Express Scripts has agreed to purchase a rival pharmacy benefit manager, Diversified Pharmaceutical Services, for $700 million. When the transaction is completed, Express Scripts will double its membership to 46 million, solidifying its position as the third-largest PBM.
SmithKline Beecham's sale of Diversified marks the second time in three months that a pharmaceutical maker has divested itself of a PBM at a substantial loss. Late last year, Eli Lilly & Co. sold financial weakling PCS Health Systems, the nation's largest PBM, to Rite Aid for $1.5 million -- $2.5 million less than it paid for it. Diversified's price is a third of what it cost SmithKline in 1994.
Both sales come as the Food and Drug Administration is starting to clamp down on promotional claims by PBMs that are owned by drug companies.
The timing of the Diversified sale is also interesting in that the PBM is near a turning point. Contract language in United HealthCare's 1994 sale of Diversified that required the HMO to continue to use Diversified as its PBM for several years will expire shortly.
The second-largest PBM, Medco, is owned by Merck & Co. Merck has no plans to sell its highly profitable subsidiary.