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Executives

David Myers – VP, IR

Jeff Hall – EVP and CFO

George Paz – Chairman, President and CEO

Analysts

Lisa Gill – JPMorgan

Charles Boorady – Citi

Ross Muken – Deutsche Bank

Randall Stanicky – Goldman Sachs

Robert Willoughby – Banc of America

Larry Marsh – Barclays Capital

Ricky Goldwasser – Morgan Stanley

Glenn Garmont – ThinkEquity

Steven Valiquette – UBS

Express Scripts, Inc. (ESRX) Q4 2009 Earnings Call Transcript February 25, 2010 9:00 AM ET

Operator

Ladies and gentlemen, welcome to the Express Scripts fourth quarter 2009 earnings call. At this time all participants’ lines are in a listen-only mode and later there will be an opportunity for your questions. (Operator instructions). As a reminder, today’s conference call is being recorded.

I’d now like to turn the conference over to the Vice President of Investor Relations David Myers. Please go ahead, sir.

David Myers

Thank you. Good morning, everyone. Thanks for joining us on our call. With me today are George Paz, our CEO and Jeff Hall, our CFO.

Before we begin I need to read the following statement. Statements or comments made on this conference call may be forward-looking and may include, but not necessarily limited to financial projections or other statements of the Company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties.

The Company’s actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors which are discussed in detail in our filings with the SEC. In addition, the reconciliation of EBITDA to net income can be found in the earnings release, which is posted on the Web site.

At this point, I will turn the call over to Jeff, who will discuss our fourth quarter results.

Jeff Hall

Thank you, David. Yesterday, we released our fourth quarter results as well as our 2010 guidance. I’ll start today by reviewing our strong quarterly performance and then provide some additional color around our 2010 outlook.

For 2009, GAAP EPS was $3.11. Excluding transaction related charges and amortization, adjusted EPS was $3.58. As most of you know, this includes $0.35 of financing cost we incurred prior to the December 1st close of the acquisition. So, on an apples-to-apples basis, EPS was up 24% over last year with nearly all of this growth coming from operations.

For clarity, in the remainder of the call, we will discuss adjusted EPS as defined in Tables 3 and 4 of our press release. For the quarter, adjusted EPS was $0.97. This includes just one month of NextRx result for the full quarter of the financing cost.

Total adjusted claims were up 23% for the quarter and 5% for the year. As expected our base business claims for the full year were flat with last year. So the year-over-year increase is attributable to NextRx.

The quarter also included our new Department of Defense contract, which was implemented on November 4. As you know, we began reporting DOD revenues on a growth basis with the new contract. This increased both revenues and cost of good sold by 1.8 billion in the quarter.

As a result of this change, while growth profit dollars increased 25% for the fourth quarter, gross profit margin declined to 8.4% from 10%.

SG&A expenses increased 36 million sequentially reflecting not only the addition of NextRx, but also the continued investment in our core business we’re making to drive long-term growth and profitability.

EBITDA per claim which was also impacted by the acquisition was $3.16 for the quarter and $3.20 for the year. 18% growth over 2008.

Cash flow was 844 million for the quarter and 1.8 billion for the year, an increase of 60%.

Before I discuss 2010 guidance, let me reiterate something I’ve said many times over the past several months. Historical NextRx results will not be indicative of our future performance.

To be clear, it would be an accurate to extrapolate the benefit we would derive from NextRx for 2010 and beyond from the historical NextRx results.

As we plan, we have a new pricing structure with WellPoint, new supply chain economics and our integrating operations, all of which will cost significant deviation from historical NextRx performance.

For 2010, our adjusted EPS is expected to be in the range of $4.80 to $5.00, with a normal quarterly progression.

Our press release contains a detailed schedule showing potential transaction related charges and amortization we have excluded from this guidance. The transaction related charges include only expenses that are expected to end when the integration is complete.

This guidance assumes total adjusted claims including NextRx of 740 million to 760 million. As expected, NextRx is contributing significantly fewer claims than the historical run rate mainly due to the loss of Part D Dual Eligible life. Claims in our core business are expected to be up 2% to 4% for the year.

SG&A is expected to increase 6% to 8%. EBITDA per adjusted claim is forecasted to be $3.15 to $3.25. And as a result of including fourth quarter of NextRx results, EBITDA per adjusted claim in Q1, is expected to be between $2.85 and $2.95. The tax rate for the year is expected to be in the range of 37% to 37.5%. And cash flow from operations expected to be in excess of $2 billion.

Overall, this guidance shows growth of 22% to 27% over 2009 and again, nearly all of this growth is coming from operations. As I’ve said in the past, profit maximization s not our primary goal for 2010.

We are willing to incur a higher cost structure in the near-term to ensure a flawless integration. We will rationalize our footprint, eliminate redundancy and realize synergies as we make progress towards executing our integration plan.

Thanks to a lot of hard work by both Express Scripts and WellPoint team, we believe the integration will be completed closer to the lower end of the 12 months to 18 months we’ve been discussing in the past.

Once this integration is complete, we continue to expect the acquisition of NextRx to generate more than $1 billion of incremental EBITDA.

And with that I’ll turn it over to George.

George Paz

Thank you, Jeff and good morning, everyone. 2009 was an outstanding year, in which we had numerous accomplishments. To name a few, we acquired NextRx, raised favorable financing in a difficult market and launched a long-term alliance with WellPoint that will provide game changing capabilities from proved health outcomes and drive out waste.

In November, we implemented our new contract with the Department of Defense.

This contract includes additional service such as claims adjudication and specialty pharmacy management. This was one of our largest and most successful implementations in our history.

We enjoyed a very successful selling season with eight signature lends over 300 wins in total and a 98% retention rate. We attribute our success to our business model of alignment, coupled with outstanding service and consumerology.

Our tool set that improves clinical programs to increase member engagement. As a result of our Company’s dedication and passion to service, we produced record operating earnings and cash flow in 2009.

While it’s great to take a moment to reflect on the successful year, we continue to focus on our model of alignment, which creates value for our clients and superior returns for our stockholders. We are on track with respect to NextRx and we’re on path to a flawless execution. Our strategic alliance opens new horizons from improving patient outcomes while driving down overall healthcare costs.

There is still a tremendous opportunity to eliminate significant waste in healthcare by driving positive clinical behavior. Through consumerology, we have increased member engagement across our entire book of business, not just for those members that use our Home Delivery pharmacies.

We know there are many aspects involved in improving outcomes. For example, we deploy a full set of tools, including an understanding of demographics and the role that genetics play.

However, a recent study found that behavior as the single largest impact on health, determining about 40% of overall health outcome, programs and initiatives that incorporate comprehensive health information with individual behavior patterns, create an empowered patient that can fully participate in developing of better healthcare regime.

Today, Americans waste approximately 173 billion in pharmacy related spend. 116 billion of medical cost and loss productivity due to non-adherence. And 57 billion in drug enchannelments.

We are addressing these areas of waste with our behavior-centric approach. For example, our patient outreach activities and innovations this year, resulted in statistically significant improvements and adherence in several important therapy classes, including diabetes and cholesterol

Express Scripts claims they have 1.4 billion from greater use of lower cost brand to generic. Of this amount, our behavior-centric approach accounted for 780 million of these savings. At Express Scripts, we’re enabling better health and value by driving positive clinical behavior one patient at a time.

Our clinical offerings powered by our behavior-centric approach providing an unparallel and differentiated value proposition in the marketplace. As the selling season unfolds, we’re optimistic about what is shaping up to be a robust pipeline of new opportunities. Our optimism for the future is reflected in our strong guidance for 2010.

At this point we’d be happy to answer any questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions). And our first question is from the line of Lisa Gill from JPMorgan. Please go ahead.

Lisa Gill – JPMorgan

Thanks very much and good morning. The billion dollar run rate, when we think about this, George, the 12 months of integration, will that be December of 2010, so, therefore we should see that the billion dollars in 2011 is that how we should be thinking about that?

George Paz

I’ll answer and I’ll let Jeff chime in. The billion dollars will be achieved when we’re fully integrated. Right now, we’re on a path, as we said to integrate from 12 months to 18 months looking towards the lower end of that schedule. So the billion dollar run rate will be realized once our integration activities are complete and we’ll keep you posted on that, as we progress through the course of the year.

Lisa Gill – JPMorgan

Okay. And then my second question is just around the select Home Delivery. Can you just give us an idea of what your expectations are around mail scripts? I know that the book of business for NextRx has lower mail penetration than your existing book. But what are you seeing on a same-store basis in your existing book to as far as uptake of select Home Delivery and overall mail order scripts for 2010?

George Paz

The select Home Delivery has been a very strong program for us. It allows us as you know to go to clients with labor contracts that can’t or won’t accept necessarily a benefit design and help us to favor, driving out waste and improving health outcomes to these programs. So, it’s been incredibly successful. We have several hundred clients that have signed up for this coming year and we’re looking for a very nice growth.

To your point though, until we get NextRx totally integrated, it’s really hard to introduce those programs. NextRx platforms do not have the tools that we need in order to really drive select Home Delivery. So as we integrate platforms, then we can start talking about the different health plan and driving select Home Delivery. But until we get there, we really can’t do much with that.

Lisa Gill – JPMorgan

Do you have a growth rate as far as the number of accounts or the number of scripts that you’re expecting for overall mail trends in 2010? I know that Jeff talked about 2% to 4% overall script trends, but can you give us some indication how we should think about mail trends?

Jeff Hall

Lisa, Jeff. We haven’t guided specifically to where we think Home Delivery rates are going to go. And I don’t think we’re going to at this point. There’s a lot going on with integration this year. Certainly, we’re very optimistic about what we can do in our core business. We’re firing on all cylinders in both operations and the account management team. So we’re happy about what we’ve going there. Customers are seeing the benefit. So we think we’ll see a trend up, but we’re not going to give specific guidance at this point.

Lisa Gill – JPMorgan

Okay, great, I appreciate the comment.

Operator

Next we go to line of Charles Boorady from Citi. Please go ahead.

Charles Boorady – Citi

Thanks, good morning. My first question is what are the next key milestones and dates in the NextRx integration for things like staff transition and also technology? And then how you monitor the service levels, customer satisfaction and other key metrics along the way as you integrate the two businesses?

George Paz

Well, thanks for the question, Charles. What we did on day one was we took all the operations and IT functions and report them into our people here at Express Scripts. So operations reports in the pathectomy. And his charge is to make sure that we’re monitoring service, it’s something we take a lot of pride on at Express Scripts. So, we put in place all the metrics and monitoring programs that we need to make sure we’re on top of it. So, similar to our own call centers and our own pharmacies, we have a daily mechanism by which we gauge our service levels. Having said all that though, one of our first moves was to bring the pharmacies together. We’re just about complete with that. So, we moved the fulfillment functions out of the NextRx side into the Express Scripts side and that’s pretty much there. We haven’t shut down the sites yet. We’re in a process of doing that. So that will be the first thing we achieve is the actual (inaudible) of the actual pharmacies.

But let me also be clear that we’re not expecting to give up certain of the office spaces because we’re going to convert those into our front end. At Express Scripts, we got a history of keeping the best and brightest and looking for best practices, so quite a few of the sites from the NextRx acquisition will remain. We’ve already made the decision to stay in Indianapolis with our specialty pharmacy. We will close down some sites we’ve given notice in certain areas that we’re shutting down some call center operations, shutting down, as I said, the mail pharmacies. So, all these things are on a schedule.

The big, big items though to be frank are getting off the platforms. We’re in a process to do that and we’re carefully monitoring the progression on that path. It’s critically important that we get the NextRx membership on to our platforms. Once we do that, as we talk about with Lisa a few minutes ago, that’s how we can then start driving clinical changes, driving best practices, getting our reporting tools into the hands of the people at WellPoint. So, to really grow, help them grow their book of business and offer best-in-class operations, we need to get on to our platforms. We have a path to do that and we’ll keep you in the loop as we progress it on that path.

Charles Boorady – Citi

Thanks, George.

Operator

Next is the line of Ross Muken with Deutsche Bank. Please go ahead.

Ross Muken – Deutsche Bank

Good morning. Can you talk a bit about sort of the success you had in the last selling season relative to sort of the consumerology offering? George, you talked to some of the benefits that you drove in terms of savings to your existing customer base using that behavior-centric approach. Is that starting to gain momentum both in the consulting community as well as sort of in the kind of the potential customer base? And then how do we think about using that tool set and applying it to the NextRx business?

George Paz

That’s a great question. Actually, I would say we’re beyond gaining momentum. We’ve got momentum. It’s going incredibly well. I think it resonates with a lot of companies. We sell to Fortune 500 companies and a lot of other companies as well. When you walk into a company that does its own marketing and understand the importance of making sure that their products are meeting the needs of the customers and then their advertising approach to selling their products, Ross, then we walk in and start talking about, it can’t just be about economics, but it’s got to be about messaging, so people take better control of their healthcare, I think that really resonates and we’ve had significant win in discussions around these areas.

I don’t want to speak for WellPoint, but I believe that one of the benefits of this acquisition is that once we get fully integrated, we cannot only use our behavior-centric approach to improve the adherence, step therapy programs, mail order programs and all the different things that we do, but we can use that help drive better medical adherence as well. There’s a lot of waste on the medical side. And I think with our commitment to driving out waste and WellPoint’s focus on improving the health outcomes of their membership, together, we will have a new paradigm which I think will be unparalleled.

Ross Muken – Deutsche Bank

And maybe Jeff, can you talk a bit about some of the working cap opportunities here, getting the sort of NextRx business to your traditional standards and obviously, that’s going to be a decent portion of some of that really strong cash flow you’re going to be generating this year?

Jeff Hall

I think, that’s right, Ross. Certainly, there’s no reason to think that as we get these businesses integrated that the WellPoint business should be on the same kind of working capital basis that the rest of our business is on. Treasury team did a great job for us in Q4 getting it integrated quickly and realizing some quick wins there. Still a lot of work ahead and we’re driving it forward. But I think once we’re integrated the working capital will look the same as it looks for the rest of our book of business.

Ross Muken – Deutsche Bank

Great, thank you very much.

Operator

Next is the line of Randall Stanicky with Goldman Sachs. Please go ahead.

Randall Stanicky – Goldman Sachs

Hey, great. Thanks, guys. Just a follow-up on that; George, you talked about an encouraging 2011 outlook for the selling season. Can you talk maybe about where you’re seeing some of those opportunities? And then secondly, given that you have a management change to the PBM, one of your bigger competitors, your footprints obviously change, should we be thinking about any changes or are you seeing any strategic changes in the current competitive landscape for the PBMs?

George Paz

I think I got your question. There’s a lot of clients that contracts are coming due in the upcoming year. So that’s what I’m referring to by a robust pipeline. I think when you look at, there’s a lot of opportunities to continue to do what we do, where clients have gone with adjudication only services and they insource, a lot of the different functions and I’m talking about managed care plans that are now looking at whether or not it makes more sense to upsource the entire program.

So there’s a lot of medium size managed care companies out there that we have that we’re bidding on, or we’ll be bidding on. There’s always some state business that comes up on a three-year rotation that will also come to market over the course of the year and then there’s just the normal run of large, medium and small employer groups that are opportunities for us. So, this looks like a pretty strong year. Again, you got to keep in mind that we had a 98% retention rate I think Medco has very highs, in the 90 retention rate as well and Caremark has done their share.

So, we’re certainly going to bid to the extent that there’s opportunity for people that are looking for a different model, and then those are jump off and we do very well on a jump off situation. In other words, going from an adjudicator to a pure full PBM offering, I think we will do incredibly well in that part of the selling season. As you know, I think, we are very disciplined company when we look at what’s out there and at the end of the day it’s all about relationships when you’re selling.

So the question is have we put the right people in place, have we nurture a relationship and can we get our message out there. We’re certainly focused on that. Pare [ph] has been in our industry for a long time. We welcome back into the industry. To be honest with you, we would rather have strong competitors, quite frankly. It really helps push the industry forward and keeps us all working hard and focus on driving better healthcare outcomes and we think we’re well situated, I think, the numbers speak ourselves. Our 2010 selling season speaks for itself and we’re excited about the opportunities we face for 2011.

Randall Stanicky – Goldman Sachs

I appreciate the color. Jeff, if I can just ask you one quick question, on the genetic front, anyway that you can give us some qualitative color what you’re expecting in terms of benefit to your full year this year, maybe perhaps relative to last year?

Jeff Hall

Sure. Our outlook on that really hasn’t changed over the last couple of quarters. You know what? 2009 was a kind of weaker than average year for generic benefit to EPS and 2010 as we’ve been saying, looks a little bit better than moderately better, but not significantly better as a contribution to EPS for us. The 2009 generics were more back end loaded, so, we’re going to see more of that benefit coming into 2010. 2010 there’s still probably a little bit below average from an EPS growth contribution here from generics.

Randall Stanicky – Goldman Sachs

Okay, that’s great, thanks very much guys.

Operator

Next is the line of Robert Willoughby with Banc of America. Please go ahead.

Robert Willoughby – Banc of America

I do have a question; you mentioned that the WellPoint scripts were coming in below plan. I know you have a contractual; they have a contractual obligation to give you a certain amount of scripts. Are they in compliance with that agreement or is the clock running on them to make amends?

George Paz

There’s two pieces to this. One is whether they’re coming up short, for the most part, is in the Medicare side of the business. They lost their dual eligibles. We are working very closely with them hand and glove and trying to making sure that they rectify any situations with CMS and hopefully, they’ll be in a position to gain more Medicare lives next year. Keep in mind that that’s a two-year test on claim count. So, we gain them all back next year then we’re back to par. So, we’ll definitely do our share to make sure that they grow their business. Jeff, I don’t know if you want to add anything.

Jeff Hall

No. I think that’s fine. I think you’re probably going to hear this from a lot of us over the coming quarters. We don’t really like to talk in details about individual clients for obvious reasons and we certainly don’t plan to change that as relates to WellPoint. I think going forward you’re going to hear us, say; probably on every call going forward that we’re not going to go into details of WellPoint.

Robert Willoughby – Banc of America

Okay. And you touched on the cash flow opportunity from WellPoint coming and moving them to your balance sheet metrics basically. It’s a big bolus of cash comes through. But am I viewing that as largely a one-time opportunity that could potentially cash flow dip in 2011 from the guidance you’ve given for this year?

George Paz

Robert, you’ve known us for a long time. We never view cash flow as one time. I’ll get a new treasurer. We’re very focused on ROIC cash generation and managing our payables and receivables. So, obviously, let fits a negative working capital business when you bring in a new client, we’re going to see a spike, but we will continuously work all sides of our balance sheet to improve cash flow.

Robert Willoughby – Banc of America

That is great. Thank you.

Operator

Next we go to the line of Larry Marsh with Barclays Capital. Please go ahead.

Larry Marsh – Barclays Capital

Thanks and good morning. Let me ask question on the clinical side. George, you and Dr. Miller [ph] talked a lot about the Home Delivery of that, and the benefits there. And your biggest competitors really talked a lot more about personalized medicine, making investments in it. My question is from where you sit in the marketplace, especially now with WellPoint. Is that going to be an important focus to provide similar services, or is that an area that your customers aren’t as focused on and you’re not as focused on today?

George Paz

If we’re talking about personalized medicine, it’s really what do you mean by that. If personalized medicine is improving the health com of the person, one person at a time, we’re absolutely focused on that. That’s what we do each and every day. That’s what our patient advocates do and we go through a process by which we evaluate each of our members' adherence, their drug regimens, gaps in coverage and we address those things. The reality is though identifying those situations, the gap in coverage, whether or not somebody has had the proper testing, all that is important so that we understand the gap. We take a little bit of a different approach though.

Think about somebody who’s got Express Scripts, they are employed by a Fortune 500 company, who has a managed care plan and they also have a disease management program. So, if you are a diabetic and you’re being and you have all those three touch points, how crazy is it if you got three different people calling on you, trying to influence your behavior. It gets old and it doesn’t necessarily work. Our job is not to be the one who’s going to necessarily make that call. Our job is to empower through that client to figure out who is the best deliver of that care in order to improve that individual’s healthcare outcome.

So, it’s our role. If we’re the one selected by having a meeting with our client and the other healthcare vendors, then we’re happy to do that. We do that for a lot of clients. However if it’s better orchestrated through the disease management program by feeding the health information from the managed care player and the PBM to, we want to be part of that solution. We’re not an ego-driven company where we have to be the one who is out in front. We want to drive better health care outcomes for that member. And so, goes into everything. We can monitor for testing. We’ll do the proper test for the individual at the right time and we’ll make sure that those gaps in coverage are all taken care of. But, we want to operate in our place, with our clients, to improve their members' outcome. If we do that we’ll maintain our current retention rates and we’ll grow our business.

Larry Marsh – Barclays Capital

Very good, thanks for the detail. Second follow-up, I guess, you got into EBITDA for just the script that’s comparable to one of your peers, but you still have Caremark reports and EBITDA over 4 bucks. I know, in the past, you guys, there’s no reason why you wouldn’t be as profitable as any of your peers given the value you drive to the market. Over the long-term is there any reason to think you couldn’t close that gap with at least one of your peers?

George Paz

We’ll definitely be focused on that gap. I think you heard us say in the past that you never manage business by any metric whether it’s growth in revenues, whether it’s growth in scripts or whether it’s EBITDA per script. We have to measure our business across all metrics, otherwise, you find yourself doing things that probably aren’t prudent for the long-term.

So, obviously, WellPoint is a very big company and when you buy you get involved with something big like that, it can have a negative impact on EBITDA per script. Of course, the other side of this equation is, we have our model of alignment, so, as we work closer with we WellPoint, improve their Home Delivery, improve their generic fill rate, work with them to drive clinical programs, our EBITDA per script will go up. So, our focus is to make sure that we’re doing smart things and then driving the metrics that even make it look smarter in the long run.

Larry Marsh – Barclays Capital

Okay, very good. And a follow-up, let me make sure I understand, I know NextRx, I think 10 or 11 adjudication platform (inaudible) talk about important to get to one to move to anchor. Just elaborate is that kind of a step function you’re trying to consolidate one or so a month to get to that 12 month goal or should we not think of it that way?

Jeff Hall

I think I’m just going to go back to what I said a minute ago. We’re just not going to go into sales around WellPoint. We’re very happy with how the integration is going. Both sides are engaged and working very hard and you heard it this a million times before we believe one platform is the only way to go and we will get everything under one platform as we get it integrated.

Larry Marsh – Barclays Capital

Very good, thanks.

Operator

Next is the line of Ricky Goldwasser with Morgan Stanley. Please go ahead.

Ricky Goldwasser – Morgan Stanley

Good morning. Just a clarification on the guidance range. So, do you assume any additional membership losses associated with the normal course of integrating a business in addition to the Part D losses that we know of? And then secondly, when you think about your cash flow, obviously, the guidance is for a very strong cash generation. Are you factoring any buyback in your numbers for ten?

Jeff Hall

As it relates to the first part of the question is are we factoring in additional losses, I’m not going to give specific comments, but certainly we look, when we do our budget and forecast every year, we literally do it bottoms up client by client. So, we’re comfortable with what we’ve assumed at this point. As it relates to cash flow, looking into 2010, obviously, we think the cash flow is going to be strong and our primary or top focus right now is the bank debt that we have is expiring over the course of the year.

So that’s going to be our first focus and we’re going to take care of that and we’ve actually assumed in this guidance that we pay-off that debt as it comes due. Once we get past that, certainly, our uses of cash hasn’t changed from what I’ve been saying for the past couple of years, which is generally the best use of cash for us is to reinvest in internal projects.

Got a lot of really smart people here that are really delivering and executing so, we like to give them money when they have good ideas. Next beyond that is solid accretive acquisition like WellPoint. We’re very excited about that acquisition and when we can deploy capital to that, we think that makes a lot of sense. And then if we’ve exhausted bucket one and bucket two and still have capital left over, it ends up going into the buyback category, but primary focus for this year is really the debt that’s maturing.

Ricky Goldwasser – Morgan Stanley

Okay. And then lastly, as a follow-up, in the protocol that you provided SG&A growth guidance of 6% to 8%, so just to clarify remodel, should we view that as a GAAP or non-GAAP SG&A number because a lot of the amortization flows through the SG&A?

Jeff Hall

Yes, that’s non-GAAP.

Ricky Goldwasser – Morgan Stanley

Thank you.

Operator

Next is the line of Glenn Garmont from ThinkEquity. Please go ahead.

Glenn Garmont – ThinkEquity

Thanks, good morning. I was also going to ask about sort of the plan for the buybacks, but since that’s been answered, Jeff and George, just on the M&A front do you have the capacity just from a sort of internal integration resource perspective to take on additional PBM acquisitions, should something become available in the near-term?

George Paz

I’ll address that and Jeff just chime in if you like. The way we’re doing our integration with WellPoint is we’re treating them as a client and reimplementing them on to our system. We do that hundreds of times a year with new accounts. And it’s very clean, we bring over the data history, I wouldn’t get in too much detail, we’re very good at this.

I think we’re always rated very high, if not the highest in our industry, on implementation, and so, we got to focus on this and this is something we do all the time. I think we’re very opportunistic company. So, if there’s opportunities out there, I do believe we have the manpower, we have the capabilities and we have the financial wherewithal to take advantage of the opportunities as they arise.

Jeff Hall

Obviously, we’re proud of our team. We think we have a world-class team on M&A and on integration and when we find opportunities that the value to us is in line with the price, we stand ready to go, execute.

George Paz

Why don’t we take one more question?

Operator

Very good. That is from the line of Steven Valiquette from UBS. Please go ahead.

Steven Valiquette – UBS

All right, thanks for sneaking me in here. Based on some recent survey work that we’ve done, seems more and more PBM customers are starting to rank specialty drug cost curtailment at the top of the list of priorities when thinking about their PBM. So, I’m just curious do you think you have fully adequate infrastructure and capabilities in that regard in terms of addressing that issue or is that something you’re sort of analyzing more carefully? What are your general thoughts around that?

George Paz

What a great question! When you think about what’s taking place in our industry and our ability to control the oral solid space, I think all PBMs do a decent job. I think we’re second to none, but we have a focus here, because we’re able to put together strong formularies. There’s a healthcare summit taking place today and there’s a lot of conversation around how do you curtail cost and improve health outcomes and try to cap the rising cost. Part of this has got to start with getting generics into the specialty space. Without that lever, there’s a lot of things we can do. We can do prior authorizations, we can do step therapy, we can do counseling, we can focus on adherence. But to really drive costs, we need competition. And the best form of competition is generics entering into this marketplace.

With the entry of generics, it also forces the manufacturers to continue to evolve new innovative products in space that already exists. And I think the combination of those things, new brand launches coming to the market, coupled with a pipeline of generics that are taking the place of older products, that have been out there, gives us the tools we need to help actually drive down cost. That is by the way the number one thing that we hear about from clients today. Because we do, do a good job of controlling costs in the oral solid space, but you’re looking at mid-teen type inflation rates in the specialty space. This has got to come under control.

And the best way to do that again is through competition. So, we hope, as part of this healthcare summit with or without the answer to overall healthcare, there’s no reason that a specialty pathway for generic drug shouldn’t come to get through Congress. We need that to control cost in the future.

Steven Valiquette – UBS

Okay, all right, that’s helpful, thanks.

George Paz

Thank you. Well, again, we appreciate everyone giving up your morning to be with us and appreciate your following our company and we look forward to talking to you in the near-term. Have a great day.

Operator

Ladies and gentlemen that does conclude your conference for today. Thank you for using AT&T Executive Teleconference service. You may now disconnect.

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Source: Express Scripts, Inc. Q4 2009 Earnings Call Transcript
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