Federal scrutiny of Eli Lilly & Co.'s proposed acquisition of a drug-benefits manager proves an old adage: Timing is everything.
The Indianapolis-based drugmaker is a victim of its place in a trend, industry analysts said.
Months ago, Merck & Co. became the first drug company to buy a drug-benefits manager in a $6.6 billion deal that appeared to draw little scrutiny from the Federal Trade Commission. In May, SmithKline Beecham bought another such company with similar ease.
But Lilly delayed its $4 billion acquisition of PCS Health Systems-originally set for earlier this month-until at least Oct. 27 so it could continue discussions with the FTC. Lilly declined to elaborate on their nature.
What makes this deal different?
"It's the third deal-that's the most important distinction," said Steven Gerber, a healthcare analyst in the Los Angeles office of Oppenheimer & Co.
PCS, a subsidiary of San Francisco-based McKesson Corp., and the two companies already acquired cover 80% of all people in managed drug-benefit programs, industry observers say.
Their acquisitions potentially give drug companies control over billions of dollars in drug purchases. Drug-benefits managers try to make sure thatDrug companies
physicians prescribe preferred drugs. Their efforts and success vary, but manufacturers often cut their prices to win spots on their formularies.
The low drug prices negotiated by benefits managers, meanwhile, are a sore point with independent retail pharmacies and chain drug stores. They've filed several lawsuits charging drug companies with price discrimination. One suit argues that benefits managers will use ties to manufacturers to force other companies to lower their prices-thus gaining a competitive advantage over retailers.
Until recently, the Lilly deal stood out for another reason, as well. Lilly promised to consider making McKesson the sole distributor of its products. That proposal was attacked for giving McKesson an edge over other distributors, but Lilly has backed off the promise.