MERCK & CO PURCHASE OF MEDCO "REVOLUTIONARY"

The acquisition late last month of US drug distributor Medco Containment Services by Merck & Co, for a reported $6 billion, is "a revolutionary step within the pharmaceutical industry" according to analysts at Goldman Sachs International, and it is the first positive step towards Merck's goal of securing a competitive, if not leadership, role in the managed care arena.

A couple of weeks before the announcement, Medco declared that it was in discussions with several drugmakers on matters including merger or acquisition, and at that time the company was valued at $4.8 billion (Marketletter July 19). The Financial Times' Lex columnist has referred to Medco chief Martin Wygod as "the shrewdest financial promoter around," so it is no surprise that Merck has had to pay $6 billion to get his business. He also points out that by standing up to pharmaceutical companies on behalf of some of the biggest buyers, Medco has won discounts of up to 25%.

Mr Wygod himself apparently gets $61 million in Merck shares and options for a further $37 million, and has plans to buy a further $30 million of Merck paper. He has also given an assurance that Medco will remain fiercely independent, selling the best and cheapest drugs regardless of whether they are from Merck.