Drugstore chain operator Walgreen Co said it was unable to renew an important contract with a major pharmacy benefits manager and faces continued pressure from government reimbursement policies, sending its shares down nearly 4 percent in premarket trading.
Walgreen said on Tuesday that efforts to renew an agreement with pharmacy benefits manager Express Scripts Inc had failed and it would no longer be part of that company's network as of January 1, 2012.
The news cast a pall on the prospects for Walgreen's prescription sales, which make up nearly two-thirds of its overall sales. It also means fewer Express Scripts members will visit Walgreen stores to have prescriptions filled and buy general merchandise while they're there.
Walgreen shares, which hit a 52-week high on Monday, were down $1.64 to $43.54 in premarket trading. Express Scripts shares were down 6 percent.
Express Scripts did not immediately have a comment.
Walgreen again said it faced continued pressure as government agencies cut back on prescription drug payments.
Under the Medicaid program, U.S. states and the federal government pay for a large portion of medical care, including medications, for lower-income Americans. Lately, those agencies have been reducing how much they pay as they try to balance budgets.
Walgreen's profit rose 30 percent to $603 million, or 65 cents per share, in its fiscal third quarter, which ended on May 31, from $463 million, or 47 cents per share, a year earlier. That compares to the 63 cents analysts had forecast, according to Thomson Reuters I/B/E/S.
Gross profit margin rose 0.5 percentage point to 28.1 percent of sales, despite pressure from pharmacy reimbursements.
Prescriptions were up 4.1 percent at drugstores open at least a year. The company filled 210 million prescriptions, up 5.8 percent over last year's third quarter.
During the quarter, the company sold its pharmacy benefits management unit to focus solely on its retail business, with store remodeling and more food items.
As previously reported, sales at Walgreen's stores open at least a year grew 4.1 percent during the quarter. Same-store sales of general merchandise rose 3.9 percent.
Quarterly sales rose 6.8 percent to $18.37 billion.
(Reporting by Phil Wahba; additional reporting by Lewis Krauskopf; Editing by Derek Caney and John Wallace)