
Profit Margin Forecasts
Express Scripts has very thin profit margins. Over the last
4 financial years their profit margin has slightly climbed by
about 0.2% of revenue per year. Our model forecasts
continued slight increases leading to profit margins of just
under 3% in 2020. This remains a modest increase,
however it is double the profit margins of 2012.
Product Revenue Lines Growth
Express Scripts earns revenue through four different areas
of business: Network Revenues, Home Delivery and
Specialty Revenues, Other Revenues and Services
Revenues. Historically Network Revenues (membership
payments from client groups) has made up the largest
portion of profits. Express Scripts has found Home delivery
to be an increasingly important portion of their revenue,
especially as it minimizes additional costs by mailing
directly to the consumer and traditionally deals in bulk by
shipping in 3 month orders. Over the 5 years leading to
2015 Network revenues as a percentage of total revenue
fell from 65.1% to 55.5%. Home Delivery in turn grew from
31.5% to 40.1%. We forecast this trend to continue with
Home Delivery overtaking Network Revenues in 2018 as
the largest source of revenue. Other Revenues and Service
Revenues make up a small (less than 5% of revenues).
They are however each growing, which we project to
continue.
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2011 2012 2013 2014 2015
Historical Operating Costs as
% of Revenue
COGS (except D&A) Depreciation Expense
Amortization Expense SG&A Expense
0
20
40
60
80
100
Peer COGS as % of Revenue
ESRX CVS UNH
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2012 2013 2014 2015 2016E2017E2018E2019E2020E
Historic and Forecasted Margins
Gross Margin EBIT margin Profit Margin
Data Source: ESRX 10K 2015
Data Source: ESRX 10K 2015
Data Source: ESRX 10K 2015
15. Page 15
Model Results
Our DCF/EP results reveal that according to our model the
market’s current price of $70 is an appropriate price for
Express Scripts given the present value of their forecasted
future cash flows. While it is possible that there is a slight
upside (about 5%), Express Scripts current legal situation
with Anthem casts too much uncertainty on the
immediate future to merit the risk.
Our DDM and Relative P/E models yielded very similar
values, $63.29 and $62.02 respectively. In spite of these
similarities we feel that DDM and Relative P/E are not
effective models to use with Express Scripts. With regards
to the DDM Model Express Scripts has no history of
dividends, therefore our DDM price target is based
exclusively on the forecasted stock price in 2020 which we
do not feel is comprehensive enough. We feel Relative P/E
is also inappropriate for Express Scripts for several
reasons: First, Express Scripts operates exclusively as a
PBM company. Express Scripts’ two biggest competitors,
CVS and UnitedHealth contain a large number of business
units including additional health services and retail
pharmacy locations. Because of this their P/E’s do not
exclusively reflect the PBM industry. Additionally the
remaining PBM companies in the industry are either
privately held or less than 5% the size of Express Scripts.
Our Forecast vs. Analyst Consensus
Analysts are divided over the valuation of Express Scripts.
According to Thompson/First Call 15 out of 25 analysts
issue a HOLD recommendation for Express Scripts with 3
giving a strong buy, 6 giving a buy and 1 giving an
underperform.30
Analysts give a wide range of target
prices, ranging from a low of 60 to a high of 10031
. The
source of this division seems to be based around estimates
of SG&A expenses. Of the 26 analyst estimates available
through Factset about half forecast SG&A expenses
following historical trends and company guidance (3.2% of
revenues). The other half forecast SG&A as 1.8% of sales.
The outcome of this forecast has significant implications
on net income and ultimately the target stock price. If
historic and company guidance numbers are accurate (as
we believe they will be) the target price will be $71. If,
however SG&A is indeed as low as some analysts project
the target price rises to $94. The source of this discrepancy
seems to be differing opinions on Express Scripts non-
GAAP income statement item “Adjusted SG&A” which
does not include amortization of annual contracts. As we
feel that the higher SG&A is in keeping with historic
reported numbers and as the majority of large financial
firms (Oppenheimer, Wells Fargo, Deutsche Bank) forecast
the higher SG&A32
we have opted to use it in our
forecasting model. With regards to the rest of our forecast
our revenue, sales and other expenses follow a similar
trend to the analyst consensus.
Our target price closely match the target price given by
firms which shared our opinion on SG&A levels. Factset’s
average analyst price is $82.85, demonstrative of the
division between the analysts. Few analysts give a target
price at or near $82 with most skewing high near $95-100
or skewing lower near $65-75. Again, the chief sources of
this differing target price seems to be the interpretation of
Non-GAAP Income Statement line “Adjusted SG&A.”
KEYS TO MONITOR
Outcome of lawsuit with Anthem. Losing the
anthem contract before 2019 would have
immediate negative consequences for Express
Script’s revenue forecasts.
Contract renewals with Anthem and the
Department of Defense. Both the status of
renewed contract and the terms of agreement
with regards to reduced prices. Losing either
account would lower annual revenues by nearly
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Historic and Projected Revenue Lines as
% of Revenues
Network Revenues
Home Delivery and Specialty Revenues
Other Revenues
Service Revenues
Data Source: ESRX 10K 2015
16. Page 16
15%. Losing both accounts would be very harmful
for Express Scripts.
Government legislation. Congressional legislation
pertaining to price ceilings, patent life changes and
relaxed biosimilars and generic regulations would
also have a significant impact on future
profitability.
Upcoming patent expirations. Popular drugs
facing a patent expiration will be favorable to
Express Scripts’ profitability. Additionally any
events that may shorten patent lives will also be
good for Express Scripts.
REFERENCES
1. IBISWorld. Industry Reports: Pharmacy Benefit Management 2015
2. Ibid.
3. Argus Research. Express Scripts Holding Co. Report created
4/4/2016.
4. IBISWorld. Industry Reports: Pharmacy Benefit Management 2015
5. Express Scripts Corporate Overview. Lab.ExpressScripts.com
6. Ibid.
7. ESRX 2015 10K
8. Wikipedia: Express Scripts Mergers and Acquisitions History.
https://en.wikipedia.org/wiki/Express_Scripts
9. ESRX 2015 10K
10. Navitus: PBM Industry Trends.
https://www.navitus.com/Utility/news-
events/blogs/corporate/December-2014-(1)/PBM-Industry-
Trends-for-2015.aspx?page=3
11. Ibid.
12. IBISWorld. Industry Reports: Pharmacy Benefit Management 2015
13. Ibid.
14. Argus Research. Express Scripts Holding Co. Report created
4/4/2016.
15. Ibid.
16. Deloitte. The PBM Industry a Sea of Constant Change.
http://blogs.deloitte.com/centerforhealthsolutions/the-pbm-
industry-a-sea-of-constant-change/
17. Wikipedia: CVS Health Mergers and Acquisitions History.
https://en.wikipedia.org/wiki/CVS_Health#Caremark
18. Ibid.
19. IBISWorld. Industry Reports: Pharmacy Benefit Management 2015
20. Wikipedia: Aetna. https://en.wikipedia.org/wiki/Aetna
21. Bureau of Economic analysis: Healthcare Spending, Prescription
Spending, GDP Growth Forecasts. http://www.bea.gov/
22. IBISWorld. Industry Reports: Pharmacy Benefit Management 2015
23. Ibid.
24. New York Times: Number of Americans Without Health Insurance
Falls. http://www.nytimes.com/2014/09/16/us/number-of-
americans-without-health-insurance-falls-survey-shows.html?_r=0
25. US Department of Health and Human Services. Aging Statistics.
http://www.aoa.gov/Aging_Statistics/
26. Centers for Disease Control. Obesity Statistics
http://www.cdc.gov/obesity/data/adult.html
27. Argus Research. Express Scripts Holding Co. Report created
4/4/2016.
28. The Street. Express Scripts Stock Drops on Anthem Drug Costs
Renegotiations
http://www.thestreet.com/story/13422568/1/express-scripts-
esrx-stock-drops-on-anthem-drug-costs-renegotiations.html
29. Bloomberg Terminal
30. Yahoo Finance: Express Scripts (ESRX)
31. FactSet
32. FactSet
IMPORTANT DISCLAIMER
Henry Fund reports are created by student enrolled in the
Applied Securities Management (Henry Fund) program at
the University of Iowa’s Tippie School of Management.
These reports are intended to provide potential employers
and other interested parties an example of the analytical
skills, investment knowledge, and communication abilities
of Henry Fund students. Henry Fund analysts are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment opinion
contained in this report does not represent an offer or
solicitation to buy or sell any of the aforementioned
securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Henry
Fund may hold a financial interest in the companies
mentioned in this report.
17. Express Script
Revenue Decomposition
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Product Revenue
Network Revenues 63,244 58,469 56,473 54,593 52,559 50,377 48,060 44,143
Home Delivery and Specialty Revenues 37,571 38,633 40,830 44,018 47,258 50,515 53,742 55,047
Other Revenues 2,052 2,204 2,454 2,620 2,787 2,951 3,110 3,085
Service Revenues 1,231 1,582 1,995 2,555 3,258 4,137 5,228 6,578
Total Revenues 104,099 100,887 101,752 103,787 105,863 107,980 110,139 108,852
Revenue Attributed To: 0.81
Anthem 12,700 14,124 16,586 16,917 17,256 17,601 17,953 14,604
US Department of Defense 10,618 12,006 13,329 13,596 13,868 14,145 14,428 14,260
% of revenue Attributed to:
Anthem 12.20% 14.00% 16.30% 16.30% 16.30% 16.30% 16.30% 13.00%
US Department of Defense 10.20% 11.90% 13.10% 13.10% 13.10% 13.10% 13.10% 13.10%
Product Revenue
Network Revenues 60.75% 57.95% 55.50% 52.60% 49.65% 46.65% 43.64% 40.63%
Home Delivery and Specialty Revenues 36.09% 38.29% 40.13% 42.41% 44.64% 46.78% 48.79% 50.67%
Other Revenues 1.97% 2.18% 2.41% 2.52% 2.63% 2.73% 2.82% 2.84%
Service Revenues 1.18% 1.57% 1.96% 2.46% 3.08% 3.83% 4.75% 5.85%
Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Generic Fill Rate:
Network 81.60% 83.70% 85.10% 86.50% 86.50% 87.10% 87.30% 87.50%
Home Delivery 74.60% 77.20% 79.50% 81.10% 81.40% 81.70% 82.00% 82.30%
Client Retention Rate 94-96% 94-96% 95-97% 96-97% 96-97% 96-97% 96-97% 96-97%
20. Express Script
Cash Flow Statement
Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E
Cash Flow From Operating Activities
Net Income 2,618 2,892 2,973 3,053 3,286
Net Loss from discontinued Operations - - - - -
Net Income from Continuing Operations 2,618 2,892 2,973 3,053 3,286
Adjustments to Reconcile Net Income to Net Cash Provided
Depreciation 452 563 574 586 598
Amortization 1,727 1,319 1,309 1,303 857
Deferred Income Taxes (407) (366) (330) (297) (267)
Employee Stock-Based Compensation Expense
Other, net
Changes in Operating Assets and Liabilities
Accounts Receivable 598 (122) (125) (127) 76
Inventories 51 (39) (40) (41) 24
Other current and noncurrent assets (120) (8) (8) (8) 5
Claims and rebates payable 151 191 195 199 (118)
Accounts Payable (234) 64 66 67 (40)
Accrued Expenses (169) 50 51 52 (31)
Other Current and Noncurrent Liabilities 35 15 15 15 (9)
Net Cash Flows Provided by Operating Activities 4,702 4,557 4,680 4,801 4,380
Cash flows from intesting activities
Purchases of property and equipment (769) (595) (607) (619) (578)
Proceeds from the sale of business - - - - -
Change in short-term investments (12) (31) (32) (32) (33)
Change in long-term investments
Net cash used in investing activities (781) (626) (639) (651) (610)
Cash flows from financing activities
Proceeds from long-term debt, net of discounts (350) 272 277 283 (169)
Treasury stock acquired (1,850) (1,850) (1,850) (1,850) (1,850)
Repayment of long-term debt 4 2,575 (2,650) 1,125 (1,225)
Proceeds from issuance of common stock 62 62 62 62 43
Net cash used in financing activities (2,135) 1,059 (4,161) (380) (3,200)
Net increase (decrease) in cash and cash equivalents 1,786 4,990 (120) 3,770 570
Cash at beginning of year 1,391 3,177 8,167 8,047 11,817
Cash at end of year 3,177 8,167 8,047 11,817 12,387
21. Express Script
Cash Flow Statement
Fiscal Years Ending Dec. 31 2013 2014 2015
Cash flows from operating activities:
Net income $ 1,872.7 $ 2,035 $ 2,499.5
Net loss from discontinued operations, net of tax 53.6 0 0
Net income from continuing operations 1,926.3 2,035 2,499.5
Depreciation and amortization 2,447 2,242.9 2,359.1
Deferred income taxes (573.7) (430.5) (462.1)
Employee stock-based compensation expense 164.7 111 117.1
Other, net 29.2 (8.3) (46.3)
Changes in operating assets and liabilities
Accounts receivable 1,254 (2,042.4) (770.3)
Inventories (218.9) (242.1) 90.1
Other current and noncurrent assets 94.2 (170) 78.3
Claims and rebates payable (672.2) 1,720.4 909.5
Accounts payable 15.9 271.7 318.3
Accrued expenses 450.8 948.9 (142.7)
Other current and noncurrent liabilities (148.4) 112.4 (102.2)
Net cash provided by operating activities—continuing operations 4,768.9 4,549 4,848.3
Net cash used in operating activities—discontinued operations (11.4) 0 0
Net cash flows provided by operating activities 4,757.5 4,549 4,848.3
Cash flows from investing activities:
Purchases of property and equipment (423) (436.6) (295.9)
Proceeds from the sale of business 356.9 0 0
Other, net (3.9) 24.7 27.4
Net cash used in investing activities—continuing operations (70) (411.9) (268.5)
Net cash used in investing activities—discontinued operations (2.1) 0 0
Net cash used in investing activities (72.1) (411.9) (268.5)
Cash flows from financing activities:
Proceeds from long-term debt, net of discounts 0 2,490.1 5,500
Treasury stock acquired (4,055.2) (4,493) (5,500)
Repayment of long-term debt (1,931.6) (2,834.3) (3,390.8)
Net proceeds from employee stock plans 466 510.5 183.1
Excess tax benefit relating to employee stock-based compensation 42.7 94 58.2
Other, net (16.7) (57) (67.5)
Net cash used in financing activities (5,494.8) (4,289.7) (3,217)
Effect of foreign currency translation adjustment (5.7) (6.2) (9.1)
Less cash decrease attributable to discontinued operations 13.4 0 0
Net increase (decrease) in cash and cash equivalents (801.7) (158.8) 1,353.7
Cash and cash equivalents at beginning of year 2,793.1 1,991.4 1,832.6
Cash and cash equivalents at end of year 1,991.4 1,832.6 3,186.3
Cash paid during the year for:
Income tax payments, net of refunds 1,648.4 1,310.9 1,802.2
Interest $ 548.1 $ 529.4 $ 518.1
Adjustments to reconcile net income to net cash provided by operating activities:
23. Express Script
Common Size Balance Sheet
Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Assets
Current Assets
Cash and Cash Equivalents 1.93% 1.82% 3.13% 4.82% 9.47% 9.20% 12.47% 13.17%
Cash 1.11% 1.39% 1.37% 3.06% 7.71% 7.45% 10.73% 11.38%
Short-Term Investments 0.82% 0.42% 1.76% 1.76% 1.75% 1.75% 1.74% 1.80%
Receivables, net 3.86% 5.93% 6.61% 5.90% 5.90% 5.90% 5.90% 5.90%
Inventories 1.80% 2.09% 1.99% 1.90% 1.90% 1.90% 1.90% 1.90%
Deferred Taxes 0.44% 0.39% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Prepaid Expenses and other Current Assets 0.09% 0.25% 0.13% 0.20% 0.20% 0.20% 0.20% 0.20%
Current Assets of Discontinued Operations 0.03% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Current Assets 8.16% 10.48% 11.85% 12.82% 17.47% 17.20% 20.47% 21.17%
Net PPE 1.59% 1.57% 1.27% 1.55% 1.55% 1.55% 1.55% 1.55%
Goodwill 28.15% 29.02% 28.77% 28.21% 27.66% 27.11% 26.58% 26.90%
Other Intangible Assets, Net 13.46% 12.09% 10.29% 8.42% 7.01% 5.66% 4.37% 3.63%
Other Assets 0.07% 0.11% 0.14% 0.18% 0.18% 0.18% 0.18% 0.18%
Noncurrent Assets of Discontinued Operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Assets 51.44% 53.28% 52.33% 51.18% 53.87% 51.71% 53.15% 53.43%
Liabilities & Shareholders' Equity
Current Liabilities:
Claims and Rebates Payable 6.50% 8.41% 9.24% 9.20% 9.20% 9.20% 9.20% 9.20%
Accounts Payable 2.79% 3.11% 3.39% 3.10% 3.10% 3.10% 3.10% 3.10%
Accrued Expenses 1.90% 2.81% 2.61% 2.40% 2.40% 2.40% 2.40% 2.40%
Current Maturities of Long-Term Debt 1.52% 2.53% 1.62% 1.59% 3.99% 1.46% 2.45% 1.36%
Current Liabilities of Discontinued Operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Current Liabilities 12.71% 16.86% 16.86% 16.29% 18.69% 16.16% 17.15% 16.06%
Long-Term Debt 11.88% 10.87% 13.71% 13.10% 13.10% 13.10% 13.10% 13.10%
Deferred Taxes 5.23% 4.88% 4.00% 3.53% 3.11% 2.75% 2.42% 2.21%
Other Liabilities 0.64% 0.78% 0.68% 0.70% 0.70% 0.70% 0.70% 0.70%
Noncurrent Liabilities of Discontinued Operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Liabilities 30.46% 33.39% 35.25% 33.62% 35.61% 32.71% 33.38% 32.06%
Stockholders' Equity
Preferred Stock 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Common Stock and Additional Paid In Capital 20.96% 22.48% 21.83% 21.46% 21.10% 20.74% 20.39% 20.67%
Accumulated Other Comprehensive Income (Loss) 0.01% 0.00% -0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
Retained Earnings 3.76% 5.87% 8.25% 10.59% 13.09% 15.56% 18.00% 21.21%
Common Stock in Treasury at Cost -3.75% -8.47% -13.00% -14.52% -15.99% -17.39% -18.72% -20.65%
Total Express Scripts Stockholders' Equity 20.98% 19.88% 17.07% 17.53% 18.21% 18.92% 19.67% 21.24%
Non-Controlling Interest 0.01% 0.01% 0.01% 0.03% 0.06% 0.08% 0.10% 0.13%
Total Stockholder's Equity 20.98% 19.89% 17.08% 17.56% 18.26% 19.00% 19.78% 21.37%
Total Liabilities and Stockholders' Equity 51.44% 53.28% 52.33% 51.18% 53.87% 51.71% 53.15% 53.43%
24. Express Script
Value Driver Estimation
Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Net Operating Profit Less Adjusted Taxes (NOPLAT) 2175 2663 2727 3111 3443 3579 3711 3962
Invested Capital (IC) 11,702 9,064 7,998 8,096 6,951 5,630 4,315 3,469
Return on Invested Capital (ROIC) 13.80% 22.75% 30.08% 38.89% 42.53% 51.49% 65.92% 91.83%
Free Cash Flot (FCF) 6,229 5,301 3,793 3,013 4,588 4,900 5,026 4,808
Economic Profit (EP) 1,108 1,870 2,113 2,569 2,895 3,109 3,330 3,670
Tax Rates
Statutory Rate 35.0% 35.0% 35.0%
+ State Taxes, net of fed. Benefit 2.6% 2.0% 0.7%
- Non-Controlling Interest -0.3% -0.3% -0.2%
- Investment in foreign subsidiaries -0.7% 0.0% 0.0%
- Other, net -0.2% -3.1% -0.2%
Marginal Tax Rate 36.4% 33.6% 35.3% 35.0% 35.0% 35.0% 35.0% 35.0%
Calculating NOPLAT
Operating Revenues 104099 100887 101752 103787 105863 107980 110139 108852
- Cost of Goods Sold -95185 -90257 -90773 -92889 -94747 -96642 -98575 -97423
- SGA Expenses -2190 -3708 -3704 -3321 -3388 -3455 -3524 -3483
- Depreciation -429 -489 -628 -452 -563 -574 -586 -598
- Amortization of Non-Goodwill Intangibles -2018 -1754 -1731 -1727 -1319 -1309 -1303 -857
- Research and Development Expenses
- Other Operating Expenses
+ Implied Interest on Operating Leases 14 14 14 14 14 15 15 15
Adjusted EBITA 4291 4693 4930 5412 5860 6014 6166 6507
Adjusted Taxes
Income Tax Provision 1104 1031 1364 1410 1557 1601 1644 1769
Less: Tax on Nonoperating Interest Income -15.3 -9.4 -8.8 -10.9 -11.1 -11.3 -11.6 -11.4
Less: Tax on Equity Earnings of Affiliates -11.9 -6.3 0.0 0.0 0.0 0.0 0.0 0.0
Less: Tax on Other Income 1.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Add: Tax Shield on Interest Expense 192.0 171.8 176.6 188.9 192.7 196.5 200.5 198.1
Add: Tax Shield on Unusual Expense - Net 290.2 385.8 203.6 301.5 307.5 313.7 320.0 316.2
Add: Tax Shield on Operating Lease Interest 5.1 4.8 5.0 5.0 5.1 5.1 5.2 5.2
Adjusted Taxes 1565 1578 1741 1894 2051 2105 2158 2277
Plus: Change in Deferred Tax Assets / Liabilities
Current Year Deferred Tax Assets 455 391 - - - - - -
Current Year Deferred Tax Liabilities 5,441 4,923 4,070 3,663 3,297 2,967 2,670 2,403
Previous Year Deferred Tax Assets 401 455 391 - - - - -
Previous Year Deferred Tax Liabilities 5,937 5,441 4,923 4,070 3,663 3,297 2,967 2,670
Change in Deferred Taxes (551) (453) (463) (407) (366) (330) (297) (267)
EBITA 4291 4693 4930 5412 5860 6014 6166 6507
- Adjusted taxes ($1,565.45) ($1,577.89) ($1,740.78) ($1,894.14) ($2,051.14) ($2,104.85) ($2,158.15) ($2,277.31)
+ Change in Deffered Taxes (t-1) (551) (453) (463) (407) (366) (330) (297) (267)
NOPLAT 2175 2663 2727 3111 3443 3579 3711 3962
Invested Capital Computation
Operating Current Assets:
Normal Cash (5% of Revenue) 2,014 1,833 3,186 5,003 5,293 5,399 5,507 5,443
Accounts Receivable, Net 4,023 5,980 6,721 6,123 6,246 6,371 6,498 6,422
Inventory 1,871 2,113 2,023 1,972 2,011 2,052 2,093 2,068
Prepaid Expenses & Operating Current Assets 97 252 129 208 212 216 220 218
Current Assets of Discontinued Operations 31 - - - - - - -
Total Operating Current Assets 8,036 10,177 12,060 13,306 13,762 14,037 14,318 14,151
Operating Current Liabilities:
Accounts Payable 2,900 3,137 3,452 3,217 3,282 3,347 3,414 3,374
Claims and Rebates Payable 6,768 8,488 9,398 9,548 9,739 9,934 10,133 10,014
Accrued Expenses 1,982 2,836 2,659 2,491 2,541 2,592 2,643 2,612
Current Liabilities of Discontinued Operations 1 - - - - - - -
Total Operating Current Liabilities 11,651 14,462 15,509 15,257 15,562 15,873 16,190 16,001
Total Operating Current Assets 8,036 10,177 12,060 13,306 13,762 14,037 14,318 14,151
Less: Total Operating Current Liabilities (11,651) (14,462) (15,509) (15,257) (15,562) (15,873) (16,190) (16,001)
Net Operating Working Capital (3,615) (4,284) (3,449) (1,950) (1,800) (1,836) (1,872) (1,850)
Net PPE 1,659 1,584 1,291 1,609 1,641 1,674 1,707 1,687
Other Operating Assets
Other Intangible Assets, net 14,016 12,201 10,470 8,743 7,424 6,115 4,812 3,955
Other Assets 77 114 146 187 191 194 198 196
Noncurrent Assets of Discontinued Operations - - - - - - - -
PV of Operating Leases 231 231 232 234 237 239 241 243
Other Operating Assets 14,323 12,547 10,847 9,164 7,851 6,548 5,251 4,394
Other Operating Liabilities
Other Liabilities 664 782 691 727 741 756 771 762
Noncurrent Liabilities of Discontinued Operations 0 - - - - - - -
Other Operating Liabilities 665 782 691 727 741 756 771 762
Invested Capital:
Add: Net Operating Working Capital (3,615) (4,284) (3,449) (1,950) (1,800) (1,836) (1,872) (1,850)
Add: Net PPE 1,659 1,584 1,291 1,609 1,641 1,674 1,707 1,687
Add: Other Operating Assets 14,323 12,547 10,847 9,164 7,851 6,548 5,251 4,394
Less: Other Operating Liabilities (665) (782) (691) (727) (741) (756) (771) (762)
Total Invested Capital 11,702 9,064 7,998 8,096 6,951 5,630 4,315 3,469
Return On Invested Capital
NOPLAT / 2,175 2,663 2,727 3,111 3,443 3,579 3,711 3,962
Beginning Invested Capital 15,756 11,702 9,064 7,998 8,096 6,951 5,630 4,315
ROIC 13.80% 22.75% 30.08% 38.89% 42.53% 51.49% 65.92% 91.83%
Economic Profit
Beginning Invested Capital 15,756 11,702 9,064 7,998 8,096 6,951 5,630 4,315
ROIC 13.80% 22.75% 30.08% 38.89% 42.53% 51.49% 65.92% 91.83%
WACC 6.77% 6.77% 6.77% 6.77% 6.77% 6.77% 6.77% 6.77%
Economic Profit (Beg IC * (ROIC - WACC)) 1,108 1,870 2,113 2,569 2,895 3,109 3,330 3,670
FCF
NOPLAT 2,175 2,663 2,727 3,111 3,443 3,579 3,711 3,962
Add: Beg Invested Capital 15,756 11,702 9,064 7,998 8,096 6,951 5,630 4,315
Less: Current Invested Capital (11,702) (9,064) (7,998) (8,096) (6,951) (5,630) (4,315) (3,469)
FCF 6,229 5,301 3,793 3,013 4,588 4,900 5,026 4,808
25. Express Script
Weighted Average Cost of Capital (WACC) Estimation
WACC 6.77% 6.77%
Cost of Equity 7.71% 7.710000%
Cost of Debt 6.13% 6.13%
Cost of Preferred Stock 0.00% 0.00%
Market Value of Equity (Millions) 46,374.42$ 46,374.42$
Market Value of Total Debt (Millions) 15,593.00$ 15,593.00$
Market Value of Preferred Stock -$ -$
Market Value of Firm 61,967.42$ 61,967.42$
Marginal Tax Rate 35.00% 35.00%
Equations:
Equity Market Risk Premium 5.00%
x Beta 1.01
+ Risk free Rate 2.66%
Cost of Equity 7.71%
Calculating Cost of Equity
Shares Outstanding (Millions) 677
x Current Price 68.51
Equity Value 46374
Total Value of Equity 46374
Calculating Cost of Debt
Market Value of total debt 15,593
Total Value of Debt 15,593 Fair Value of Debt 15,593
Preferred Stock Value 0 PV of operating Leases 243
Value of Total Debt 15,593
26. Express Script
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth 2.00%
CV ROIC 8.00%
WACC 6.77%
Cost of Equity 7.71%
Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E
DCF Model
Discount Period 1 2 3 4 5
NOPLAT 3,111 3,443 3,579 3,711 3,962
Beginning IC 7,998 8,096 6,951 5,630 4,315
Ending IC 8,096 6,951 5,630 4,315 3,469
Δ in Invested Capital 98 (1,145) (1,321) (1,315) (846)
NOPLAT 3,111 3,443 3,579 3,711 3,962
Less: Δ in Invested Capital (98) 1,145 1,321 1,315 846
Free Cash Flow 3,013 4,588 4,900 5,026 4,808
Continuing Value 62,300
PV oc Continuing Value 47,939
PV of free cash flows 2,822 4,024 4,026 3,868
Value of Operations 62,679
+ Short Term Investments 1,796
+ Excess Cash -
- Total Debt (15,593)
- Non-controlling interest (2)
- PV of Operating Leases (232)
- PV of Employee Stock Options (185)
- PV of Underfunded Pension & Retirement Liabilities (42)
Value of Equity 48,420
Shares Outstanding 677
Intrinsic Value (per share) 71.52
Price Today 73.15
EP Model
Periods to Discount 1 2 3 4 5
Economic Profit 2,569 2,895 3,109 3,330 3,670
Continuing Value 57,985
PV of Terminal Year EP 44,618.84
PV of Economic Profit 2,406.35 2,539.44 2,554.12 2,562.52 2,645.07
Sum of EP 54,681
Add: Beginning Invested CapitalCV 7,998
Value of Operations 62,679
+ Short Term Investments 1,796
+ Excess Cash -
- Total Debt (15,593)
- Non-controlling Interest (2)
- PV of Operating Leases (232)
- PV of Employee Stock Options (185)
- PV of Underfunded Pension & Retirement Liabilities (42)
Value of Equity 48,420
Shares Outstanding 677
Intrinsic Value (per share) 71.52
Price Today 73.15
![Important disclosures appear on the last page of this report.
The Henry Fund
Henry B. Tippie School of Management
Charles Schaller [Charles-Schaller@uiowa.edu]
Express Scripts Holding Company (ESRX) April 10th, 2016
Healthcare – Pharmacy Benefits Management Stock Rating Hold
Investment Thesis Target Price $70-75
We issue a HOLD recommendation for Express Scripts Holding company, a St.
Louis based Pharmaceutical Benefits Management company. Mergers and
Acquisitions have been the largest source of revenue growth within the PBM
industry and we believe that there are no more sizeable candidates for M&A.
This, paired with slow demand growth, significantly hinders future growth
potential.
Drivers of Thesis
Highly Concentrated Industry. Revenue growth in the industry has been
strongly tied to Mergers and Acquisitions. Due to M&A the number of PBM
companies has shrunk from 93 to 56 since 2006 with the top 3 companies
owning nearly 80% of the market share. ESRX is the largest PBM but there
are few candidates for further M&A.
Muted revenue growth of 2% over the next 5 years is likely, due to fewer
patent expirations and the recent rise of “Blockbuster Drugs” which
command a high price and earn very low profits for PBM’s.
Relatively thin profit margins (3%) combined with demand factors that are
largely out of control make dramatic income growth unlikely.
Lack of diversification of product and service offerings compared to peers.
Risks to Thesis
An (unlikely) merger with one of ESRX’s 2 large competitors (CVS Caremark
or UnitedHealth Group) would lead to massive market share and
significantly increased bargaining power with drug companies. This would
be a very favorable development for ESRX and likely lead to higher margins
and doubled revenues.
Congressional action to dramatically shorten the patent lives of high priced
drugs. A government created patent cliff would greatly benefit ESRX as it
would lead to widespread release of generic drugs, which are highly
profitable to PBM’s
Henry Fund DCF $73.02
Henry Fund DDM $63.29
Relative Multiple $62.02
Price Data
Current Price $70.09
52wk Range $65.55 – 94.61
Consensus 1yr Target $82.85
Key Statistics
Market Cap (B) $44.35
Shares Outstanding (M) 632.8
Institutional Ownership 98.10%
Five Year Beta 1.01
Dividend Yield 0%
Est. 5yr Revenue Growth 6.98%
Price/Earnings (TTM) 19.7
Price/Earnings (FY1) 11.1
Price/Sales (TTM) 0.5
Price/Book (mrq) 2.7
Profitability
Operating Margin 10.79%
Profit Margin 2.43%
Return on Assets (TTM) 4.65%
Return on Equity (TTM) 14.25%
Earnings Estimates
Year 2013 2014 2015 2016E 2017E 2018E
EPS $2.45 $2.76 $3.66 $3.98 $4.56 $4.86
growth 49.39% 12.68% 32.32% 8.68% 14.68% 6.56%
12 Month Performance Company Description
Express Scripts is a St. Louis based Pharmacy
Benefits Management company. Express Scripts
works as a third party administrator of
prescription drug programs. They are responsible
for negotiating discounted drug rates, processing
and paying prescription drug claims. Founded in
1986, Express Scripts has grown through mergers
and acquisitions to become the largest PBM in the
country by revenue.
-25%
-15%
-5%
5%
15%
25%
A M J J A S O N D J F M A
ESRX S&P 500
Data Source: FactSet
Data Source: FactSet](https://image.slidesharecdn.com/8f45774f-8fb8-4a7f-8137-35676677e479-160521193108/85/esrxs16-1-320.jpg)
