There are some acquisitions that just make perfect sense and others that make you shake your head wondering what management is thinking. MedcoHealth Solutions
Medco is a pharmacy benefit manager that makes its money by negotiating the best deals for the drugs that its clients -- insurance companies and self-insured companies -- pay for. United BioSource manages clinical trials for pharmaceutical companies. See the conflict of interest here? Medco plans to run United BioSource as a separate subsidiary to avoid the conflict, but it's still kind of a slap in the face of its current clients.
On the other hand, United BioSource gives Medco an instant increase in expertise in running clinical trials, something that can help its pharmacy benefit management segment. Medco is already running a trial comparing the effectiveness Bristol-Myers Squibb
Simply put, demonstrating its expertise in clinical cost-effectiveness evaluations should help woo business away from its main competitors, Express Scripts
United BioSource is expected to bring in $280 million in revenue this year, but being a private company, we don't have any idea of how much of a profit that revenue is supposed to turn into. Medco did say that the acquisition should add to 2011 earnings excluding acquisition-related costs, so Medco will make more than having the money sitting in the bank earning interest. But that's not saying much these days.
With such a strong pressure to lower health-care costs, I think Medco's newest acquisition is likely a net positive one. But investors should keep an eye on how well management is walking the fine line it's just drawn between its old and new segments.
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