The shares of pharmacy benefit manager Express Scripts (ESRX) are falling after Wells Fargo downgraded the shares to Underperform, its equivalent of a sell rating, from Market Perform. The company has numerous potential negative catalysts, the firm warned.

ANTHEM DEAL AT RISK: After Anthem’s (ANTM) merger with Cigna (CI) was blocked by a federal judge last month, Express Scripts may lose its contract with Anthem or the price of the deal could be lowered, warned Wells Fargo analyst Peter Costa. Such a development could reduce Express Scripts’ profits by 20%-40%, he warned.

OTHER THREATS: Retail pharmacies are increasingly utilizing 90 day prescriptions, and Express Scripts’ prices for such prescriptions are “unattractive,” warned Costa. The analyst believes that Express Scripts could lose market share if it keeps its prices at current levels or its margins may decline as consumers drop its more profitable mail order prescriptions in favor of retail prescriptions. “Some of those pressures” may have occurred last quarter, as the company managed to meet profit expectations by cutting its share count and lowering its costs, he stated. Furthermore, as a standalone PBM, Express Scripts is not well-equipped to compete against CVS Caremark (CVS), which is affiliated with a retail network or UnitedHealth’s (UNH) OptumRx, which is affiliated with a managed care company, Costa stated. As managing drug costs become more important, Express Scripts’ standalone model will become more of a liability, Costa wrote. Finally, the analyst believes that Express Scripts’ exclusion from the Health Transformation Alliance group contract highlights its “weaker model.” If the company loses prescriptions as a result of this development, its scale advantages may erode, pressuring its earnings, the analyst warned.

HTA: The Health Transformation Alliance, a corporate group created last year that counts American Express (AXP), Macy’s (M) and Johnson & Johnson (JNJ) among its members, announced the first details of its plan to reduce health care spending, the Wall Street Journal reported on March 7. The blueprint plan includes group contracts to purchase through CVS Health and UnitedHealth, the report said.