The high-level logic of the deal seems logical given Pharmacy Benefit Manager (PBM) industry dynamics and Medco's pharmacogenomic investments.
However, I'm a little puzzled by the strategic fit because United’s customers are manufacturers. PBMs have grown by aligning with the interests of plans sponsors (employers and health plans) rather than with brand-name or generic drug manufacturers.
Is an innovative PBM succumbing to business model creep and management hubris?
PBMs are racing to reinvent their business models given a post-2014 slowdown in generic launches and ongoing pressure on generic margins. In a world awash with low-cost generics, the quality of care—adherence, compliance, appropriate utilization—becomes much more important than the unit price per pill. The Big Three PBMs are each investing in personalized medicine tools to improve clinical outcomes and manage utilization as I discuss in Medco's Pharmacogenomic Future.
UBC makes sense by adding another clinical, fee-based-service business to Medco's operations. It also bolsters Medco’s claim to pharmacogenomics leadership given UBC's ability to run global validation trials. This fits Medco’s aggressive push into Europe. See Medco Expands in Europe.
At the same time, I note the following intriguing phrase in the press release:
"Upon closing the transaction, UBC would become a wholly-owned subsidiary of Medco that will be run independently from Medco's core business to ensure compliance with contractual requirements and client expectations." (emphasis added)It's been awhile since I was in b-school, but "run independently" does not sound like "synergy." Keep an eye on this transaction.
P.S. Check out the latest Health Wonk Review at Managed Care Matters.