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Medco Health Solutions to acquire United BioSource in $730 million all-cash deal

Monday, August 23, 2010

United BioSource (UBC), a pharmaceutical services company that specializes in post-approval drug research, has agreed to be bought by Medco Health Solutions for $730 million in an all-cash deal as part of the pharmacy-benefit management (PBM) company’s strategy to expand beyond its core business and promote medical treatment based on research evidence.

When the deal closes later this year, UBC will become a wholly-owned Medco subsidiary that will operate independently from the core PBM business. UBC’s founders and top executives, CEO Ethan Leder and President and CFO Mark Clein, will continue to run the subsidiary.

The announcement took many industry watchers by surprise, since just last month private-equity backed UBC announced it had received a $150 million line of credit to fund its aggressive growth and acquisition strategy. “We were not for sale,” said UBC’s Leder. “We had been working on some opportunities with Medco and one thing led to another. They had an attractive proposal and we decided it was the right move.”

Since its inception in 2003, UBC has focused on offering services for biopharmaceutical and medical device companies that need scientific evidence about their products’ medical effectiveness, safety and economic value in the post-approval environment. Demand for these services has grown in recent years as new federal regulations allow the Food and Drug Administration (FDA) to require post-approval safety studies, while at the same time government regulators and health insurance organizations increasingly require comparative effectiveness data to support the value of new products.

UBC’s operations fit into the work on personalized medicine that Medco’s Chief Medical Officer Rob Epstein, M.D. has been pursuing at the Medco Research Institute. Earlier this year, Medco bought DNA Direct as part of a program that promotes the use of genetic testing to achieve safer, more effective health outcomes. “We are all about trying to make drugs work safer and be more effective and more valuable,” said Epstein, who also serves as president of the research institute. “UBC is focused in the same way.”

UBC, which operates in the U.K., Germany, Switzerland and Japan, gives Medco the infrastructure to expand its research internationally.

While the two companies share a common goal, their customers don’t always agree on issues. Medco’s clients are the insurers and employers who pay for drugs, while UBC’s core business is largely the manufacturers of biotechnology medicines. “Traditionally, those two have been at odds with each other,” said Medco’s Epstein. “But when it comes to safety and value, they both care. This is one of the few areas where there is convergence between payers and biopharmaceutical companies. We feel like it’s a perfect area for us to be involved in because it helps us engage and convene the two stakeholders on the same topic.”

Since UBC’s drug-sponsor clients have interests that can clash with those of Medco’s payer customers, Leder said the new subsidiary, which will continue to be called UBC, will be run separately from the PBM business. UBC will not have access to Medco’s database of PBM client member information, while at the same time, pharmaceutical company information won’t be shared with the PBM or its customers. “Initially there will be high firewalls so that there is clearly no sharing of confidential information,” said Leder. “Our client’s data will remain their data and confidential.”

As the market evolves, and demand grows for post-approval studies that assess long-term drug safety or compare the effectiveness of various medications, Leder sees the potential for payers and pharmaceutical manufacturers to collect data from physicians or patients at the same point without breaching confidentiality on either side. “We believe that since both coalesce around evidence, eventually those two channels will come together,” he said.

There will be no layoffs or office closings at UBC as a result of the deal, and Leder said the UBC teams working on projects will remain the same.

—Karyn Korieth

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