My Yahoo!Is Caremark Rx Deal Good For Big Pharma?
NEW YORK - Late Tuesday, Caremark Rx announced plans to buy rival pharmacy benefits manager AdvancePCS for $5 billion in stock and cash. Like other PBMs, the combined company will negotiate with drugmakers to get lower prices for prescription drugs for health insurers and employers. What effect, then, will the merger have on drug manufacturers such as Pfizer, Merck or Bristol-Myers Squibb?
At first glance, an obvious result of PBM consolidation might seem to be merely lowered drug prices. That would be bad news for big pharmaceutical firms. Combined, Caremark Rx (nyse: CMX - news - people ) and AdvancePCS (nasdaq: ADVP - news - people ) would have more dealing power. This could be accentuated by the fact that the new PBM will have only two large competitors: Medco Health Solutions (nyse: MHS - news - people ) and Express Scripts (nadsaq: ESRX - news - people ). But first impressions can be deceiving.
Increased pricing pressure could certainly be an issue for drugmakers, says C.J. Sylvester, a pharmaceuticals analyst at UBS. But PBMs can have a positive impact for drug companies as well, he says, by encouraging patients to stay on their drugs. In some instances, a nurse calls patients to remind them to refill their prescriptions.
"Pharma's biggest issue is getting patients more compliant," says Sylvester, who does not own stock in any of the drug companies he covers.
If PBMs do cause drug prices to go down, consolidation may not be the culprit. If a Medicare prescription drug benefit is passed and the government buys drugs through PBMs, the price of widely used pills could decrease, Sylvester says. Of course, this would also increase the number of people taking these medicines. Some analysts have speculated that such a plan could be good for the drug industry, at least in the short term.
Right now, the effect of today's merger on major drugmakers may be too close to call.
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