Anthem Spat Sends Express Scripts Investors to Court

(CN) — Express Scripts faces a federal shareholder class action after the threat of losing Anthem's business put the pharmacy-benefits manager's stock value into a tailspin.

Melbourne Municipal Firefighters' Pension Trust Fund, the shareholder taking Express Scripts to court in Manhattan, says Anthem is Express Scripts' most important client, accounting for 14 percent of revenues.

"Throughout the class period, Express Scripts repeatedly assured investors that its relationship with Anthem remained strong and that it was providing Anthem, and all of its customers, with high quality service," the May 4 complaint states.

But in January 2016, Anthem publicly threatened to end its relationship with Express Scripts unless the company renegotiated its contract.

"Anthem's statement made clear that Anthem and Express Scripts had engaged in contentious pricing negotiations for some time, and made clear that if Express Scripts remained unwilling to engage in good-faith negotiations regarding drug pricing, Anthem would terminate its relationship with Express Scripts and seek out a competing PBM [pharmacy benefits manager]," the complaint states.

Express Scripts' share price fell 13 percent over the following week, but the fund says shares at this time were still inflated because the company continued to conceal its deteriorating relationship with Anthem.

Shares fell further in March when Anthem brought a lawsuit accusing Express Scripts of failing to negotiate drug prices in good faith, costing Anthem $3 billion a year.

"The lawsuit revealed a deep (and never before disclosed) conflict between Express Scripts and Anthem dating back to at least February 2015, including allegations that Express Scripts was experiencing severe operational problems that interfered with its ability to adequately serve Anthem and exposed Anthem to increased regulatory scrutiny by the Centers for Medicare & Medicaid Services," the lawsuit claims. "More importantly, investors learned that Anthem would almost certainly either renegotiate its contract to pay billions of dollars less to Express Scripts, or worse, seek to engage a competing PBM resulting in the complete loss of Anthem's business."

Express Scripts' share price fell from $85.57 right before Anthem's public statement in January, to $67.52 after the lawsuit's announcement in March. It closed Friday at $73.13.

The fund says Express Scripts' executives should be held accountable for failing to inform investors about its operational failures which threatened its relationship with the company's most important client.

Gerald H. Silk and Avi Josefson with Bernstein, Litowitz, Berger & Grossman in New York represent the class.

Express Scripts spokesman Brian Henry declined to comment on the lawsuit except to say that the company will defend itself "vigorously."

Express Scripts is the largest independent pharmacy-benefit manager in the U.S. It manages the prescription drug benefits of customers' health insurance plans, and negotiates drug prices with its network of pharmacies.

Anthem is a massive health insurer in the Blue Cross and Blue Shield Association.

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