UPDATE 4-Medco, Astra get U.S. subpoenas over four drugs

Tue Jul 26, 2011 1:37pm EDT

* Drugs are Nexium, Prilosec, Plendil, Toprol XL-Astra

* Medco shares down 0.9 pct, Astra little changed (Adds Express Scripts, analyst comment)

By Lewis Krauskopf

NEW YORK, July 26 (Reuters) - Medco Health Solutions Inc MHS.N and AstraZeneca Plc (AZN.L) were subpoenaed by the U.S. Department of Justice over their relationship involving four of AstraZeneca's drugs, including widely used acid reflux medicines Nexium and Prilosec.

The companies said separately on Tuesday they received the subpoenas this month. They were issued from the U.S. attorney's office for the District of Delaware, the state which is also home to AstraZeneca's U.S. headquarters.

News of the investigation comes at a sensitive time for Medco, which agreed last week to be bought by Express Scripts Inc (ESRX.O) for $29.1 billion. [ID:nN1E76K024]

The deal -- which combines two of the three largest pharmacy benefit managers -- is projected to have a difficult road to winning U.S. antitrust clearance, so any further regulatory issues could add to the roadblocks.

According to London-based AstraZeneca, the government wants documents relating to its relationship with Medco involving Nexium and Prilosec, as well as blood-pressure medicines Toprol XL and Plendil.

Nexium ranked as the fourth-biggest selling drug in the world last year, according to pharmaceutical information company IMS Health Inc, while Prilosec was once a major product before losing patent protection and becoming available as a generic.

In March, Medco said it received a subpoena from the U.S. Securities and Exchange Commission related to an ongoing probe of Calpers -- the California Public Employees' Retirement System.

The SEC requested documents pertaining to a one-time Calpers board member, who also was a placement agent who consulted for Medco and other companies that won business at the fund.

Medco lost the contract with Calpers earlier this year, a setback then compounded by two other significant account losses that analysts said might have led Medco to strike its deal with Express Scripts.

An Express Scripts spokesman declined to comment on any specific legal matters facing Medco, but said the company did significant due diligence around Medco's legal proceedings.

Analysts have put the odds of the Express-Medco deal winning regulatory approval at anywhere from 40 percent to 80 percent.

Leerink Swann analyst David Larsen, in an report issued on Tuesday discussing the antitrust issues, projected the deal had a roughly 70 percent chance of closing and that Express could likely satisfy some regulatory concerns by divesting conflicting pieces of business.

Pharmacy benefit managers administer drug benefits for employers and health plans and operate large mail-order pharmacies.

Medco shares fell 0.9 percent to $64.92 in afternoon trading on the New York Stock Exchange, while Astra shares in London were barely changed. Express Scripts shares were off 0.8 percent at $56.18 on Nasdaq. (Reporting by Lewis Krauskopf, additional reporting by Diane Bartz in Washington and Esha Dey in Bangalore; editing by Joyjeet Das, Gopakumar Warrier, Derek Caney and Andre Grenon)

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