Medco's Purchase of DNA Direct Could Yield a Big Payoff

Medco Health Solutions (MHS), a pharmacy benefits manager, needs massive M&A deals to move the needle. Consider that its market value is roughly $30 billion. But sometimes an M&A deal's impact is not measured by size of the price tag. And this may be the case with Medco's latest transaction: The purchase this week of DNA Direct, a privately held personalized medicine company with 30 employees. Of course, the terms of the deal were not disclosed.The deal for DNA Direct bolsters Medco's footprint in the fast-growing sector of personalized medicine. Don't know what that is? Don't feel bad. All in all, personalized medicine involves using a patient's genetic data to better target health-care treatments and if applied properly, the result can be much better than conventional approaches.

Founded In 2005

Ryan Phelan, who founded DNA Direct in 2005, has an extensive background in the medical field. For example, she was a pioneer in e-health, having created Direct Medical Knowledge (DMK) in 1995. It was a comprehensive health website and eventually sold out to WebMD (WBMD). Actually, DMK's content is the backbone of

As for DNA Direct, the company also started with a consumer focus. That is, it allowed people to take their own genetic tests, such as for hereditary breast and ovarian cancers.

As things progressed, Phelan realized she had to take things even further and get physicians involved. So she found ways for patients to collaborate with their physicians.

But there was a problem: Many physicians did not have the background to interpret the test results. Basically, personalized medicine is something you'll likely not see in medical schools or even continuing education.

Joining forces

Thus, Phelan hit on her big idea: Provide physicians with guidance and support solutions for personalized medicine. This would come in the form of Web-based tools and education programs. Phelan even put together a group of so-called genetic counselors, who answer questions on the phone.

With this new focus, it did not take long for DNA Direct's growth to ramp.

Despite its small size, DNA Direct has been able to attract top notch partners, such as Humana. But as a part of Medco, the growth will definitely accelerate. Keep in mind that the company has 60 million members and has already been putting resources into personalized medicine.

However, the market is still in the embryonic stages. Actually, Medco thinks the market will not hit critical mass until 2015.

But, when it comes to disruptive technologies, it often makes sense to be early. This is especially the case for large companies, since it is harder for them to innovate and make adjustments in strategies. In other words, for a company like Medco, the DNA Direct deal shows a good amount of foresight and a willingness to take the long-term view.

Tom Taulli advises on
business tax preparation and resolving tax problems. He is also the author of a variety of books, including the including The Complete M&A Handbook. His website is at
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