Walgreens & ExpressScripts: Back Together, But it Looks More Like an Open Marriage Now

Feuding lovebirds Walgreens (WAG) and pharmacy benefit manager ExpressScripts (ESRX) have kissed and made up. After a seven-month stand-off, the two signed a multi-year reimbursement agreement, and ExpressScripts will send customers back to Walgreens this September. Investors are thrilled, especially if they bought Walgreens stock before the announcement.

WAG Chart

WAG data by YCharts

But maybe investors shouldn't get quite so excited about Walgreens, which has shown how much it depends on ExpressScripts to get people in it stores.

Once a kingly retailer, Walgreens still the biggest pharmacy in the country. It’s also cocky as hell. In its last annual filing, Walgreens warned investors that terminating a PBM relationship would hurt sales, “at least in the short term.”

That implies sales would bounce back. But no matter what it tells itself, pharmacy benefit managers now have the upper hand. Wagreens gets a significant portion of sales from prescriptions filled by PBMs. During the breakup. ExpressScripts sent customers to CVS Caremark (CVS) to pick up prescriptions, as well as toothpaste and any other items they realized they needed while walking to the pharmacy counter. CVS has said it expects to keep 50% of the business it gained during the dispute.

Here’s what happened to the stocks:

WAG Chart

WAG data by YCharts

And to sales:

WAG Revenue TTM Chart

WAG Revenue TTM data by YCharts

So yes, they're back together again. But the companies haven't disclosed the terms of their contract. Odds are the dynamics of this relationship have changed.

From the editors of YCharts.YCharts Pro Investor Service includes professional stock charts, stock ratings and portfolio strategies.

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