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Strategies & Market Trends : YEEHAW CANDIDATES -- Ignore unavailable to you. Want to Upgrade?

To: Crossy who wrote (1101)	1/19/2003 6:46:26 PM
From: Sergio H	Read Replies (1) \| Respond to of 23958

Here's an excerpt from the Barron's article I mentioned. It's not exactly fitting to SMAN but not too far. < Rx for Prosperity Despite legal woes, pharmacy-benefit managers have powerful medicine for cutting costs By BILL ALPERT ONLY TOBACCO MAKERS seem to get worse press than the companies that manage pharmacy benefits. Indeed, some fearsome tobacco class-action lawyers have turned their guns on these outfits. Legal worries weighed on shares of industry leader AdvancePCS last year, but now those worries seem to be dissipating. Employers of some 200 million Americans hire pharmaceutical-benefit managers in hopes of containing fast-rising drug bills through the use of mail-order refills and preferred lists of cost-effective drugs. Class-action lawsuits, however, have charged PBMs with pocketing money from drug makers to push drugs that cost more, not less. Indeed, litigation has helped prompt Merck to delay a spinoff of its Medco Health Solutions unit planned since April. But last month, lawyers offered to settle a prominent case against Medco for $42.5 million, a relative pittance compared to the $5 billion in book value that Medco showed last March. If that portends the results of future lawsuits, PBMs may emerge intact from under their legal cloud. Without that cloud, PBM fans on Wall Street think the shares of leaders, such as AdvancePCS, Caremark and Express Scripts could rise by a third. In fact, PBMs, which last year handled $60 billion in drugs, have been boosting their earnings at a 20%-30% annual clip. Republican plans for a Medicare drug benefit would use PBMs; and most other proposals for dealing with America's mounting drug bill involve the kind of solutions that pharmacy-benefit managers offer. Share prices in the sector jumped more than 10% last week, after a government study concluded that PBMs had saved federal programs nearly 20% in drug costs -- a finding angrily denounced as specious by the National Association of Chain Drug Stores. It's easy to understand the drugstores' bitterness. "Pharmacies have their self-interest at stake here," says Patrick Hojlo, who follows PBMs for Banc of America Securities. "They don't want to lose volume to the PBMs' mail order." In fact, from an investor's viewpoint, PBMs have grown impressively. AdvancePCS has 75 million members, Medco 65 million, Express Scripts almost 50 million and Caremark over 20 million. PBMs extract discounts by forcing drugstores and drugmakers to compete for access to those millions of members. They easily obtain deep discounts when choosing among makers of identical generic drugs. To spark competition among branded drugs with similar medical effects, insurers sometimes let PBMs make lists of preferred products. By closing such a list, known as a formulary, to all but one cholesterol-fighting drug, for example, the PBM can extract discounts on the preferred brand. They may also extract rebates, payable at the end of a quarter, based on prescription volumes across a wide swath of the drug maker's product line. "There's really no other way to inject competition," says AdvancePCS's chief executive, David D. Halbert, "other than by bringing in similar products that have similar outcomes and creating price competition.">