Express Scripts (NASDAQ: ESRX) is one of North America's top five Pharmacy Benefits Management (PBM) companies measured by prescriptions sold. Express Scripts' clients are health insurers and employers which hire ESRX to manage prescription drug benefit plans for their members and employees.  In addition to administering prescription drug plans, ESRX negotiates volume discounts with pharmacies and drug companies on behalf of its clients, and sells drugs at a discount through its mail-order pharmacy.
The merger of CVS and Caremark has increased competition in the PBM market. The merger will likely increase CVS's consumer base. ESRX's revenues will be significantly negatively impacted if CVS increases its consumer base by luring away clients or potential clients from Express Scripts.  The Medicare Part D law helps individuals pay for prescription drugs through private providers and has increased the competitive landscape of the PBM market. 
ESRX benefits from Baby Boomer aging, who require more medical services as they get older. Also, the key patent expirations on widely used drugs benefit PBMs because they can save money when generic substitutes become available. This is especially true for ESRX, which has the highest generic dispensing rate of all PBMs.
Express Scripts is one of North Americas largest PBMs measured by prescriptions sold. More than 50 million Americans rely on Express Scripts for information and treatment to stay healthy.
In 2009, Express Scripts generated a net income of $827.6 million on revenues of $24.75 billion. This represents a 6.6% increase in net income on a 12.6% increase in total revenues from 2008, when the company earned $776.1 million on revenues of $21.98 billion.
ESRX clients are not the recipients of the drugs it distributes, but rather health maintenance organizations (HMOs), health insurers, third-party administrators, employers, union-sponsored benefit plans, workers compensation plans, primary care physicians, renal dialysis clinics, and government health programs. The business-to-business model spares ESRX the need to market to millions of customers. It also makes the company more vulnerable to the purchasing decisions of individual clients, which each represent a larger portion of sales.
The company has a diverse client base with no single client accounting for over 10% of consolidated revenues the past three years. The top ten retail pharmacy chains account for only 56% of the retail stores in ESRX'S largest retail network.  PBM clients generally have a three-year contract, so just one-third of its clients are at risk in renegotiations each year.
ESRX's PBM segment offers the following other services to its clients:
The Medicare Part D program lets retirees choose their own prescription medication plans. This has the potential to reduce the number of end users for ESRX's services if employers stop providing their own PBM coverage through ESRX to retirees and instead let retirees pick their own plans. ESRX also faces competition from other PBMs and other healthcare companies, some of which have units that specialize in these Medicare Part D plans.  There is also a longer term risk that Medicare might expand and engulf some of the services ESRX provides. This has become more likely as polls suggest that November's elections will yield a House of Representatives, Senate, and White House all under Democratic control.
The PBM sector is positioned to benefit as the aging "Baby-Boomer" population increases the demand for medical services.  In 2025, 35 million Americans are expected to be aged between 65 and 74 years old with 26 million over age 75. 
According to a study by the Kaiser Family Foundation, there is a direct correlation between prescription drug use, and spending, age, and the prevalence of chronic, acute, and complex health issues.  ESRX will likely benefit from a larger client base and more claims as more people will need pharmaceuticals and as pharmaceutical use per patient increases.
Wal-Mart has also begun competing with retail pharmacies as it seeks to increase its market share of pharmaceutical sales. On May 5, 2008, Wal-Mart announced phase III of its $4 prescription drug plan; in addition to offering a month's supply of generic drugs for $4 as it had before, Wal-Mart will offer $4 over-the-counter drugs and a 90-day supply of around 350 generic drugs for only $10. However, Wal-Mart offers only a limited selection of drugs, typically, older, generic drugs like ibuprofen, and not all of the drugs that ESRX supplies its customers. This limited offering, Wal-Mart's lack of home-delivery pharmacies, and other strong barriers to entry have prevented Wal-Mart from competing much with ESRX. The other barriers to entry include, but are not limited to, formulary expertise and large networks of retail pharmacies. Still, Wal-Mart's massive buying power and retail stores would create serious competition if it seeks to enter the market against ESRX.
States have tried to prohibit health plans from using economic incentives to persuade their members to use home delivery pharmacies. Some states also require that health plans (like those provided by PBMs) cover specific drugs if they are prescribed by a physician. This type of legislation raises costs for PBMs.
Lawmakers and regulators are also considering, or have adopted, changes that would weaken ESRX's ability to negotiate discounts from its network of third-party pharmacies. For example, states have enacted "most-favored nation" legislation that requires pharmacies to give the state the same lowest price it makes available to third-party plans. These requirements hamper ESRX's ability to take advantage of cost savings when it buys drugs in bulk.
The state of Maine and the District of Columbia have enacted statues that declare PBMs to be a fiduciaries with respect to their end users. This means that they must act in the best interests of their clients; for instance, in Maine, ESRX must disclose to its clients the rebates it receives from drug manufacturers. Residents of the states had complained that PBMs were keeping rebates rather than passing them on to their customers. 
As a PBM, ESRX operates in a competitive market against three types of competitors. One type is the independent PBM, such as MedcoHealth Solutions or Catalyst RX. The second type is the PBM owned by a managed-care organization, such as Wellpoint Pharmacy Management or Cigna. And the final type is the PBM owned by a retail pharmacy chain, such as CVS CareMark or Long's Drug Stores.