CVS, Drug Benefit Manager To Merge

Caremark Deal May Lower Prices

Customers take advantage of the drive through pharmacy window outside a CVS drug store in Bainbridge Twp., Ohio. (Amy Sancetta - AP)

CVS Corp., the nation's second-largest drugstore chain, has agreed to acquire pharmacy-benefit manager Caremark Rx Inc. in a $22.5 billion deal that would create a company with unprecedented clout to bargain with drugmakers for lower prices.

The transaction, which requires approval from shareholders and federal antitrust regulators, would result in a company with $75 billion in annual revenue and more than 6,200 retail stores in 43 states, including 240 in the Washington region.

The new company would be called CVS/Caremark Corp. and become what analysts said would be the biggest private-sector buyer of prescription drugs, responsible for filling or managing more than 1 billion prescriptions a year.

CVS and Caremark officials called the combination a "logical evolution" in the pharmaceutical industry that could help contain runaway drug costs.

"It gives them leverage over the drugmakers," said Mitchell P. Corwin, an equity analyst for Morningstar Inc. "It's likely to lead to more transparent pricing and keeping prices down."

Other industry experts said the reduced costs might not be fully passed along to consumers and businesses. That would depend on whether the company shares its cost savings or uses them to boost its own profits, said Helen Darling, president of the National Business Group on Health, a nonprofit organization of large employers.

Yesterday's announcement came just a month after Wal-Mart Stores Inc. announced that it would charge $4 per prescription for generic drugs. The program, which covers 314 drugs, is being rolled out nationwide and arrived in the Washington area last week.

During a conference call with Wall Street analysts, the chief executives of CVS and Caremark said merger talks began with a dinner conversation a year ago, well before Wal-Mart's announcement.

CVS chief executive Thomas M. Ryan and Caremark chief executive Edwin M. Crawford dismissed Wal-Mart's generic discounts as a "pricing promotion" and said their combined companies would bring more fundamental changes to the pharmaceutical marketplace.

Ryan and Crawford, promising lower prices, said the new company would provide more choices by enabling consumers to use mail, the telephone, the Internet or visits to retail stores to fill prescriptions.

"We'll be agnostic [about] where the consumer fills their prescription," Ryan said.

Pharmacy benefit managers such as Caremark operate drug programs for companies, negotiating lower prices from manufacturers and setting employee co-payments. They also buy drugs in bulk and distribute them by mail order. Employers are increasingly making mail-order plans mandatory to cut costs.