CVS, Caremark Unite to Create Drug-Sale Giant
CVS, Caremark Unite to Create Drug-Sale Giant
CVS , Caremark Unite to Create Drug-Sale Giant
In a tacit acknowledgment of the changing ways in which Americans get their prescription medications, drugstore chain
The combined company would have $75 billion in annual revenue, far higher than any competitor in drug retailing or the business of administering prescription health-insurance benefits for employers.
Caremark
The companies promised the combination would lead to new services and efficiencies that would lower drug prices and improve returns to shareholders. Skeptics said that the deal represented a reduction in competition that would lead to higher prices at a time of continuing concern over rising health-care costs. And the stocks of both companies dropped yesterday.
The deal is expected to get a tough review by the Federal Trade Commission, and could face forced changes or divestitures if the agency finds antitrust problems. An FTC spokeswoman declined to comment.
Analysts said the deal could lead to further consolidation among drug retailers and pharmacy-benefit managers. The so-called PBMs have placed pressure on drugstores by negotiating for lower prices on behalf of their clients and via mail-order plans that compete for prescription business.
"What Caremark gets is access to a new approach" to pharmacy benefits, said David Veal, an analyst at Morgan Stanley. He cited
With an increasing number of Americans opting for mail-order prescriptions, which have been pushed by companies like Caremark, the acquisition gives
In recent years, PBMs have convinced many employers, like General Motors Corp. and International Business Machines Corp., to implement "mandatory mail" programs, which have forced millions of customers to get their medicines in the mail rather than in retail stores. Although the growth rate of mail order has slowed recently, it still outpaces that of the retail drug sector. According to IMS Health, a health-information service, about $36.9 billion of prescription drugs were bought through the mail in 2005, a 7% increase from 2004. For drugstore chains, which had a bigger share of the market at $88.2 billion in sales, the sales increase was 5%.
By combining with the big benefits manager,
What the deal means for consumers is less clear, with some warning the merger of the companies might result in higher drug prices or co-pays. "If
PBMs are not strangers to charges of conflicts of interest. Medco, Caremark's biggest rival, was owned by Merck & Co., until 2003. As a result, Merck drugs had a higher market share of users among Medco members than among other patients, even when there were less-expensive alternatives available.
Employer customers of Caremark "should be nervous and need to ask some questions," said Keith Bruhnsen, assistant director at the benefits office of the
Concerns about conflicts of interest or higher prices were dismissed by
The companies said it would take six months to a year to close the deal, under which Caremark holders would get 1.67
Investors reacted harshly to the deal, largely because
Drugstore and PBM stocks have been under pressure. Both sectors declined after Wal-Mart Stores Inc. said in September that it would charge $4 for a 30-day prescription of certain generic drugs at stores in the
Another factor pressing on PBMs and retailers recently has been a looming cut in branded-drug list prices, prompted by industry litigation. The list prices are used as benchmarks for reimbursing PBMs and drugstores and the potential reduction is expected by some analysts to lower their revenues and profits.
Mr. Ryan said the actions of Wal-Mart "were never part of the equation" in merging with Caremark.
Michael Polzin, a Walgreen spokesman, said the company plans to grow its PBM business, but he wouldn't address whether it will make any acquisitions.
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