SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: February 16, 1999
Express Scripts, Inc.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
Delaware 0-20199 43-1420563
- -------------------------------------------------------------------------------
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
corporation)
14000 Riverport Drive, Maryland Heights, Missouri 63043
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 770-1666
------------------------
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On February 16, 1999, Express Scripts, Inc. issued a press release, a copy
of which is attached hereto as Exhibit 99.1, and incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) The following exhibit is filed as part of this report on Form 8-K:
Exhibit 99.1 Press release, dated February 16, 1999, by Express
Scripts, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXPRESS SCRIPTS, INC.
Date: February 23, 1999 By: /s/ Barrett A. Toan
Barrett A. Toan
President and Chief Executive
Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Press release, dated February 16, 1999, by Express Scripts, Inc.
EXHIBIT 99.1
EXPRESS SCRIPTS FOURTH QUARTER EPS RISES 30 PERCENT
VALUERX INTEGRATION GOALS ACHIEVED AS COMPANY PREPARES TO ADD DPS
ST. LOUIS, FEBRUARY 16, 1999--Express Scripts, Inc. (NASD: ESRX) today
reported that fourth quarter 1998 net income grew by 31.8 percent to $11.9
million from $9.0 million in the fourth quarter of 1997, and earnings per share
rose 29.6 percent, to 35 cents per share from 27 cents per share, on a diluted
basis.
For the year ended December 31, 1998, Express Scripts earned $43.7 million
or $1.30 per share on a diluted basis, excluding a previously announced one time
charge related to the restructuring of its managed vision business. Compared
with $33.4 million or $1.01 per share on a diluted basis in 1997, this
represents an annual increase of 30.8 percent in net income and a 28.7 percent
increase in diluted earnings per share.
The operations of ValueRx and internal growth fueled increases in fourth
quarter operating income, which more than doubled to $26.6 million from $13.0
million in the same period of 1997.
Operating income for the year 1998 was $89.2 million, an 82.7 percent
increase over $48.9 million in 1997. Through year-end 1998, the contributions to
operating income by ValueRx following its acquisition on April 1, 1998 were
partially offset by planned integration costs.
On February 9, 1999, the company announced that it had signed a definitive
agreement to acquire Diversified Pharmaceutical Services, Inc. (DPS), a
subsidiary of SmithKline Beecham (NYSE: SBH). Express Scripts will pay
SmithKline $700 million in cash. The transaction will be accounted for as a
purchase and is anticipated to be non-dilutive to Express Scripts' earnings in
1999, and accretive to earnings thereafter.
"We are pleased to announce strong 1998 earnings growth consistent with our
past years' performance, following last week's announcement that we are going to
purchase DPS," said Barrett Toan, Express Scripts president and chief executive
officer. "The addition of DPS to the Express Scripts / ValueRx family solidifies
our position in the top ranks of the pharmacy benefits management industry. The
acquisition allows us to be an even more responsive partner to our clients,
provides a greater value to members and opens the door to additional marketing
opportunities."
The combination of Express Scripts and DPS creates the third largest
pharmacy benefit manager in the U.S., managing nearly $10.0 billion in annual
drug spending, and the largest PBM independent of pharmaceutical manufacturer or
drug store chain ownership. DPS currently provides pharmacy benefit management
services to approximately 23.5 million members, of which 10.5 million are
members of UnitedHealth Group (UHG) plans served under a contract that expires
in May, 2000. Upon consummation of this transaction and prior to the expiration
of the UHG contract, Express Scripts will provide pharmacy benefit management
services to more than 47 million members.
"Having achieved our targeted integration goals to date with ValueRx, we
look forward to bringing DPS on board. We hope to complete the transaction
during the second quarter of 1998. The ValueRx and DPS acquisitions represent
key drivers as we execute our four point growth strategy: creating new sales to
new clients; selling new products to existing customers; making strategic
acquisitions and alliances; and achieving operating economies," Toan said.
INTEGRATION GOALS ACHIEVED
Integration of Express Scripts and ValueRx computer applications and
consolidation of computer platform goals for the fourth quarter have been met,
and the company introduced a new sales and marketing program for enhanced
integrated PBM services. The company's pharmacy networks, call centers,
organization charts and employee benefit programs have all been merged, and
information systems integration completed during the quarter enables common
processing of all claims.
"The acquisition of ValueRx brought important system components to the
company and we are continuing to work on the integration of all our computer
processes to enhance our current capabilities. Our original systems integration
plan, which was a 24 month plan, is on track and positions us to evaluate and
integrate attractive aspects of the DPS information system in a timely manner,"
said Toan.
"Moving into 1999, we have inaugurated a new sales and marketing program
for enhanced PBM services," Toan said. "The program showcases how Express
Scripts / ValueRx, as a consultative partner, applies its industry leading
clinical pharmacy expertise and technology focused customer service to help our
clients meet the challenges of rising drug costs and usage. The strong clinical
systems and services provided by DPS will further strengthen the value
proposition we offer to our customers and members."
ENROLLMENT SHOWS SOLID GROWTH
Reflecting the addition of new plans at January 1, 1999, membership grew to
23.5 million, a net increase of approximately 700,000 pharmacy benefit covered
lives over 22.8 million on October 1, 1998.
Among the larger groups added in the fourth quarter of 1998 were 640,000
Canadian Inuits and Indians enrolled as of December 1, 1998. This increased the
company's business in its Canadian unit, ESI Canada, by more than 65 percent.
Additionally, the company was recently informed of the renewal of its
contract to serve the State of New York Empire Plan Prescription Drug Program
through a subcontracting relationship with CIGNA HealthCare, which was effective
January 1, 1999, for five years. This plan represents approximately 700,000
lives served from Express Scripts' Troy, New York, facility and is one of the
company's largest clients.
On February 1, 1999, the company announced a three-and-a-half-year contract
with Blue Cross and Blue Shield of Massachusetts (BCBSMA) which will cover
approximately 1.2 million members to be implemented during 1999. As part of this
relationship, Express Scripts / ValueRx will provide retail and mail pharmacy
services, claims processing, clinical management support and other related
services.
ADVANCED PHARMACY BENEFIT PROGRAMS ADD VALUE
As part of its fully integrated PBM services, the company continues to
offer clients advanced pharmacy benefits and clinical management expertise
through Express TherapeuticsSM, Express PreferenceSM, and Practice Patterns
Science programs, as well as non-PBM services such as infusion therapy services,
sold through the company's home infusion therapy subsidiary, IVTx, Inc. The
advanced PBM services continue to contribute to the company's fully-integrated
PBM revenue, while infusion therapy services continue to contribute to the
company's overall revenue. The inclusion of ValueRx and future DPS book of
business, enhances the company's ability to provide fully-integrated PBM
services, as well as its non-PBM services.
REVENUES AND CASH FLOWS CONTINUE SOLID GROWTH
In the fourth quarter of 1998, net revenues were $838.8 million, a 140.9
percent increase over $348.2 million in the same period of 1997. For the year
1998, net revenues, which include the contributions from ValueRx in the second
through fourth quarters, were $2.8 billion, a 129.6 percent increase from $1.2
billion in 1997.
The cost of revenues for the fourth quarter of 1998 increased 142.4 percent
to $764.4 million, compared with $315.4 million for the fourth quarter of 1997.
For the year 1998, the cost of revenues was $2.6 billion, a 131.0 percent
increase compared with $1.1 billion in 1997.
Continued strong positive cash flows resulted in cash and cash equivalents
of $122.6 million at December 31, 1998, a 21.3 percent increase from $101.1
million at September 30, 1998.
Express Scripts, Inc., is the nation's leading independent full-service
pharmacy benefit management (PBM) and specialty managed care company. Through
facilities in seven states and Canada, the company serves thousands of clients
throughout North America, including managed care organizations, insurance
carriers, third-party administrators, employers and union-sponsored benefit
plans. Express Scripts currently manages approximately $5.0 billion in
annualized drug spending.
The company provides fully-integrated PBM services, including network
claims processing, mail-order pharmacy services, benefit design consultation,
drug utilization review, formulary management, disease management, medical and
drug data analysis services, medical information management services, which
include provider profiling and outcome assessments, through its Practice Pattern
Science, Inc. subsidiary, and informed decision counseling services through its
Express Health Line SM division. The company also provides non-PBM services,
including infusion therapy services through its IVTx subsidiary and distribution
services through its Specialty Distribution division.
Express Scripts is headquartered in St. Louis, Missouri and has additional
major sites in Minneapolis, Minnesota; Bensalem, Pennsylvania; Albuquerque, New
Mexico; Tempe, Arizona; Troy, New York; and Farmington Hills, Michigan. More
information can be found at HTTP://WWW.EXPRESS-SCRIPTS.COM.
This press release contains forward-looking statements, including, but not
limited to, statements related to the company's plans, objectives, expectations
(financial and otherwise) or intentions. The company's actual results may differ
significantly from those projected or suggested in any forward-looking
statements. Certain factors relating to the announced acquisition of DPS that
might cause such a difference to occur include, but are not limited to, the loss
of major clients of DPS, including UnitedHealth Group, whose contract expires in
May, 2000 and which accounts for approximately 44 percent of DPS's total
membership; higher than expected costs in integrating and operating the combined
company; and risks inherent in refinancing the bridge loan facility that is
anticipated to be used to finance the acquisition.
Other general factors that may impact these forward-looking statements
include heightened competition; changes in pricing or discount practices of
pharmaceutical manufacturers; the ability of the company to consummate contract
negotiations with prospective clients; competition in the bidding and proposal
process; adverse results in certain litigation and regulatory matters; lower
than expected sales and revenue growth; the adoption of adverse legislation or a
change in the interpretation of existing legislation or regulations; risks
associated with the development of new products; risks associated with the "Year
2000" issue, including the ability of the company to successfully convert its
information systems and its non-information systems, and the ability of its
vendors/trading partners to successfully convert their systems to accommodate
dates beyond December 31, 1999; and other risks described from time to time in
the company's public filings with the Securities and Exchange Commission. The
company does not undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
Financial Tables Follow
<TABLE>
EXPRESS SCRIPTS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ---------------------------
1998 1997 % Change 1998 1997 % Change
<S> <C> <C> <C> <C> <C> <C>
----------- ---------- ------------- -----------
Net revenues $838,784 $348,192 140.90% $2,824,872 $1,230,634 129.55%
----------- ---------- ------------- -----------
Cost and expenses:
Cost of revenues 764,403 315,373 142.38% 2,584,997 1,119,167 130.98%
Selling, general & administrative 47,745 19,828 140.80% 148,990 62,617 137.94%
Corporate restructuring expenses - - nm 1,651 nm
-
----------- ---------- ------------- -----------
812,148 335,201 142.29% 2,735,638 1,181,784 131.48%
----------- ---------- ------------- -----------
Operating income 26,636 12,991 105.03% 89,234 48,850 82.67%
----------- ---------- ------------- -----------
Other income (expense):
Interest income 1,553 1,910 -18.69% 7,236 6,081 18.99%
Interest expense (6,437) (160) nm (20,230) (225) nm
----------- ---------- ------------- -----------
(4,884) 1,750 -379.09% (12,994) 5,856 -321.89%
----------- ---------- ------------- -----------
Income before income taxes 21,752 14,741 47.56% 76,240 54,706 39.36%
Provision for income taxes 9,828 5,697 72.51% 33,566 21,277 57.76%
=========== ========== ============= ===========
Net income $11,924 $9,044 31.84% $42,674 $33,429 27.66%
=========== ========== ============= ===========
Basic earnings per share $0.36 $0.27 33.33% $1.29 $1.02 26.47%
=========== ========== ============= ===========
Weighted average number of common shares
outstanding during the period - Basic EPS 33,145 32,978 0.51% 33,105 32,713 1.20%
=========== ========== ============= ===========
Diluted earnings per share $0.35 $0.27 29.63% $1.27 $1.01 25.74%
=========== ========== ============= ===========
Weighted average number of common shares
outstanding during the period - Diluted EPS 33,887 33,412 1.42% 33,698 33,122 1.74%
=========== ========== ============= ===========
</TABLE>
nm - Not meaningful
<TABLE>
NON-FINANCIAL DATA
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ---------------------------
1998 1997 % Change 1998 1997 % Change
<S> <C> <C> <C> <C> <C> <C>
----------- ---------- --------------------------- ----------- --------------
Pharmacy network claims processed 32,951 20,206 63.08% 113,177 73,164 54.69%
Mail pharmacy claims filled 2,159 1,034 108.80% 7,426 3,899 90.46%
Number of pharmacies in network 52.4 50.2 4.38%
Pharmacy benefit covered lives 22,900 12,600 80.95%
Drug spending $1,357,824 $727,890 86.54% $4,495,088 $2,486,380 80.79%
</TABLE>
SELECTED RATIO ANALYSIS
Debt to EBITDA Ratio 2.7 1
Interest Coverage Ratio 4.9 1
Debt to Enterprise Value 13.8% 2
Cash Value per Share $3.65 2
Book Value per Share $7.42 2
1 Annualized utilizing financial information subsequent to the purchase of
ValueRx on April 1, 1998, excluding the Corporate - restructuring expenses.
2 Based on financial information as of December 31, 1998.
<PAGE>
<TABLE>
EXPRESS SCRIPTS, INC.
BALANCE SHEET
(IN THOUSANDS)
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
---------------- ---------------
Assets
Current assets
Cash and cash equivalents $122,589 $64,155
Short term investments 57,938
-
Receivables, net 433,006 210,291
Inventories 55,634 28,935
Deferred taxes and prepaid expenses 45,678 2,649
---------------- ---------------
Total current assets 656,907 363,968
---------------- ---------------
Property and equipment (net) 77,499 26,821
Goodwill (net) 305,163
251
Other assets 78,892 11,468
================ ===============
Total assets $1,118,461 $402,508
================ ===============
Liabilities and Stockholders' Equity
Current liabilities
Current portion long term debt $54,000 $
-
Claims payable
291,178 153,051
Accounts payable 60,247 17,979
Accrued expenses 156,871 26,876
---------------- ---------------
Total current liabilities 562,296 197,906
Long term debt 306,000
-
Other liabilities 471 901
---------------- ---------------
Total liabilities 868,767 198,807
---------------- ---------------
Total stockholders' equity 249,694 203,701
================ ===============
Total liabilities and stockholders' $1,118,461 $402,508
equity
================ ===============
</TABLE>
