PBMs Eye Acquisitions In “Target-Rich Environment”

Medco could seek to grow through acquisitions that cost less than $300 mil.

"We've said pretty clearly that we may do potential acquisitions but nothing larger than $200 mil. or $300 mil. in all likelihood. So we would certainly have the flexibility to do that where it made sense," Medco Group President-National Accounts Timothy Wentworth said during the Merrill Lynch health services investor conference in New York Nov. 30.

Medco will need cash on hand to build its business for the Medicare prescription drug program starting in 2006, Wentworth said.

Medicare Rx "could require an investment for us to play in terms of a stand-alone" drug plan.

The pharmacy benefit manager said it may take a "creative" approach to participating as a stand-alone Part D drug plan (¹ (Also see "Medco Says It Is Ready For Part D: Will CMS Be?" - Pink Sheet, 15 Nov, 2004.), p. 15).

Another PBM, Express Scripts, is also planning investments in anticipation of the Medicare Rx benefit.

Express Scripts CEO Barrett Toan told the Merrill Lynch conference that the firm is seeking acquisitions in what it considers a "target-rich environment."

"Clearly we want to do something that's strategic first and foremost," CEO Barrett Toan said Dec. 1.

"Secondly, we would look at trying to add some scale. Although we don't feel a need or requirement to do that, if there was an opportunity to do that, that's something we would consider both in the specialty area as well as in the PBM area," Toan said.

Express Scripts could also expand other areas of its business, such as "disease management or other distribution systems," Toan said. The company also might use its cash reserves to buy back shares, "unless we can come up with an acquisition, which would be our first choice."

Express Scripts' most recent acquisition was the specialty pharmacy CuraScript in 2003 (² (Also see "Express Scripts Adds Oncology Reimbursement Savvy With CuraScript Buy" - Pink Sheet, 5 Jan, 2004.), p. 9).