Pharma More healthcare insurance consolidation:Would mean headwinds for US drug prices
Press reports CVS-Aetna merger discussion: The Wall Street Journal hasreported (26October), citing sources familiar with the matter, that Pharmacychain/Pharmacy Benefit Manager (PBM) CVS Corp (CVS US, USD73, not covered),which is the second largest PBM in the US by number of lives covered (c.65m), hasheld merger talks with US healthcare insurer Aetna (AET US, USD179, not covered).There has been no confirmation from the companies that talks have taken place orthat if they did, it would lead to a merger.
More concentration of healthcare buying power – negative for US drug pricing:If CVS and Aetna did merge, it would concentrate buying power for healthcareservices into what could be the largest healthcare provider in the US. The increasedscale would likely bring with it greater buying power for pharmacy benefits in the US,which would lead to further downward pressure on a sustained basis for US drugprices. As such, we would view it as negative for the Pharmaceutical sector. Further,if CVS-Aetna were to merge, it might spur even more consolidation within the UShealthcare insurance sector, which again would not bode well for US drug prices.
Defensive move? As we noted, in our recent report, Techs and Drugs, How techbasedcompanies could disrupt Pharma, 9October 2017, one of the areas within UShealthcare that is ripe for disruption is the online Pharmacy market in the US, wherethere are multiple online pharmacy chains, but none is run by large internet retailers.Amazon (AMZN US, USD972, not covered) has been widely speculated in the press(WSJ, Bloomberg) to be considering a move into this area of healthcare. If existinghealthcare providers thought that might come to pass, greater scale in insurance andPharmacy provision might be a defensive move.
Whatever comes to pass, we see multiple threats to US drug prices: Whetherthe CVS-Aetna discussions, if it is confirmed they have taken or will take place, leadsto any change in the status quo, investors will need to wait and see. However, withcontinuing pressure on drug prices, proposals such as the Ohio Drug Price Relief Act(vote due 7November), or individual US state proposals to import lower-priced drugsfrom Canada, there remain multiple threats to US drug prices, which we believe isnegative for the Pharma sector.