Bloomberg News

Express Scripts Hearing Begins in Medco Merger Challenge

April 10, 2012

A hearing on a bid by pharmacy trade groups to halt Express Scripts Inc. (ESRX:US)’s $29.1 billion acquisition of Medco Health Solutions Inc. began in federal court in Pittsburgh.

U.S. District Judge Cathy Bissoon today is hearing arguments in a lawsuit filed by the National Association of Chain Drug Stores, the National Community Pharmacists Association and independent pharmacies that claim the transaction approved by U.S. regulators violates antitrust laws because it will reduce competition and raise consumer prices.

Express Scripts, which completed its purchase of Medco on April 2 after receiving approval from the Federal Trade Commission, have asked that the lawsuit be dismissed because the trade groups waited too long to file the challenge. The companies agreed to the deal in July.

The groups, representing retail pharmacies, sued St. Louis- based Express Scripts and Medco on March 29 and requested an injunction to stop the companies’ integration the next day.

The merging companies called their opponents’ delay “inexcusable,” and said the trade groups had failed to support their claim of irreparable harm.

Middlemen Among Drugmakers

The deal creates the largest pharmacy benefits manager in the U.S. Express Scripts and Franklin Lakes, New Jersey-based Medco act as middlemen among drugmakers, pharmacies and health- plan sponsors to manage patients’ benefits.

The FTC approved the purchase by a 3-1 vote on April 2. Clearance was unconditional, with the majority of the commissioners saying their eight-month review of the deal found “a competitive market for pharmacy benefit management services.”

The trade groups filed their emergency request to “hold separate Medco’s assets and operations,” hours after the acquisition closed.

The groups claim the Medco acquisition will force pharmacy customers into filling prescriptions by mail and result in the loss of “face-to-face pharmacy services that patients prefer,” Steven C. Anderson, president of the National Association of Chain Drug Stores, said in the conference call with reporters the day the lawsuit was filed.

Market Power

Once the merger is complete, Express Scripts will use its increased market power to shift business from retail pharmacies to the company’s mail order and specialty pharmacies, the groups argue in court filings.

The groups said the lawsuit was filed the day after Express Scripts stated in public filings when it had planned to close the deal. Bringing a challenge any earlier would have “run afoul” of the so-called ripeness doctrine because the deal was still being scrutinized by regulators, they said in an April 9 court filing.

They said Express Scripts moved to close the deal within an hour after receiving FTC approval while aware of the pending lawsuit should be viewed with skepticism by the court.

The case is National Association of Chain Drug Stores v. Express Scripts, 2:12-cv-00395, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

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


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