Thursday, July 21, 2011

Express Scripts to Acquire Medco (Yes, really)

At 6:00 AM this morning, Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS) announced a merger agreement. Here is the official press release: Express Scripts and Medco Health Solutions Sign Definitive Merger Agreement; Medco Shareholders to Receive $29.1 Billion

No, this is NOT one of my April Fool's jokes.

The companies have set up a website with details (www.BetterRxCare.com) and published a fact sheet with details. There is a conference call scheduled for 8:30 AM EST this morning. Click here to listen.

I estimate that the two companies processed almost 40% of prescriptions in 2010. (See chart below.) I'll follow-up next week as more details emerge. In the meantime, expect the pharmacy industry and possibly pharma manufacturers to protest this combination once the shock wears off.

Here's my estimate of retail and mail prescription claims processed in 2010. Obviously, 2012/3 will look much different given Medco's loss of business this year.

Nope, I didn't see this particular combination coming despite my comments in PBM Consolidation Ahead.

Medco's loss of the UnitedHealthcare (NYSE:UNH) business appears to be an obvious catalyst.

12 comments:

  1. "expect the pharmacy industry and possibly pharma manufacturers to protest this combination once the shock wears off".. The shock has worn off.. Let's get to work and not have another CVS/Caremark-style Mega-Merger.. Probably easier to block it than trying to reverse it the way it has taken years with Caremark with no real end in sight.

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  2. Adam,

    What do you predict will happen with the Express Scripts/Walgreens deal as a result of this?

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  3. This is really big and it will be fun to watch the broader impact on the industry.  Ex Rx buys brand drugs from Cardinal, Medco buys from Amerisource.  During due diligence they found out exact pricing for both.  Contracts are in place, but will have to be renewed eventually.  Will the brand manufacturers finally say enough and start to sell direct to a very big customer?  How will this impact the generic companies who gave very low prices to Medco?  Will they now give it to Express Scripts too?  CVS Caremark will be circling the wagons to ensure that they continue to have a purchasing advantage.  The fun is just beginning.

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  4. Who does Express Scripts use as drug wholesaler?

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  5. AnonymousJuly 21, 2011

    Adam - Any thoughts on what this means for the wholesalers? Thanks

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  6. Express Scripts uses Cardinal Health. Medco uses AmerisourceBergen and is ~21% of ABC's total revenue. See the chart in What’s Next for AmerisourceBergen.

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  7. Tune in to Drug Channels on Monday!

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  8. I guess your prediction that Walgreens would pick a fight with Medco next sort of comes true now…  Just ahead of schedule!

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  9. John CroninJuly 21, 2011

    Hoping on Monday you'll address the antitrust aspects of this proposed merger, particularly in the mail order and specialty pharmacy markets where its reported that these two companies combined have over 50% of the market.

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  10. I think antitrust will be a nonissue, there is plenty of PBM competition.  Look at At&t and t-mobile, etc.  What will the job loss look like for Medco, there will be considerable duplication. 

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  11. Yes, I'll discuss on Monday. In the meantime, check out the New York Times: Antitrust Hurdles Seen for Merger of Drug Benefit Managers

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  12. Right about the outcome but wrong about the timing!

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