- Distraction – Express Scripts now has both the Walgreens contract and the Medco acquisition and then potentially integration to distract them for the next 18 months. (Although Express Scripts is very good at integrations once approved.)
- Validation – The fact that Medco which was once the biggest PBM could suffer multiple losses and end up selling validates that a standalone PBM model faces real long-term challenges. (Although Express Scripts continues to prove me wrong from a stock perspective.)
- FTC – IMHO this should decrease pressure on CVS Caremark since the FTC (and retailers) will be focused on this acquisition and if completed, would create a similar size entity to CVS Caremark.
- Walgreens – As long as there is a contentious relationship between Express Scripts and Walgreens, they need CVS Caremark as a negotiating option.
- Assets and Talent – Depending on how the acquisition plays out, there might be assets which are sold, and there certainly will be lots of talented people on the market (although some may just take the money and run).
I guess the key question is whether scale will allow an Express Scripts / Medco combined entity to drive price down dramatically as some think. I think scale will lower prices, but IMHO I think there is limited savings. The reimbursement rate to retailers can only go so low. The acquisition price from wholesalers and generic manufacturers can only go so low. The rebate dollars from pharma can only go so far before they pursue other options (i.e., copay cards). [This is the point I made in my whitepaper back in January and in the previous one about commoditization of the industry.]
I think the CEO of Burchfield Group makes some relevant points in this YouTube video:
[Disclosure: I do own CVS Caremark shares that I have bought and held over the past 18 months.]