Medco Expands in Europe

Medco Health Solutions' (NYSE:MHS) quest for world domination continues with yesterday's announcement of a new joint venture with Celesio Ag (ETR:CLS1). See Medco and Celesio Announce Pan-European Joint Venture to Enhance Quality of Clinical Care and Reduce Overall Healthcare Costs.

Medco has good reason to fulfill its self-proclaimed moniker as The World’s Most Advanced Pharmacy®. As I describe in PBMs Go Global for Growth, the global opportunity for Pharmacy Benefit Managers (PBMs) is huge.

Europe lags the U.S. in the use of modern pharmacy care techniques and tools despite being the second largest market behind North America. European health systems have focused on leveraging the state’s single-payer bargaining power to drive down the price of brand-name pharmaceuticals. This model is losing effectiveness as generics take over. In a world of low-cost generics, the quality of care—adherence, compliance, appropriate utilization—becomes much more important than the unit price per pill.

And to our European friends who are not familiar with PBMs: You’re welcome.

Celesio is best known as one of the big 3 pan-European wholesalers. Unlike their U.S. cousins, the big European drug wholesalers directly own pharmacies. Celesio generates 83% of its revenues (but only 57% of EBIDTA) from its wholesale business. In contrast, its consumer-oriented retail and mail-order pharmacy business generates only 16% of revenue but 43% of its EBITDA.

Medco Celesio B.V. will attempt to bring U.S. care management tools to Europe, starting with Germany. The focus will be on patients with chronic or complex conditions—diabetes, asthma, high-cholesterol and heart disease. Note that the joint venture will not provide traditional benefit administration.

Here’s a look at the joint venture’s activities as described by Celesio. (source) Click to enlarge the slides.


I presume that boosting the generic dispensing rate (GDR)—the percentage of prescriptions dispensed with a generic drug instead of a branded drug—will also be an important part of the strategy. See the chart in PBMs Go Global for Growth, which shows much lower GDRs in the EU compared to the U.S.

NEGOTIATING THE DEAL: A DRUG CHANNELS EXCLUSIVE

Here’s our exclusive footage of Medco and Celesio executives negotiating the terms of the joint venture. (Click here if you don't see the video.)