Medco

Managing pharmacy benefit costs—new insights for a new century. Merck-Medco Drug Trend Report, 2000. 

Unweighted a rage of treatment derrantf(2001-2005) in Canada, Medco andthe USA.Data in brackets reflea poly-drug lee. 

Baraldi, P. G. (Medco Research Inc.) Thiophenes useful for modulating the adenosine receptor, US 5939432 (1999). 

The use of prescription medication for ADHD doubled between 2000 and 2004 (Hitti, 2005 Elias, 2005), according to data compiled by Medco Health Solutions, one of the nation s largest prescription benefit managers. The increases were largest among adults age 20-44, especially... 

Worse news—though the retired Merck scientists and secretaries in the purple auditorium don t know it—is yet to come. Within the next three months, there will be regulatory questions about their company s hot new arthritis drug and accounting questions about its Medco subsidiary, and their stock s value will plummet. 

It also was Gilmartin s misfortune to be in charge just as the health care paradigm was changing again. And, to be fair, to clean up the mess Roy Vagelos left behind in his last two years in the form of a brain drain and Medco. 

In 1993 and 1994 Merck, Lilly, and the then SmithKline Beecham all bought PBMs. In addition, Bristol-Myers Squibb had bid against Merck, and Pfizer and Johnson Johnson at one point considered purchasing benefits managers, too. Yet by 1999, Lilly and SmithKline had sold theirs at a loss, and Bristol-Myers, Johnson Johnson and Pfizer never got in. Merck alone seemed to be able to make its PBM, Merck-Medco Managed Care, work. By 2001, its market share was nearly 29 percent by 2002, it handled the prescriptions for 65 million people, or almost one-fourth of all Americans. 

Outsiders came up with several theories as to why the Merck-Medco combination survived. Having a mail order capacity—which not all PBMs do—certainly helped, because... 

How much more innovation —say, by buying a biotech or investing in R D— could they have gotten for the same amount of money [ 6.6 billion] they paid for Medco asks analyst Richard Evans. 

In the winter of 2002, Merck implicitly confessed that Medco had turned into a liability by announcing that it would spin off the PBM in stages within the year, starting with an initial public offering (IPO) in the summer. 

Even then, Roy Vagelos didn t express any regrets (at least publicly) about acquiring Medco. It was a great move, he said tersely. 

Investors had barely digested that distasteful nugget when even more was revealed. The Wall Street Journal, analyzing an amended SEC filing, reported in earlyjuly that Merck had booked as revenue some 12.4 billion that Medco never actually received. The revenue was the 5 or 10 or 15 copayments that pharmacies collect from patients but don t pass on to Medco. 

Bad as that was, it was nothing compared to the morale the week after July 4, 2002, after The Wall Street Journal reported that Merck had booked 12.4 billion in revenue from its Medco subsidiary over the prior three years that it hadn t actually received. Coming on top of months of corporate scandals, the news sent Merck stock—as well as the Dow Jones Industrial Average, the Standard Poor s 500 stock index, and even the Nikkei Stock Average in Japan—plunging. Merck shares toyed with a five-year low, and the initial public offering of Medco was postponed, then withdrawn. 

Two years earlier, if Richard Evans of Sanford Bernstein was too pessimistic, people would say, Come on, it s Merck. Now, he was having trouble getting portfolio managers interested in the Medco spinoff. Probably the biggest problem is that Merck still sees itself in that role [as the industry leader]. A dramatically shrinking number of external contractors see it that way, Evans says. 

Harris, Gardiner, Merck To Shed Medco, Its Drug-Benefits Unit, in Bid to Boost Stock, The Wall Street Journal, January 29, 2002. 

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