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Company: MedcoHealth Solutions (MHS)
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50%
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10 votes

  Current Medco share price discounts potential problems

This 2003 pharmacy benefit manager spinoff from Merck has done quite well for itself and its investors over the past 5 years. Pharmacy benefits managers like Medco basically make their money by negotiating discounts with drug makers for customers. Despite the success of the recent years, there are many problems with their middleman business model, including potential conflicts of interest resulting in breaches of fiduciary duty lawsuits, large clients’ desire to eliminate middleman and most threateningly to earnings, Government’s propensity to regulate businesses that fall within current public policy interests. Medco shares are now trading at a very rich multiple discounting potential problems, which are capable of halving this stock’s valuation.

P.S. I have recently received a response from Lowell Weiner, Medco's VP of Corporate Communications regarding my view of the company. In it, Weiner describes why Medco is so much more than a PBM.[1]
  1. Full text of L. Weiner's letter on StockValues.Org
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33%
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3 votes

  Government regulation may decrease demand for PBM services

Government regulation and pressure to keep health care costs low may effect how Medco works with their patients and/or decrease demand for the services of Pharmacy Benefit Managers.

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2 votes

  The CVS/Caremark merger poses a significant threat to MedcoHealth

The CVS/Caremark merger poses a significant threat to MedcoHealth's market share and contracts.

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2 votes

  Losing big deals left and right

MedcoHealth Solutions has lost some important contracts, including, Independence Blue Cross, the Defense Department, and the Federal Employees Health Benefits Program. It's largest contract with UnitedHealth (23% of revenue in 2006) seems secure.

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