Merck has a 21% dollar share of the Medco mail service business, Merck-Medco Managed Care President Per Lofberg told a securities analysts meeting at Merck's Whitehouse Station, N.J. headquarters Dec. 18.

Merck's share of Medco's retail business is about 11%, Lofberg added, giving the manufacturer an overall market share of about 15% of Medco's $9 bil. drug spend. Merck's retail and mail share is up from 13% in 1995 and approximately 10% prior to the Merck Medco merger in 1993. Lofberg reiterated that Merck products are added to the formulary only after approval by an independent P&T committee.

"Customers...are growing increasingly comfortable with the relationship between Merck and Medco, and the issue is comfortably on the table in terms of what benefits the customers are deriving from our ownership by Merck," Lofberg maintained.

Merck's share of the Medco mail service market has climbed from 13% before the merger to the current 21%. On the retail side, Merck's share moved from 6% in 1993 to the current 11%. It is easier for Medco to dictate product selections for its mail order business because of the higher degree of control afforded to the pharmacy benefit management company in that sector and Merck's prominence in chronic therapies.

Merck has seen particular benefit from Medco in the categories of cholesterol reduction and antihypertensives, Lofberg reported. Merck's share of the HMG-CoA reductase inhibitor category in Medco's mail order business was seven points below Merck's national market share in January 1994, Lofberg reported. As of July 1996, Merck's market share was 20 points higher than the national average in the mail business, or close to 70%.

Merck's HMG-CoA reductase inhibitor line has also gained share in the Medco retail sector, moving from one point above the national average to about seven points above. Bristol-Myers Squibb's Pravachol was the preferred statin on Medco's formulary prior to the Merck acquisition.

In the ACE inhibitor market, Merck's mail and retail market share through Medco were roughly at the national average in January 1994. By July 1996, Merck's mail order share was 24 points above average and its retail share was about six points above average.

Overall, Medco's total drug spend increased 40% over 1995, Lofberg reported. Prescriptions managed increased 37%. In dollars, retail prescriptions increased by 55%, and mail service prescriptions by 45%. Covered lives increased by 6%, Lofberg reported, with "slightly more than 50 mil. lives under management."

Lofberg explained that the sharp increase in drug spend compared to the relatively flat number of covered lives occurred because of two significant contract changes. First, the federal Blue Cross/Blue Shield program introduced mail order incentives that shifted more than $400 mil. worth of volume to Medco's mail service without "any significant change in covered lives," Lofberg said. In addition, Medco lost the Blue Cross/California contract. In that case, Lofberg said, Medco "lost a large number of lives," although the impact on drug spend was "pretty insignificant" because of the type of contract.

Other lost accounts during the year included Kraft, worth about $25 mil., and one of Medco's oldest accounts, the National Association of Letter Carriers. Lofberg explained that Medco and the association could not agree on a capitated arrangement. Caremark assumed contracts for both clients.

Medco gained 20 accounts in 1996: 10 employer accounts; two Blue Cross/Blue Shield; six managed care; and two state programs. Almost all growth was "take away," so "most of the accounts we added were accounts that were previously served by others," Lofberg remarked.

Accounts with BC/BS Michigan added 3 mil. lives, Lofberg said, primarily from subcontracts with automakers. Lofberg also pointed out that another new account was the National Drug Purchasing Coalition, composed of about 4,500 companies including Mobil, Sears, General Mills, Black & Decker and PepsiCo. Coalition members "were able to agree on a common set of specifications...and being basically able to award all of their business in a...winner-take-all bidding process," Lofberg said.

Medco's focus in 1996 "was less on actual discounting of the pharmacy program and more on the service and clinical program," Lofberg said. As a result, Medco's growth "did not really come at the same level of price erosion that we have seen in the past," Lofberg explained.

The Medco exec estimated that Medco's clinical programs "have the potential to deliver savings in the order of $1.6 bil. per year" based on results of programs currently in operation. Medco has developed health management programs in diabetes, cardiovascular diseases, gastrointestinal diseases and aging.

Lofberg presented savings estimates from Medco's smoking cessation program. Under the program, members call a toll-free number for information; nicotine dependence is assessed; then nicotine dependent patients receive nicotine replacement therapy and weekly counseling, whereas non-nicotine dependent patients receive education brochures. The program "may not be as sophisticated as you would like," Lofberg commented, "but it certainly sells in Peoria."

In a 247-patient pilot study, the Medco six-month quit rate was 41% compared to a 27% nationwide rate, Lofberg said. He estimated that the potential health care benefit of smoking cessation would be about 1,460 lung cancers avoided given the study's quit rate. Twenty-year medical savings would be about $385 mil. per 100,000 smokers, according to Medco estimates.

Medco has implemented a gastrointestinal disorder management program designed to take patients off of "excessive" doses or durations of H2 receptor antagonists and to ensure that "newer, more cost effective therapies" are prescribed when appropriate, Lofberg said.

The company's program involves drug utilization review to identify high H2 use over an extended time period, followed by physician contacts to determine diagnosis and to suggest alternative treatments. For patients with severe GERD, the pharmacist will recommend that the physician try a proton pump inhibitor regimen; for dyspepsia, the recommendation will be to reduce H2 dosage or use an OTC drug; for peptic ulcer, physicians will be advised to try an H. pylori eradication program. Merck's joint venture with Astra markets the proton pump inhibitor Prilosec for GERD and as part of a combination regimen with Abbott's Biaxin for H. pylori eradication.

A pilot study of the GI program involving 434 physician contacts found that 96% of physicians contacted provided a diagnosis and that 27% went on to change therapy. A 100,000 member plan would thus save about $400,000 over three years, Lofberg suggested.

Medco also has disease management programs to encourage compliance with cholesterol medication and antidepressant therapy. A sample of 2,000 patients in the cholesterol program showed that medication adherence was 79%, compared to 67% in the control group, Lofberg said. He maintained that those results suggest 160 fewer hospitalizations and 40 fewer non-fatal heart attacks per 100,000 members over five years.

Lofberg indicated the company plans to roll out about a dozen health management programs in 1997, beginning in the first quarter with programs in hypertension, osteoporosis and menopause. Medco is working with American Home Products in the area of women's health. At present, he said, Medco covers about 4 mil. women with osteoporosis. Other health management programs expected to be introduced in 1997 address stroke, acute myocardial infarction, atrial fibrillation, family planning, prenatal care, osteo/rheumatoid arthritis, asthma, allergic rhinitis and depression.

MERCK SHARE OF MEDCO MAIL SERVICE IS ABOUT 21%, FIRM TELLS ANALYSTS; CHOLESTEROL, HYPERTENSION MEDICINES HAVE SHARES ABOUT 24 POINTS ABOVE NATIONAL AVERAGE

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