The proposed combination of two of the biggest bulk drug buyers in the US, Express Scripts and Medco Health Solutions, ought to be of concern to anybody selling pharmaceuticals. Though lacking the sales and the vertical structure that resulted from the 2007 acquisition of Caremark by CVS, the latest transaction, should it be allowed, will create a pharmacy-benefits manager (PBM) with the biggest share of covered lives in America, giving it significantly greater leverage in pricing negotiations.
Consolidation in response to competition and cost pressure is an ever-present trend in health care, of which the Express Scripts-Medco tieup is an expression. Whilst executives of the firms tried to sell it as a good-for-the-nation transaction to bring consumers cheaper drugs, it looks more like a hard-headed business decision. The question pharma companies of all sizes must be asking: How effective will the combined company be at commanding lower prices?