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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1224)	2/9/1999 11:18:00 PM
From: porcupine --''''>	Respond to of 1722

SmithKline To Sell Pharmacy Service By The Associated Press -- February 9, 1999 NEW YORK (AP) -- SmithKline Beecham on Tuesday became the second drug company in three months to jettison its pharmacy benefits business, a move consumer advocates said eliminates a conflict of interest. Seeking to refocus on its core drug business and raise cash to increase research spending, SmithKline agreed to sell Diversified Pharmaceutical Services to Express Scripts for $700 million. That's just a third of what SmithKline paid to acquire Diversified in 1994. An estimated 115 million Americans are enrolled in prescription drug plans administered by pharmacy benefit managers. Those companies decide what medicines insurance plans will pay for -- compiling lists called formularies -- and encourage doctors to prescribe only those drugs. Health insurers consider formularies a valuable weapon in controlling costs, but consumer groups worry about the dangers in limiting which brands patients can use. Consumer advocates compain that when a drugmaker owns a drug benefits company, the benefits manager tends to promote drugs made by its parent company -- regardless of whether competing drugs are better or less expensive. ''It obviously takes away of conflict,'' said Mary Rouleau, legislative director of the Consumer Federation of America. SmithKline's sale was expected after Eli Lilly sold its pharmacy benefits company in November to drugstore giant Rite Aid for $1.5 billion. Notably, that price tag also represents just a third of what Lilly paid for PCS Health Systems in 1994. Merck is now the only major drugmaker still owning a pharmacy benefit management company. Merck said it has no plans to divest Medco. Even with two divestitures, consumer advocates maintain that pharmacy benefit management companies-- no matter who owns them -- hold too much power in controlling consumer access to prescription drugs. With health insurers trying to combat spiralling drug costs, the benefit managers they hire are under pressure to promote cheaper drugs to doctors and patients. Also, drug manufacturers will still be able to wield influence over pharmacy benefit managers by offering huge discounts and rebates. ''There is still influence peddling, so consumers still have to watch out,'' said Dr. Sidney Wolfe of the consumer advocacy group Public Citizen. While consumer advocates hope Merck will follow the lead of its competitors, analysts say its unlikely because Medco is profitable. Merck's $6.6 billion purchase of Medco in 1993 marked the first time a drug company bought a pharmacy management firm. As a result, Merck got one of the best firms for a low price, said Alex Zisson, an analyst with Hambricht & Quist. Drugmakers bought the pharmacy benefit firms out of a desire to control what doctors hear about drugs. Still, the move perplexed some industry watchers. ''It was an unusual decision for an industry, which pursues higher drug costs, to invest in a business whose main performance requirement is to reduce drug costs,'' said Thomas Moore, a health policy fellow at George Washington University. But the benefit firms gave drug companies much more than a way to get their drugs onto insurers formularies, also providing detailed information on the prescription trends among millions of doctors and patients. Health insurers and big business have increasingly come to rely on benefit firms as drug costs increase at double digit rates. But the pharmacy benefit industry faces more challenges than just controlling drug costs. Last year, the Food and Drug Administration issued draft guidelines that regulate how the companies can market their drugs and work with pharmaceutical firms. --------------------------------------------- Copyright 1999 The New York Times Company