Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Consider the wild day that Express Scripts had on Tuesday.

It started well after the pharmacy benefit manager announced 2016 earnings-per-share guidance that exceeded analysts' already high expectations. Its shares shot up as much as 7.1 percent before the market opened. Then those gains were erased and more during regular trading because of something left out of those numbers. On a call with analysts, the company acknowledged a "price check" -- an industry term for repricing negotiations -- with Anthem, the giant insurer and its biggest client. More important, the potential for a new deal was not included in the forecast.

That left investors with some large unanswered questions. 

Roller Coaster
Investors did an unfavorable double take at Express Scripts 2016 guidance.
Source: Bloomberg
Intraday times are displayed in ET.

No, Express Script CEO George Paz and Anthem CEO Joe Swedish aren't going grocery shopping. The price check is part of a 10-year contract signed in 2009 for Express Scripts to manage Anthem's drug costs, which allows for a periodic review of what the insurer pays for the service. The firms last did a review in 2012 and negotiated an agreement. 

These talks aren't quite as routine as yelling over a PA system. The contract with Anthem and its pricing review provisions are, Paz said on the call, unique in the industry. It's a particularly large and lengthy deal, and particularly important to Express Scripts. In a research note, Leerink analyst David Larsen estimates that an additional 3 percent discount on $14 billion in spending by Anthem could cost Express Scripts $420 million. Investors might think seriously about that as a bargain.

Paz said talks were too early and the potential deal too complicated to include anything in guidance. He said Express Scripts was having "productive" discussions with Anthem and that it would be looking to extend the deal, which has three years left to run. 

The large wrinkle this time -- and the likely prompt for new negotiations -- is Anthem's plan to buy Cigna in a $48 billion deal announced earlier this year. Should regulators approve the deal, it would create the largest health insurer in the United States. So Express Scripts very much wants to keep Anthem in the fold. An extended contract is good news in a vacuum and offers the tantalizing prospect of more volume for a long time. But uncertainty is always scary, and Express Scripts may have to tilt a good way toward Anthem's position on pricing to extend the deal. 

Express Scripts' own efforts to consolidate have been transformative. Its $29.1 billion deal for Medco in 2012 helped make it the largest pharmacy benefit manager in the country and made it a potent and profitable negotiator on drug prices

Anthem was big enough to gain a big concession on price negotiations in 2009 when the contract was signed. Now it's going to be even bigger and is taking a page out of Express Scripts' book by throwing its weight around. On a call announcing the merger, Anthem estimated the combined firm would cover more than 53 million people.  

Dawn of the Mega-Insurer
Post-merger, Anthem would be a formidably large negotiating partner.
Source: Bloomberg Intelligence, Company Filings, Company Estimates

Anthem is a particularly important client because United Health, currently the largest insurer in the country, has its own giant pharmacy benefit manager. Losing a combined Anthem and Cigna to say, CVS Health, would seriously limit Express Scripts' market share in one of the three big client bases available: private insurers, the government and employers. 

Investors should get comfortable with the firm making a few sacrifices for a deal. Whatever concessions it makes are likely small change compared with the kind of discounts an enlarged Anthem could extract on the open market in three years, or the financial blow of losing the company's business entirely.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Max Nisen in New York at

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Daniel Niemi at