Today’s New York Times confirms what I said yesterday. Caremark is paying a bit too much for AdvancePCS, but is doing so to get into the Medicare scrum as in the NYT’s words "large drug benefit managers jockey for position in hopes of handling the potentially huge Medicare drug program that a House-Senate conference in Congress is drafting for 40 million elderly and disabled Americans." Meanwhile, Express Scripts shares have headed down to meet the percentage loss in Caremark’s since yesterday (Sept 3) morning’s deal, although there’s no clear reason why and ESRX already has a lower PE ratio than the other two. Caremark has gone down because a) they are paying too much (especially as they are debt-free and Advance still has $400m debt left over from its purchase of PCS a while ago) and b) they were growing revenues at 30% per year (and profits more so) and won’t be able to do that if they merge with as big a player as AdvancePCS — unless of course:
a) they convert many of Advance’s customers onto their mail-order pharmacy sooner than you’d expect, and/or
b) all PBMs get an amazing deal out of the Medicare Rx coverage negotiations. I’d say that’s unlikely unless the entire bill is held up and we get an even more Republican-leaning Senate in 2005 and they don’t notice that we have a eensy teensy problem with a thing called a deficit.