CVS Leads Pharmacy Plunge

Still, Banc of America analyst Robert Willoughby senses no desperation on the part of PBMs.

"We do not ascribe to the view that Wal-Mart or other industry issues are forcing PBMs to seek exit strategies," Willoughby wrote on Wednesday. "Our call has been PBM consolidation is inevitable, but we do not view a transaction with a retail pharmacy as likely. Rather, we believe another PBM would be involved."

Specifically, he adds, "if Caremark is in play -- as the New York Times article suggests -- you have to believe Express Scripts (ESRX) and Medco Health Solutions (MHS) are looking."

Willoughby has buy recommendations on all three PBM stocks. His firm has investment-banking ties to all three of them as well.

Robert Garis, an associate professor of pharmacy at Creighton University, seemed surprised by the deal. On the one hand, Garis says, the merger "makes very good sense for CVS" since the company has entered the PBM business already. But on the other hand, he asks, why would Caremark sell itself now -- and at such a low price?

"I can't help but wonder whether Caremark knows something" that others don't, Garis says. "Maybe the heat is on, and they've decided that now is a good time to get out. ... The heat has been on the industry for a while, but the industry has been thriving" nonetheless.

To be sure, Caremark would come with plenty of baggage. The company faces multiple government investigations. The company has paid a big fine already for a PBM it acquired in the past.

Caremark also faces government scrutiny for past stock options that could have been backdated. For his part, CEO Mack Crawford has denied that any backdating took place. Still, another high-profile CEO -- UnitedHealth (UNH) leader William McGuire -- recently got the boot after defending his own stock option grants.

For his part, Crawford made $63.84 million through stock option transactions last year alone, the New York Times reported, and continues to sit on nearly $249 million worth of options even today.

Some people wonder if Crawford could now float off with a big golden parachute and leave all of his troubles behind.

"Caremark has real problems, and those problems aren't going away," Patrick Burns of Taxpayers Against Fraud insists. Moreover, "it's not even clear to me that America needs PBMs, as they currently operate. They didn't exist 15 years ago, and I don't think they will exist 15 years from now, either."

Burns feels that PBMs face major changes -- which have already started surfacing -- and could emerge as less popular investments as a result.

"When they become fully transparent, they're going to have profit margins like Safeway," he concludes. "And by and large, Wall Street will not love them as much because of that."

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