Moving toward reform
Medco acquiring United BioSource
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.