In contrast to the other big drugs deal announced yesterday involving Glaxo, Wellcome and Warner-Lambert, the merger of Merck and Medco Containment Services represents a new form of vertical integration in the industry. It combines a company that makes prescription drugs with one that buys them in bulk for large institutional healthcare plans.
Medco, one of America's fastest-growing companies with turnover last year of dollars 2.2bn, is best known in the US as a retailer of mail-order prescription drugs, but has grown into a manager of drug-benefits plans, serving 33 million subscribers, operating its own pharmacies, and accounting for an estimated 10 per cent of all prescription medicines sold in the US last year.
The two companies said they planned to create 'America's first co-ordinated pharmaceutical care company,' joining forces 'to deliver high-quality drug therapies and cost-effective healthcare coverage'.
Pharmaceutical care in the US 'is largely unco-ordinated and unmanaged', Dr Roy Vagelos, Merck's chief executive, said in a statement.
'This often results in less than optimal prescribing and dispensing of medicines, poor patient compliance, over-medication, millions of wasted dollars and, most important, people who don't get well.'
Merck's bold move, which was a year in planning, appears to be an attempt to anticipate some of the reforms that will be imposed on the pharmaceuticals industry by the healthcare package President Bill Clinton will submit to Congress later this year.
The merger embraces the concept of 'managed care' central to the reform, company executives said. It would apply Medco's cost-control techniques to limiting the price of drug therapy and helping patients to avoid expensive hospitalisation.
The deal 'is consistent with the goals of the Clinton administration . . . regardless of how healthcare reform evolves,' Dr Vagelos said.
But at a later news conference, the two New Jersey-based companies went to lengths to dispel the apparent conflict of interest created by the merger, insisting that Medco - which will operate as an autonomous unit within Merck - would continue to provide subscribers with the best and cheapest drugs available, regardless of their manufacturer.
A number of industry specialists remain sceptical, arguing that the principal benefit to Merck of the deal - the ability to use Medco to distribute its products - is precluded by monopolies laws.Reuse content