Prescription-Drug Wars Begin
Friday September 14th, 2012
Timothy W. Martin
The Wall Street Journal

The prescription-drug wars are under way.

Walgreen Co. WAG -0.89% lost as many as 10 million customers at the beginning of this year due to a pricing dispute with Express Scripts, ESRX -0.38% a large administrator of pharmacy benefits. For months, Express Scripts members who had been getting prescriptions filled at Walgreen had to go elsewhere.

Rite Aid was one of several pharmacies to pick up Express Scripts customers from Walgreen. Above, a sign in Mechanicsburg, Pa., last December.

Now, that spat is resolved, and as of Saturday, Express Scripts members can go back to Walgreen. The big question for the Deerfield, Ill., pharmacy chain and its rivals is, will they?

Up for grabs are some 60 million one-time Walgreen prescriptions that have already migrated this year to rivals like CVS Caremark Corp., CVS -0.15% Rite Aid Co. RAD -0.76% and Kroger Co., KR +0.04%according to Dane Leone, a health-care analyst for Macquarie Capital MQG.AU -1.12%. The prescriptions represent about $3.6 billion in revenue and around $600 million in gross profits, Mr. Leone said.

To try to win customers back, Walgreen is offering $25 gift cards to Express Scripts members who transfer back their prescriptions. Rivals like CVS are enticing shoppers to stay with deeper discounts on nonpharmacy items, as well as with a barrage of advertisements.

"I don't ever recall a situation of this magnitude that occurred on one day," said Larry Merlo, chief executive of CVS Caremark. "The big thing we're trying to get patients to understand now is they can stay with us. They don't have to go back to Walgreen."

CVS Caremark has predicted it would retain "at least 50%" of the former Walgreen's business.

Among those customers CVS is hanging onto so far is Mary Sweeney, a 66-year-old retired payroll manager in Norfolk, Va., who brought her prescriptions to her local CVS after being shut out of Walgreen, and now plans to stay. "I like that my pharmacist not only knows who I am, but a lot of the other people who come in," she said. "At Walgreen, they kept switching pharmacists out."

For Walgreen, the loss of Express Scripts business contributed to a nearly 11% drop in third-quarter earnings to $537 million from $603 million in the previous year. Walgreen believes customers will eventually trickle back, said spokesman Michael Polzin.

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Sharon Anglin Treat, NLARx Executive Director

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