Mov­ing to­ward re­form

Medco ac­quir­ing United BioSource

Modern Healthcare - - The Week In Healthcare - Mau­reen McKin­ney

Phar­macy-ben­e­fit man­ager Medco Health So­lu­tions’ re­cent an­nounce­ment of plans to ac­quire United BioSource Corp. for $730 mil­lion has many won­der­ing if this will be the first of many com­pa­nies seek­ing to ex­tend their reach in the grow­ing com­par­a­tive ef­fec­tive­ness mar­ket. United BioSource, based in Bethesda, Md., spe­cial­izes in an­a­lyz­ing the safety and ef­fec­tive­ness of drugs and med­i­cal de­vices in the post-ap­proval phase, and the com­pany is ex­pected to re­port about $280 mil­lion in rev­enue for 2010. Franklin Lakes, N.J.-based Medco says it ex­pects the all-cash deal to close in the third quar­ter.

Medco had not ini­tially con­sid­ered a pur­chas­ing deal when it ap­proached United BioSource, said Robert Ep­stein, Medco’s chief med­i­cal of­fi­cer and pres­i­dent of the com­pany’s re­search in­sti­tute. In­stead, it wanted to col­lab­o­rate with a com­pany ex­pe­ri­enced with work­ing on safety, he said.

“We started with one con­ver­sa­tion and wound up with an ac­qui­si­tion,” said Ep­stein, adding that some are re­fer­ring to the deal as one of the first chess moves in the era of health re­form. “Hon­estly, we knew that the world is mov­ing to­ward safety, eco­nomic and out­comes re­search, and we wanted to get there quickly.”

Medco has done some in­ter­nal com­par­a­tive ef­fec­tive­ness and safety stud­ies, in­clud­ing one in­volv­ing the heart at­tack and stroke pre­ven­tion drug Plavix. This lat­est move, how­ever, takes its clin­i­cal in­volve­ment to a new level, an­a­lysts say.

“This ac­qui­si­tion should help them move closer to biotech­nol­ogy man­u­fac­tur­ers in a more or­ga­nized way, and the ben­e­fit of that is when they are more closely aligned post-ap­proval, they might have the op­por­tu­nity to gain limited dis­tri­bu­tion con­tracts,” said Tony Perkins, a health­care ser­vices an­a­lyst at First Anal­y­sis Se­cu­ri­ties Corp., Chicago. But some an­a­lysts ques­tioned the wis­dom of a deal that would re­quire so much ma­neu­ver­ing to avoid con­flicts. United BioSource will op­er­ate in­de­pen­dently as a wholly owned sub­sidiary, and a strict fire­wall will sep­a­rate Medco’s phar­macy-ben­e­fit man­age­ment busi­ness from United BioSource’s client base.

Even so, United BioSource will have to walk a fine line be­tween the needs of its par­ent com­pany and its cus­tomers, whose in­ter­ests are of­ten not aligned with those of phar­macy-ben­e­fit man­agers, said Garen Sarafian, an an­a­lyst at Citi In­vest­ment Re­search, New York.

“I’m not as en­thu­si­as­tic about this ac­qui­si­tion as I have been about pre­vi­ous ones,” Sarafian said. “Be­cause they need to limit con­flicts, they’re not go­ing to be able to take ad­van­tage of many of the syn­er­gies that ac­qui­si­tions would nor­mally pro­duce.”

For in­stance, he said, Medco and United BioSource won’t be able to con­sol­i­date data cen­ters or hu­man re­sources de­part­ments. “In some as­pects, I’m not sure why they acquired rather than part­nered in some kind of joint ven­ture,” he said.

De­spite the dif­fi­cul­ties, there may be more such deals in the fu­ture as phar­macy-ben­e­fit man­agers seek to ex­pand their core busi­ness, Sarafian added.

Medco pre­dicts the deal will bring more growth op­por­tu­ni­ties for both com­pa­nies. “They’ve been missing the dis­tri­bu­tion arc and we’ve been missing that level of sci­ence,” Ep­stein said. “We’re hop­ing this new model will be com­pelling and dif­fer­ent.”

Sarafian: “Not as en­thu­si­as­tic about this ac­qui­si­tion.”

Ep­stein: Medco wanted to col­lab­o­rate on safety.

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