Pharmacy benefits manager Medco Health Solutions Inc. said Friday that after this year, it will lose a contract that brought it about $3 billion in annual revenue.
The contract, which Medco had handled since 2008, will go to rival CVS Caremark Corp. CVS Caremark shares rose 4.5 percent in premarket trading while Medco stock tumbled more than 10 percent.
Medco said Blue Cross Blue Shield will not renew a contract that saw Medco handle mail order and specialty drug benefits for the Federal Employees Health Benefits Program, which provides health insurance to federal government employees, retirees, and their families. Blue Cross' decision not to renew the deal will not affect CVS or Medco's results in 2011.
Caremark has handled FEP's retail pharmacy benefit since 1993, and it said that contract was renewed through 2014. The deal could be seen as a major win for the Woonsocket, R.I., company, which has reported smaller pharmacy benefit profits in recent years and has lost some major contracts.
Medco, based in Franklin Lakes, N.J., said the contract is responsible for less than 10 percent of its annual profit. The company previously said it expects to earn $4.02 to $4.12 per share this year excluding special items. Medco reported $65.97 billion in revenue in 2010, and said it gets about $3 billion in annual revenue from the federal employee benefit contract. It handles about 9.8 million mail order prescriptions per year under the contract.
Shares of Medco dropped $6.64, or 10.3 percent, to $57.80 in premarket trading. Shares of CVS Caremark rose $1.48, or 3.9 percent, to $39.63.