Express Scripts-Medco deal could fuel other acquisitions

2011-07-26T00:00:00Z 2012-03-13T12:10:38Z Express Scripts-Medco deal could fuel other acquisitionsBy Pat Wechsler and Molly Peterson • Bloomberg News

Express Scripts Inc.'s takeover of Medco Health Solutions Inc. may fuel acquisitions of specialty pharmacy benefit managers by rivals seeking to gain enough size to negotiate lower prices with drug makers.

Once the deal closes, the number of people served by St. Louis-based Express Scripts would rise by 50 percent, to 135 million, based on current data, said Art Henderson, an analyst at Jefferies & Co. The next biggest rival, CVS Caremark Corp., serves 85 million people.

Pharmacy services companies negotiate prices with drug makers for employers and governments, and manage worker claims. More customers give them added leverage to insist on lower prices, providing savings that may be used by the companies to reduce expenses or compete for contracts. Size also helps companies accumulate data to develop efficient disease management programs and weigh treatment cost effectiveness.

"Fifty percent more purchasing power in an industry that hangs on scale is really very significant," Henderson said.

Express Scripts last week said it agreed to buy Medco for $29.1 billion to become the largest pharmacy-benefits manager in the U.S. The next two in size would be CVS Caremark and the pharmacy unit of UnitedHealth Group Inc.

The agreement, the largest in at least a decade among U.S. companies that manage drug benefits, will likely get "a very, very close look" by the Federal Trade Commission because of the scale issue, said Bob Leibenluft, who led the agency's health unit from 1996 to 1998 and is a partner at Hogan Lovells LLP, a Washington law firm.

Dave Shove, a New York-based analyst at Bank of Montreal, said the deal "raises the bar for the other major players, no doubt. Health care reform demands data, low costs and efficiency. The only way for for-profit companies to achieve that quickly is to merge."

Helene Wolk, an analyst at Sanford C. Bernstein & Co. in New York, said CVS' Caremark unit may be offered up as a possible acquisition, although she said she thinks CVS will keep it.

Larry Merlo, CVS president and chief executive officer, said in May that "despite conjecture in the marketplace, there are no plans to split up the company."

Copyright 2016 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Featured Ads