Bloomberg News

Express Scripts-Medco Deal Critics Asked by FTC to Suggest Possible Fixes

March 10, 2012

Two pharmacy groups opposing Express Scripts Inc. (ESRX)’s proposed acquisition of Medco Health Solutions Inc. (MHS) said they were asked by the U.S. Federal Trade Commission to suggest ways to revise the deal so it wouldn’t harm competition.

“We have responded to their questions about additional ways to address these concerns,” the National Community Pharmacists Association and the National Association of Chain Drug Stores said in a joint statement.

FTC Chairman Jon Leibowitz has been seeking ways to ensure that the transaction, which would create the largest U.S. manager of pharmacy benefits, wouldn’t drive up prices and reduce pharmacy services, said a person familiar with the review.

The FTC’s request to opponents of the deal may signal the agency is leaning toward approving it with conditions, said Jeffrey Schmidt, former director of the FTC’s Bureau of Competition.

“It doesn’t make any sense asking for remedies unless you thought remedies may be appropriate,” said Schmidt, a New York- based partner at the law firm Linklaters LLP, who isn’t involved in the investigation.

Cecelia Prewett, an FTC spokeswoman, declined to comment.

The FTC plans by the end of this month to complete an antitrust review of the proposed $29.1 billion acquisition, said the person, who wasn’t authorized to speak publicly and declined to be identified. Express Scripts agreed in July to buy Medco.

New Competitors

Increased competition from UnitedHealth Group Inc. (UNH)’s pharmacy benefit manager unit, OptumRx, is making approval of the Express Scripts-Medco deal more likely, the person said.

Agency officials are discussing whether the FTC should require St. Louis-based Express Scripts to sell some of its specialty pharmacies to gain approval of the deal with Franklin Lakes, New Jersey-based Medco, the person said.

Specialty pharmacies sell treatments for ailments such as cancer and HIV that often are injected or infused and usually require cooling or other special handling.

About 31 percent of specialty drugs sold in the U.S. in 2010 passed through pharmacies owned by Express Scripts or Medco, according to Adam Fein, founder and president of Pembroke Consulting Inc. in Philadelphia.

Under the merger agreement, Express Scripts and Medco had said they were willing to sell one mail-order pharmacy unit and one specialty pharmacy if needed to win regulatory approval.

First Half of 2012

Express Scripts isn’t willing to sell its entire specialty business, said spokesman Brian Henry, who declined to comment on potential remedies. Henry said the company expects the merger to be completed in the first half of the year.

Chrissy Kopple, a spokeswoman for the chain-drug store association, and Kevin Schweers, spokesman for the community pharmacists group, declined to provide the organizations’ recommendations.

In their joint statement, the groups, both based in Alexandria, Virginia, said they would prefer that the FTC challenge the deal in court.

“NACDS and NCPA continue to be steadfastly opposed to the merger,” the groups said in the statement.

Pharmacy-benefits managers like Express Scripts and Medco negotiate prices with drugmakers for health-plan sponsors, manage worker claims and track patients’ use of medicines. Their profits are tied to cutting their clients’ drug costs.

Consumer Savings

Such companies save health-plan sponsors and consumers as much as $87 billion in annual prescription-drug costs, Compass Lexecon, an economic consulting firm in Washington, said in a December report funded by Express Scripts and Medco.

At a Dec. 6 hearing of the Senate Judiciary antitrust subcommittee, Express Scripts Chief Executive Officer George Paz said the company would use its increased size after the acquisition to bargain for better prices from drugmakers and pharmacies.

A combined Express-Medco would handle 34 percent of prescriptions in the U.S. this year, Pembroke’s Fein said.

That share will shrink to 29 percent next year because UnitedHealth Group of Minnetonka, Minnesota, the biggest U.S. health plan by sales, switched from Medco to its own pharmacy benefits unit, OptumRx, he said.

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Michael Hytha at mhytha@bloomberg.net


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