2 drug companies getting into managed health care

May 04, 1994|By New York Times News Service

Continuing the rapid change in the prescription drug industry, two of the world's largest pharmaceutical manufacturers announced moves yesterday to help them compete in the evolving environment of lower-priced drugs.

SmithKline Beecham, a British-American company based in London, said it had agreed to buy Diversified Pharmaceutical Services, one of the largest marketers of discount-priced drugs to managed care companies, for $2.3 billion in cash.

Separately, Pfizer Inc., a big New York-based drugmaker, said it had agreed to create a jointly owned managed health care unit with Value Health Inc., a managed care company based in Avon, Conn. Pfizer and Value Health, which is independent, said they would each contribute $100 million to the joint venture.

The latest deals followed the announcement Monday that Roche Holding Ltd., a big drugmaker based in Switzerland, was acquiring Syntex Inc., a struggling American pharmaceutical company, for $5.3 billion.

Managed care drug distributors, including Diversified and Value Health, provide drugs to millions of people in health plans. Because these companies buy drugs in such high volume, they get reduced prices from the manufacturers. As more health plans, like health maintenance organizations, seek to reduce costs, it is much cheaper for them to buy drugs from the managed care distributors than from the manufacturers directly.

Kenneth C. Abramowitz, an analyst at Sanford C. Bernstein, said that about 9.5 million people were in health plans that used drugs distributed by Diversified, and about 1 million obtained drugs through Value Health.

The deal with Diversified catapulted SmithKline into direct competition with Merck & Co., the largest drugmaker, which acquired Medco Containment Services, also a managed care drug distributor, last November for $6.6 billion.

Industry executives and securities analysts said the deals announced yesterday were only the beginning, as drugmakers seek to recapture control of their sales from the managed care distributors.

Jan Leschly, chief executive of SmithKline Beecham, said buying Diversified, a unit of United Healthcare, a big Minnesota-based managed care company, was "a natural step to get closer to the consumer by participating in managed care, rather than just selling drugs."

"It is a new growth business," he added.

As part of the deal, Diversified will keep its 1.6 million customers in United Healthcare health maintenance organizations across the country. And United Healthcare will share information on patients to help SmithKline establish the medical and cost-effectiveness of its drugs.

"The developments are part of a watershed change in the pharmaceutical industry," Michael LeConey, an analyst at RAS Securities, said.

Pfizer also outlined ambitious plans. "We hope to expand the arena we are playing in from drugs to a significantly large part of the health care pie," Edward C. Bessey, a vice chairman of Pfizer, said yesterday.

In the joint venture, Pfizer and Value Health will explore the possibility of creating special networks of doctors, hospitals and other care-givers that would reduce the cost of treating patients who have particular types of disease, such as cardiovascular problems. Mr. Bessey said the networks would be modeled on Value Health's networks of therapists for mental health patients.

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