Catalyst to Negotiate PBM Contract - Analyst Blog

On May 28, the pharmacy benefit management (PBM) subsidiary of Catalyst Health Solutions Inc. (CHSI), Catalyst Rx announced that it is entering into negotiations with the State of Mississippi for the State and School Employees’ Health Plan, in order to aid the State to provide and manage drug trends through direct involvement of patients and doctors for better care and cost-effective results.

The decision on negotiations came in after the State’s competitive bidding process. The new contract will be effective January 1, 2011, once the negotiations are successfully completed. The renewed contract is expected to cover approximately 190,000 plan participants.

Estimate Trend Revision

Over the last 30 days, 2 of 14 analysts covering Catalyst Health have raised their estimates for the second quarter of 2010, while 2 downward revisions were witnessed. Currently, the Zacks Consensus Estimate for the second quarter is operating earnings of 44 cents per share, up 18.2% from the year-ago quarter.

The equal number of estimate revisions in both directions for the second quarter indicates no clear directional pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 5.7%. This implies that Catalyst Health has surpassed the Zacks Consensus Estimate by 5.7% over that period.

Catalyst Health has been consistently seeking to achieve new health care service contracts by collaborating with clients that include state and local governments, managed care organizations, unions, hospices, third-party administrators and individuals. On March 4, 2010, Catalyst Rx was awarded a new service contract with the State of Louisiana Office of Group Benefits. This will be effective from July 1, 2010 and will cover approximately 225,000 plan participants.

However, the PBM industry, in which Catalyst Health operates, is highly competitive and dominated by large players such as CVS Caremark Corporation (CVS), Medco Health Solutions Inc. (MHS) and Express Scripts Inc. (ESRX), who possess significant resources, purchasing power and other competitive advantages, compared with Catalyst Health. Overall, while we are pleased with the company’s wide product base, we remain concerned about the intense competition that Catalyst Health has to face for gaining contracts in the industry.