Medco Loses Key Contract to CVS; Shares Dive

Medco Health Solutions (NYSE:MHS) disclosed on Friday it lost a key pharmacy benefit contract from Blue Cross Blue Shield to rival CVS Caremark (NYSE:CVS), sending the company’s stock diving more than 10%.

The announcement simultaneously lifted CVS’s stock 3% to 52-week highs.

In a Securities and Exchange Commission filing Friday morning, Medco said Blue Cross Blue Shield notified it of plans to transition its Federal Employee Program mail order benefit coverage to an alternate provider. Medco said the contract generates nearly $3 billion in annual net revenues, including about 9.8 million mail-order prescriptions.

Medco said the contract represents less than 10% of its estimated 2011 earnings. Due to the December 31 expiration date, the news isn’t expected to have an impact on 2011 results.

Medco slumped 10.77% to $57.47, leaving it up just 5.2% on the year.

For its part, CVS said it has reached a three-year contract with Blue Cross and Blue Shield. CVS said it will continue to provide federal employee program clinical programs.

Shares of CVS were up 2.70% to $39.19 in recent trading, giving them a 2011 gain of almost 10%.