Opinion ID: 3014742
Heading Depth: 2
Heading Rank: 2

Heading: Merck’s and Medco’s independence

Text: In the January 2002 press release, Gilmartin said, regarding the planned Medco IPO, “[W]e believe the best way to enhance the success of both businesses going forward is to enable each one to pursue independently its unique and focused strategy.” The independence of Merck and Medco had been and was to become a subject of some debate. The Federal Trade Commission had launched an investigation of Medco in 1996 to determine whether it was giving preferential treatment to Merck’s drugs. (The FTC also investigated some of Merck’s competitors for similar reasons.) Other drug manufacturers divested their PBMs, but Merck kept Medco. In 1998 Merck entered into an FTC consent decree, which suggested, inter alia, that Medco had given favorable treatment to Merck’s drugs. Merck and Medco throughout the class period asserted that the two companies stayed independent. Both companies maintained policies of independence posted on their websites. 7 But Union produced data suggesting that Merck’s market share of drugs sold by Medco was in several instances much higher than Merck’s national market share. In its April 2002 S- 1, Merck disclosed that post-IPO Medco would be obligated to continue this elevated level of Merck drug sales; the two companies had signed an agreement requiring Medco to sell a higher share of Merck drugs than Merck’s national third-party market share. The May and June amendments to the S-1 fleshed out the terms of this agreement, which required Medco to pay Merck 50% of its lost revenue if it failed to hit the sales targets.