Medco & Express Scripts Merger

By: Alisha Kumar, PharmD Candidate c/o 2012

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Express Scripts proposed a $29 billion acquisition of Medco Health back in July 2011, and Medco’s shareholders almost unanimously accepted the offer.  According to Medco’s press release, the plan was approved by a margin of 99% to 1%, with approximately 72% of its shareholders voting.

The two companies manage prescription drug benefits for more than 115 million people and handle one third of all prescriptions filled in the United States (U.S.).  Their collective revenues are greater than $110 billion per year, which means the merger would allow them to become the primary player in the domestic markets for providing mail-order drugs to patients with chronic conditions (as well as expensive specialty drugs for conditions such as HIV, hemophilia, and rheumatoid arthritis).

The merger is interesting because it would reduce the number of major competitors from three to only two, which would leave customers (particularly large employers) too few choices and limited bargaining power.  According to a recent analysis by Morgan Stanley Research, the 50 largest companies in the U.S. rely heavily on services of Medco, Express Scripts, and the third major pharmacy benefits manager (PBM), CVS Caremark.

Keeping this in mind, it is not a surprise that there are antitrust concerns.  Lawmakers feel that a merger will harm competition.  However, George Paz, CEO of Express Scripts, claimed in a recent testimony, that the merger would be acceptable because drug prices are expected to drop due to heightened competition in the pharmaceutical industry (from both, brand and generic drugs).  According to the two companies, this merger will allow for significant reductions in the nation’s healthcare costs and allow drugs to be delivered in a safer and more efficient manner.

Now, with both companies’ shareholders in acceptance with the merger, the plan is for Express Scripts to pay $29 billion in cash and stock for Franklin Lakes, New Jersey-based Medco.  Meanwhile, each side waits to receive regulatory approvals by the federal government and expects to close the deal in the first half of 2012.

SOURCES:

1. Weigley, Samuel.  Medco Shareholders Approve Merger with Express Scripts.  International Business Times.  December 21, 2011.  http://www.ibtimes.com/articles/270954/20111221/medco-express-scripts-merger-shareholders-pharmacy-benefit.htm
2. Barr, Diana.  Express Scripts, Medco Shareholders OK Merger.   St. Louis Business Journal.  December 21, 2011.  http://www.bizjournals.com/stlouis/news/2011/12/21/express-scripts-medco-shareholders-ok.html
3. Abelson, Reed.  Concerns over Pharmacy Merger.  The New York Times.  December 5, 2011.  http://www.nytimes.com/2011/12/06/business/tough-questions-for-express-scripts-medco-merger.html?pagewanted=all