...You Decide: Merck’s Acquisition of Medco Stacey D. Lawson FIN 561: Mergers & Acquisitions Keller Graduate School of Management Professor Gene Smith Fall 2015 Executive Summary Merck & Co., Inc. is one of the largest pharmaceutical firms in the world. The company is known for its discovery, development, production, and marketing of products and services that are geared towards the maintenance and restoration of health. The company’s business focuses on two areas: human and animal health products and Services and Specialty Chemical products. Medco Containment Services, Inc. is one of the largest pharmacy benefits manager (PBM). The company was mainly responsible for the management of drug benefits for more than 65 million Americans whose prescriptions were filled at retail drug stores or the company’s mail order business. Merck’s acquisition of Medco was one of the largest health care industry mergers, as well as one the largest U.S. corporate unions in the early 1990’s (Olmos, 1993). In addition the merger provided Merck with access to Medco’s technology and information. With the merger they acquired more than 1,000 pharmacists who decided or advised physicians on how prescriptions should be filled (Tanouye, 1993). This merger allowed Merck to increase its pharmaceutical sales through the use of patient information from Medco’s database. The merger was expected to solidify Merck’s presence in the pharmaceutical...
Words: 4515 - Pages: 19
...You Decide – Week 3 - Merck & Medco Answer Key (Week 3 – FI-561 – Mergers and Acquisitions) C5.1.1 The large growth of managed care has changed the face of the health care industry and impacted drug companies. The prescription decision making authority has shifted away from doctors to managed care and prescription benefits management company (PBM) administrators. With the expectation of managed care providers relying on only one major drug supplier, the benefits of a vertical integration are greatly increased and guaranteed one of the increasingly few distribution channels available. C5.1.2 The role of PBMs is to manage insurance claims, negotiate volume discounts with drug manufacturers and encourage use of certain drugs. They basically have the power, contracted to them by a managed care organization, to recommend a certain drug over others and thereby convince doctors to prescribe it. Further, through their monitoring role they analyze physician prescribing patterns and patient usage. PBMs can take action in trying to monitor costs which can influence the future drug use. C5.1.3 Medco's large database would allow Merck to (a) identify prescriptions which can be switched from a competitor's drug to a Merck drug and promote such a switch with managed care doctors thereby increasing the potential for sales; (b) identify and seek out patients who fail to refill prescriptions once again increasing sales; (c) utilize the database to determine which drugs...
Words: 492 - Pages: 2
...MERCK ACQUISITION OF MEDCO Thomas Banks F561 Mergers & Acquisitions Professor Watson May 26, 2013 Introduction On July 28, 1993, Merck & Company, then the world’s largest drug manufacturer, announced that it planned to acquire, for $6.6 billion, Medco Containment Services Incorporated, the largest prescription benefits management company (PBM) and marketer of mail-order medicines in the United States. This merger reflected fundamental changes taking place in the pharmaceutical industry. GROWTH IN MANAGED CARE Managed care plans typically provide members with medical insurance and basic health care services, using volume and long-term contracts to negotiate discounts from health care providers. In addition, managed care programs provide full coverage for prescription drugs more frequently than do traditional medical insurance plans. Industry experts estimate that by the turn of the century, 90% of Americans will have drug costs included in some kind of managed health care plan, and 60% of all outpatient pharmaceuticals will be purchased by managed care programs. The responsibility for managing the provision of prescription drugs is often contracted out by the managed care organizations to PBMs. The activities of PBMs typically include managing insurance claims, negotiating volume discounts with drug manufacturers, and encouraging the use of less expensive generic substitutes. The management of prescription benefits is enhanced through...
Words: 4749 - Pages: 19
...You Decide: Case 5.1 Merck Acquisition of Medco You Decide: Case 5.1 Merck Acquisition of Medco When Merck & Company announced plans to acquire Medco Containment Services Incorporated in July, 1993, it signified the changes taking place in the pharmaceuticals industry. At the time, Merck was the world’s largest drug manufacturer and Medco was the leader in prescription benefits management (PBM). The responsibility for managing prescription drug provisions are increasingly contracted out to PBMs who, in turn, manage claims, negotiate discounts with drug manufacturers, and push generics. One could conclude that the prescription decision making process has shifted away from the doctor and is now being made by the PBMs. As a result, drug manufacturers are directing their marketing efforts to a few PBMs instead of thousands of doctors. It was anticipated that eventually the PBMs would begin to contract with one drug manufacturer instead of negotiating deals with several manufacturers. Therefore, firms with manufacturing, distribution, and prescription management capabilities will become the new industry leaders because of intense competition and lower profits. Merck’s goal should be to acquire capabilities and other resources to achieve a sustainable and competitive advantage (Weston, Mitchell, & Mulherin, 2004). Executive Committee Input The Merck Executive Committee consists of the Chief Operating Officer (COO), the Executive Vice President of Sales and Marketing...
Words: 872 - Pages: 4
...You Decide: MERCK ACQUISITION OF MEDCO “Takeover can be both a problem and a solution”. However the merge between Merck & Company, the world’s largest drug manufacturer, which planned to acquire, for $6.6 billion, Medco Containment Services Incorporated, the largest prescription benefits management company (PBM) and marketer of mail-order medicines in the United States is a solution. As anyone may know, the increasing pace of merge activity during the past two decades is related to the power change forces listed in the textbook (Weston, P. 3). Even though overriding other forces are technological changes, which include computers, computers services, software, servers, and the many advances in information systems, including internet. However, Economies of scale, complementarities seems to be an efficiency gain to be achieved in order to stay competitive in the today’s economy characterized by the globalization. By the way, Lot of changes has taken place in the health care industry. And the most significant change involves the growth of managed care in the health care industry. Managed care plans typically provide members with medical insurance and basic health care services, using volume and long-term contracts to negotiate discounts from health care providers. In addition, managed care programs provide full coverage for prescription drugs more frequently than do traditional medical insurance plans. Industry expert’s estimate that by the turn of the century, 90% of Americans...
Words: 1195 - Pages: 5
...school of management | Acquisition recommendations for the merger of Medco and Merck | Professor Jeffery Hardin/ FI 561 | | Carthenia Turk | 3/18/2013 | Recommendations are being prepared to be present to the board of directors regarding Merck’s acquisition of Medco. I have gathered information form several key employees within the organization in order to determine whether the merger will be profitable and allow the company continued growth. This analysis will include supporting calculations regarding the two companies becoming one. | Ladies and gentlemen I have been given the task of providing my recommendations as to our company (Merck), acquiring Medco. An evaluation of both companies will be completed so that I can provide accurate feedback as to the pros and the cons of the proposed merger. There will also be an analysis performed to determine the cost effectiveness and the potential synergy of the combined companies. Included in this recommendation you will find a (DCF) discounted cash flow, this will determine whether or not the post-merger company will have the ability to overcome any opposition that be in question. I will also be discussing the proposed strategy that we intend to take, should we agree to the merger. We will explore what works well for each organization and the best way to combine those efforts to maximize on continued growth for the organization. We here at Merck, being the world’s largest drug manufacturer and leader of research...
Words: 1774 - Pages: 8
...Merck’s acquisition of Medco: Merger Analysis and Recommendation by Marzena Porebski . Table of Contents 1.0 INTRODUCTION 2 2.0 THE COMPANY OVERVIEW 3 2.1 Merck & Company 3 2.2 Medco Containment Services Inc. 5 2.3 The Companies Advantages 6 3.0 MERCK & MEDCO MERGER 7 3.1 Acquisition Details 7 3.2 Merger Analysis 7 4.0 CONCLUSION 11 5.0 APPENDIX 12 5.1 Financial Reports 12 5.2 Sales of Drugs and Prices 13 5.3 Merger and Acquisition Activity 14 5.4 Market Share 15 5.5 Additional Documents 15 6.0 References 15 1.0 INTRODUCTION Mergers and acquisitions occur because directors see benefits that could come from combining two or more businesses, which could improve the company’s overall financial performance. Mergers and related acquisitions have occurred in the United States in a series of waves over the last century or more, as can be seen on the chart in Appendix 5.3. Over time, mergers have become popular and in recent times, the growth has been steeper outside of the United States. One of many reasons why mergers occur is due to macroeconomic factors that contribute to a merger wave such as economic conditions, credit availability, industry shocks, government policy changes, competitive business environment, innovation, technological developments, or globalization (Thompson). Mergers and acquisitions can generate cost efficiency through economies of scale, can increase the revenue through gain in market...
Words: 3020 - Pages: 13
...Merck Acquisition of Medco Study and Analysis Abstract Corporate mergers and acquisitions (M&A) have become popular across the globe during the last two decades due to globalization, liberalization, technological developments, and competitive business environment (Fisher & Siburg, 2009). The synergistic gains from M&A may result from efficient management, economies of scale, profitable use of assets, exploitation of market power, and the use of complementary resources (Mitchell et al, 2004). Theoretically it is assumed that mergers improve the performance of the acquiring firm due to increased market share and synergy impact. This paper reviews the acquisition of Medco Medco Containment Services, Inc. (Medco) by Merck & Company (Merck) and cites reasons for acquisition of Medco. Merck's acquisition of Medco represents a $6.6 billion bet on where the future of the pharmaceutical industry lies (Nichols, 1994). In today's managed-care environment, Vagelos (CEO of Merck in 1993) argues, the company that best controls the information flow from doctor to patient to pharmacist to plan sponsor has the greatest chance of succeeding. Medco has information on 38 million patients, which allows Merck to learn a lot more about how its drugs are prescribed and used and, ultimately, how effective they are in fighting disease. Owning Medco can also help Merck increase its market share in an industry in which no company has more...
Words: 2407 - Pages: 10
...Abstract Merck & Company (Merck) is evaluating the possible acquisition of Medco Containment Services Incorporated (Medco). The Chief Operating Officer, Executive Vice President of Sales and Marketing, and the Chief Financial Officer have all stated their thoughts and concerns regarding this matter. It is my job to make the final recommendation to the Board of Trustees. Executive Summary Merck is a leading pharmaceutical manufacturer and Medco is a leading pharmacy benefits manager. Both companies have a strong hold on their piece of the market. In 1992, Merck had revenue of $9.7 billion while Medco recorded $2.2 in revenue.4 Benefits of the merger include: * Increased marketing potential through Medco’s accumulated data * Access into the Managed Care market * Decreased costs in sales and marketing efforts Risks include: * Merging of corporate cultures * Loss of R&D dollars due to subsidizing Medco * Regulatory and compliance threats. The stated price for the merger is $6.6 Billion. At the time of the merger, I would have recommended to the Board to proceed with the merger as benefits seem to out-weigh the risks. However, in looking back, due to the FTC findings stating the merger did create an unfair advantage to Merck, I would have to re-evaluate. Merck was unable to issue the intended Medco IPO which had a planned offer price of $20 to $22 per share. In 2003 announced its plan to spin off Medco to existing Merck shareholders...
Words: 1915 - Pages: 8
...Conflict and Change Harvard Case Study Professor: Robert Lazer PhD Team: Zerrin Hejazi, Mark Klabonski, Elizabeth Lamb, Hari Thenneti Pandurangamoorthi, & Hareshkumar Surani The History of Merck U.S. sales office opened in and George Merck, Heinrich’s grandson, was appointed head of the U.S. branch Friedrich Jacob Merck opened Merck in Germany 1668 1827 Heinrich E Merck transformed the business and Merck began manufacturing 1887 Merck merged with Philadelphia pharmacy Sharp & Dohme 1891 The renamed company Merck & Co. opens for business 1953 2009 Merck merged with ScheringPlough Corporation and Organon BioSciences Pharmaceutical Industry • The average drug development time is over fifteen years with an average R&D expenditure of $800 million. • The FDA requires three phases of testing to assess safety and effectiveness. o Test results dictate what is displayed on the drug’s label and how the doctor will prescribe it. • Follow-up studies (Phase 5) can be performed to assess the drug after market release (Phase 4) and amend the drug label for improved sales. Pharmaceutical Success • 1981 to 2001, Merck experienced an upward trend on several industry metrics. • Their Return on Sales (ROS) for their Human Pharma line peaked at just over 40% in 2001 with an average of 24% . • The early 1990’s exhibited a downward trend just prior to Gilmartin assuming the role of CEO. Pharmaceutical Success ...
Words: 3826 - Pages: 16
...| Merck-Medco | Analysis of an Acquisition | | | | | Merck-Medco Acquisition Analysis Executive Summary: Recommendation It is recommended that Merck tender a cash bid of $6.6 Billion dollars to acquire Medco Containment Services Inc. Marketing & Sales Considerations Medco currently maintains relationships with employers, plan sponsors, and managed care organizations and services over 33 Million individuals. The information collected on physician prescription practices, and patient records and refill tendencies will allow Merck to target their sales and marketing efforts to more effectively reach target markets. In addition, the data collected will be used to identify competitor drug deficiencies and pricing. Operational Considerations A combined Merck/Medco company would result in the control of the entire drug manufacturing and selling process. Merck would have the ability to manufacture drugs specific to each patients needs with collected information being used to research and develop new drugs for sale. Due to the vertical nature of this acquisition Merck will continue to be run independently of Medco so that each division can focus on executing on their strengths within the industry. Overlapping operations, such as marketing and sales, will be consolidated at an estimated after acquisition savings of $1 Billion. Financial Considerations As mentioned, it is recommended that the tendered bid be comprised of all cash. While this will...
Words: 2193 - Pages: 9
...MERCK MBA Healthcare Management Capstone (HCM650-1403B-01) Phase 1 Individual Project Student: Brenda Wilfred Instructor: Professor Ruth Lindegarde Colorado Technical University Online August 24, 2014 Repost Professor Timothy Tapp; Applied Managerial Healthcare Finance, Professor Kristaizell Darby: Management the Healthcare Organization (HCM612-1401B-01), Professor Jenson Hagen: ECON616-1402A-0 Applied Managerial Economics, and Professor Kristy Taylor: Systems in Healthcare (HCM632-1403A-01) Abstract Pharmaceutical comes from Greek word “Pharmakeia” with the modern translation as “Pharmacia”. Many people owe their lives to many lifesaving medicines, without which they might not have seen another day in their life. Pharmaceutical companies are responsible for discovering new drugs, marketing them and getting them licensed for their use as medications. All drugs so produced have to go through a strict process of patenting and testing and are subjected to all sorts of safety checks and a variety of laws and regulations. These pharmaceutical companies not only play a very important role in the medicine industry but also play a significant role in the revenue industry and the development of a nation. Here are top 10 pharmaceutical companies in world. The global economic crisis is impacting every area of business and forcing corporations to reevaluate how they conduct operations. In an effort to operate in the leanest most efficient manner, some corporations...
Words: 4970 - Pages: 20
...Merck Josue Vazquez University of Phoenix Management - MGT/ 521 Dr. Hector Torres Perez February 19, 2014 Merck The history of Merck Company as one of the first pharmaceutical in the world dates all the way back to 1668 when Friedrich Jacob Merck acquired the Angel Pharmacy, which became the heart of Merck and is still owned by the Merck family today. In 1891 Merck in Germany became Merck KGAA or "German Merck" and a United States subsidiary called Merck & Co., Inc. was established in New Jersey. As a consequence of World War I, Merck lost its subsidiaries abroad in 1917, including its American subsidiary Merck & Co., which then became an independent U.S. company. But with the merger with Sharp &Dohme Inc. in 1953 Merck become the largest pharmaceutical producer in the United States. In 1987 Merck was named America’s most admired and most innovative company. In 2006 their vaccine against the Human Papiloma virus, Gardasil was approved by the FDA and is currently they only method of treatment against the HPV virus against the strands that can cause cervical cancer in women. They have also been responsible for the development of vaccines against measles and rubella virus. Merck Company employs an approximate of 51,000 employees in over 120 countries all over the world and owns 31 factories worldwide. It actively participates in charitable organizations, which since 1957...
Words: 1148 - Pages: 5
...CASE 6-MERCK Problems The first problem is even before the drug was approved, some evidence cast doubt on the safety of Vioxx. The study found—as the company had expected—that Vioxx was easier on the stomach than naproxen. But it also found that the Vioxx group had nearly five times as many heart attacks. Some analysts criticized DTC advertising, saying that it put pressure on doctors to prescribe drugs that might not be best for the patient. Solutions Merck faced serious and terrible situation because its medicine caused patients’ deaths. According to the case, The Merck Inc.’s solution is that recalled all the Vioxx which cause the stock price decrease dramatically. But it is important to repair the company’s image and leave good impression to people. By apologizing to consumers through TV and taking responsible for the mistakes will help Merck Inc. retrieve their consumers. On the other hand, analyst argued that the methods DTC advertise their products are criticized. The reason is that analysts think that “when a patient comes in and wants something, there is a desire to serve them.” Because of the direct-to-consumer ad makes patients believe that all drugs are safe, it is not correct to leave such impression to consumers. Drugs are not safe at all, and doctor should examine all of them before recommending to patients. Recommendations I think the solution is a good symbol to help company’s development. As we all know, if they only cared about profit, not their patient’s...
Words: 454 - Pages: 2
...Merck 1. What products has Merck developed and introduced recently? On the Merck website they have developed a product pipeline. This is a very helpful tool for those who want to follow their progress. This pipeline allows for people to see what phase each developing medication is in. These phases include phase II, phase III, and under review. The pipeline also shows the medication category, therapeutic area, and whether or not the medication has advanced. According to the product pipeline medications that Merck have developed that are recently under review are Zerbaxa, Omarigliptin, Grazoprevir/Elbasvir, Bridion, and Keytruda. Two of these medications have been introduced and moved forward including Grazoprevir and Keytruda. Medications included on the phase III list include Verubecestat, Anacetrapib, Keytruda, Letermovir, Ertugliflozin, Omarigliptin, Zerbaxa, and Doravirine. Medications included on the product pipeline list for phase II include Relbactam, Keytruda, Vericiguat, and Grazoprevir. 2. What role does research play in Merck's success? How...
Words: 471 - Pages: 2
