$1.5B Medco Health deal for PolyMedica

Medco Health Solutions Inc., the country's largest prescription benefit manager, said Tuesday it will pay $1.5 billion in cash for PolyMedica Corp., long the largest U.S. supplier of diabetes treatment products.

Buying PolyMedica, which has nearly 1 million patients and includes the well-known Liberty Healthcare brand, expands Medco's foothold in a fast-growing drug category worth more than $25 billion a year.

The company is best known for its ads starring portly mustachioed character actor Wilford Brimley, who appeared in the films "Cocoon" and "The Natural," on "Seinfeld" as the U.S. postmaster general and in Quaker Oats ads.

Medco already has 2.8 million customers with diabetes _ more than one quarter of all insured diabetics. With the purchase, the company could eventually treat half the nation's insured diabetics, David Snow, Medco's chief executive, said in an interview.

The $53-per-share price represents a 17 percent premium to Wakefield, Mass.-based PolyMedica's closing stock price Monday of $45.29, near its 52-week high of $47.46.

PolyMedica shares jumped $6.40, or 14 percent, to $51.69 Tuesday; shares of Franklin Lakes, N.J.-based Medco fell $1, or 1.2 percent, to $85.11.

PolyMedica distributes blood glucose test kits and meters, insulin and lancets directly to the homes of patients, mostly seniors on Medicare. It also operates a mail-order pharmacy, but since November 2004 Medco has been filling prescriptions for PolyMedica patients and now handles more than 50,000 a week.

Their collaboration expanded this year, when PolyMedica started handling some administrative services for certain Medco clients under Medicare Part B, which covers care such as doctor visits and outpatient surgery.

CEO Snow said Medco will not take any charges to cover the deal, which will boost Medco profit very slightly in 2008.

Medco said spending on diabetes care is rising 14.5 percent annually. By 2009, diabetes treatments are expected to overtake cholesterol medicines as the fastest-growing drug category.

While diabetics are about 5 percent of Medco clients, they account for 15 percent of all drug spending, so managing their care efficiently is key to saving money and improving outcomes, Snow said.

The transaction was unanimously approved by both companies' boards. It should close late this year, subject to approval by PolyMedica shareholders and customary closing conditions.

Medco, with $42.54 billion in revenue and $630.2 million in net income last year, dispenses more than 500 million prescriptions a year, assists drug plans with negotiating discounts with drugmakers and processes claims for about 60 million Americans.

PolyMedica reported profit of $33.7 million and sales of $675.5 million for its fiscal 2007 year.

For now, Patrick T. Ryan, PolyMedica's chief executive officer for three years, will retain that title.

"I'm looking forward to helping in any way to make this successful for Medco, PolyMedica and our patients," Ryan said.

Type 2 diabetes, the most common form of the disease, afflicts 18 million Americans and 200 million people worldwide. Linked to obesity and lack of exercise, diabetes occurs when the body does not make enough insulin or cannot use it effectively. It is a major cause of heart disease and leads to kidney failure, blindness and amputations.

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On the Net:

http://www.medco.com

http://www.polymedica.com