A Marriage Made In Montvale

Only months ago, Hillary Rodham Clinton portrayed drug makers as the villains of rising health-care costs. But even before the First Lady sharpened her scalpel, pharmaceutical companies were slashing prices to cut deals with companies like Medco Containment, the mail-order pharmacy whose clients include a slew of HMOs, insurance companies and state health plans. Last week Merck & Co. took the process a step further and agreed to purchase Montvale, N.J.-based Medco for $6 billion. If the merger is approved by federal regulators and Medco stockholders, it will link the country's leading drug maker with the top discount-drug merchant, known as "the Wal-Mart of pills." The deal could also trigger copycat mergers. That prospect sent investors scurrying for stocks of companies similar to Medco. "The key is to be part of a fullservice network," says Larry Feinberg of Oracle Investors. "Merck and Medco are jumping off the starting blocks while the rest have just begun warming up."

But Medco's customers and other drug makers have more worries than Merck's head start. Could Merck gain access to proprietary information about other drug companies that work with Medco? And would Medco promote Merck drugs at the expense of rival products that might be less expensive? Merck chairman P. Roy Vagelos did not entirely reassure competitors. "The house brand usually wins, doesn't it?" he said last week. But Medco chief Martin Wygod insists his company will operate as a "stand-alone" subsidiary--with outside experts to evaluate drugs and "more than a Chinese wall" around proprietary information. Wygod also contends that his customers will gain better access to superior Merck products, which will lead to lower hospitalization costs and fewer lost workdays. One thing is clear: Mrs. Clinton's villains are working on the right prescription.