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Express Scripts Stands Pat

It won't raise its bid for Caremark as a big meeting looms.

Express Scripts


feels that its offer for



is sweet enough as it is.

To the surprise and disappointment of some, Express Scripts resisted upping its bid for rival pharmacy benefit manager Caremark this week and announced a backup plan instead. Express Scripts said that it will spend $1 billion on its own stock if Caremark winds up merging with the


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drugstore chain as planned. Moreover, the company indicated that it will buy its stock back rapidly, perhaps through a Dutch auction, if it winds up shifting to Plan B.

For now, however, Express Scripts has excluded both possibilities from its new -- and higher -- guidance. The company boosted its 2007 outlook substantially based on the strength of its operating results.

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Now, Express Scripts expects to generate profits of $4.08 to $4.20 a share -- up 18 cents from an earlier forecast -- during the current year. Half of that improvement comes from rising generic utilization rates and lower drug prices. Another 30% comes from growing claims volume, helped by recent client retention and growth. The final 20% comes from falling expenses.

Express Scripts left the door open for further improvements as well. Earlier, the company established a reserve for feared changes to the average wholesale pricing system that -- in hindsight -- is starting to look too large. Playing it safe, however, the company is keeping that allowance fully intact for now.

Meanwhile, Express Scripts offered comfort to those rattled by another industry fear. Notably, the company indicated that it has lost felt virtually no pain as a result of


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new $4 generic drug program. Of the 10 million-plus prescriptions filled at its mail-order pharmacies each quarter, the company said, only 1,000 to 2,000 have shifted Wal-Mart's way.

Caremark announced its surprising merger with Caremark just as new industry fears -- sparked by pricing changes and cheap Wal-Mart generics -- had started surface. Some worried that Caremark could be acting out of desperation as a result.

For its part, however, Express Scripts insists that PBM fundamentals remain quite strong, and the company says it continues to view Caremark itself as attractive. Express Scripts still hopes to win Caremark shareholders over with its buyout offer -- half in cash and half in company stock that its calls "significantly undervalued" -- ahead of their crucial vote on the proposed CVS merger later on this month.

The company continues to stop short of raising its bid in the meantime.

"We never exclude any of our options," Express Scripts CEO George Paz said during the company's fourth-quarter conference call on Thursday. "But we believe our offer is a far superior offer" over the one presented by CVS.

Still, nobody seemed particularly thrilled by the latest developments. Express Scripts shares inched up just 42 cents to $72.50 on Thursday despite the company's strong performance. Meanwhile, both Caremark and CVS fell modestly.