Express Scripts Merger with Medco: Might Raise Prescription Drug Costs

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Express Scripts Merger with Medco: Might Raise Prescription Drug Costs

Express Scripts, Inc. (NASDAQ:ESRX) said on Wednesday that the proposed $29 billion takeover of Medco (NYSE:MHS)  could be approved next week. The buyout has faced some regulation issues but it appears that most of the antitrust fears have subsided. This is rather surprising because earlier this month, the FTC said they would block the deal from going through, yet both companies have said that they may go through with the merger as early as next week.

Express Scripts trade at $55.50 up 4.3% on the day while Medco traded at $72.65 up 5.3% on the day.

Regulators and customers have been worried that the Express Scripts-Medco merger would create a monopoly in the pharmacy market. The combined company will now serve more than 115 million customers and fill one out of every three prescriptions in the US. It is estimated that the new company would earn over $110 billion a year.

The main issue was whether or not drug costs would rise. The pharmacy benefits market would be dominated by Express Scripts-Medco and CVS Caremark. Regulators were pondering whether this would give employers limited bargaining power and ultimately cost more. However, executives at Express Scripts and Medco have repeatedly stated that their merger would actually lower costs of drugs, saying that the merger would increase efficiency and lower overall costs. The executives took on a “man of the people” type of euphoria to sell the merger.

As I stated earlier, despite regulatory concerns, both companies have signaled that the deal could be closed as early as next week. Overall, if the executives are right and the costs are similar or less, this will be a great deal for Express Scripts and Medco. They will dominate the market because they will be able to offer pharmacy benefits without extra costs that everyone fears.

In fact, the FTC has been recently investigating CVS Caremark’s pharmacy benefits division for unlawfully increasing prices on its customers. This could help in the new merged company’s favor because if CVS Caremark is the other major player and they are overcharging customers, then that could bring extra business for the new company.

It is unclear if the companies are just ignoring regulators or if their merger was approved. This is the only concerning fact: maybe they are not out of the woods yet. I would take a look at Express Scripts if and when their merger with Medco is approved and completed.

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