UPDATE: Pharmacy Groups File Suit Against Express Scripts, Medco Deal

Two pharmacy trade groups and several pharmacy companies filed a lawsuit in federal court Thursday aimed at trying to stop Express Scripts Inc. (ESRX) from buying rival pharmacy-benefit manager Medco Health Solutions Inc. (MHS).

The National Association of Chain Drug Stores and National Community Pharmacists Association have strongly opposed the deal since it was announced last summer, arguing the combined company will gain clout to boost costs through higher fees and drug prices. Express Scripts and Medco, which expect the deal could close as early as next week, have argued that joining forces means more cost savings they can pass on to customers.

The companies are awaiting clearance from the Federal Trade Commission following a lengthy antitrust review. The FTC and U.S. Department of Justice are the entities that typically go to court when they believe a proposed merger is anticompetitive, and private-party lawsuits to stop deals face long odds.

In a joint statement, the pharmacy trade groups said the deal "would create a middleman that will have enormous power to dominate the market in anticompetitive ways." The lawsuit was filed in the U.S. District Court for the Western District of Pennsylvania.

The pharmacy trade groups were joined in the lawsuit by nine community pharmacy companies that have a presence in Pennsylvania.

Express Scripts spokesman Brian Henry declined to comment on the lawsuit, but said the company believes the deal will "accelerate our ability to make prescription medicines safer and more affordable for American families." He also noted Express Scripts has historically had good relationships with pharmacies and expects that will continue in the future.

The company's relationship with the largest pharmacy company--Walgreen Co. (WAG)--has been turbulent in recent months, however. Walgreen pharmacies dropped out of Express Scripts' network on Jan. 1, meaning Express Scripts-covered people had to head elsewhere to fill prescriptions, because the companies couldn't agree on new contract terms.

Express Scripts shares declined 1.4% to $53.16 on Thursday while Medco shares declined 1.4% to $70.19. Medco is currently trading just slightly below the purchase price in the cash-and-stock deal after trading at a sharp discount for months, indicating higher expectations among investors the companies will win approval to join forces. The deal was valued at about $29 billion when it was first announced.

One potential sticking point is a combined company's concentration in the market for pricey drugs used to treat cancer and other conditions. The FTC is taking a hard look at whether the merger would impede patient access to these "specialty drugs," The Wall Street Journal reported Wednesday. The proposed company's heft in the specialty market is one of the issues spotlighted by the pharmacy groups.

On Wednesday, both Express Scripts and Medco said in regulatory filings that their deal may close as early as next week, indicating FTC approval could be close at hand. The companies also said closing the deal is "subject to satisfaction or waiver of the remaining closing conditions."

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; [e-mail]

--Brent Kendall contributed to this article.