NeXT Beats Beats

Apple's acquisition of Beats was already analyzed to death before today's announcement because the news of negotiations leaked weeks ago. The final price is $2.6 billion in cash and $400 million in stock. However, the New York Times' Brian X. Chen, a long-time Apple reporter and sensible person, paraphrased or asserted the oddest statement relative to Apple's 1996 acquisition of NeXT:

Still, some other analysts, like Toni Sacconaghi, a financial analyst for Sanford C. Bernstein, were puzzled by the acquisition, especially the high price. After all, in 1996, Apple paid much less -- about $400 million -- to acquire the computer company NeXT, which brought Mr. Jobs back to the company.

This sounded rather peculiar. Was $400 million "much less" by any reasonable measure except in absolute cash terms, a comparison that makes little sense without taking into account the size of a company's business? I did a little research to find out.

The NeXT acquisition was announced 20 December 1996. The deal was for $429 million in cash and 1.5 million shares of Apple stock. As of the last reported earnings in October 1996, Apple had $1.7 billion in cash and equivalents on hand, but its debt left it net $610 million.

Adjusted for stock splits, Apple was trading at $5.62 on the day the deal closed, so the value of NeXT stock was $8.4 million. (The shares were assigned to Steve Jobs, so he didn't take any cash as part of the sale.) The cash portion was 70 percent of Apple's available cash.

Adjusted for inflation, the total value of the cash portion of the deal on the day of the sale would be roughly $650 million today. Shares are accounted for in earnings, but don't directly affect the balance sheet — it creates issues with diluting stock value and the company having less stock that it can use for other purposes later.

Apple reported in April that, as of the end of its first 2014 fiscal quarter in March, it had $156 billion in cash and securities. It has $17 billion in bonds it issued to avoid paying tax on repatriating overseas profits to use to pay dividends to shareholders.

The Beats cash portion represents 1.9 percent of that money hoard less bond obligations; Apple will also provide about 640,000 shares to Beats. NeXT was not a going concern when purchased, while Beats has a reported $1.5 billion in 2013 revenue. There's no widely available information about whether it is profitable or not.

Compared to NeXT the Beats deal seems a bargain.

An Insurer's "Cheap" Pharmacy Partner? Ha

Years ago, my insurance company offered a small prescription drug benefit on the plan we had as a family — $250 per year with lots of provisos about brand names and such and no co-pays. Over time, the plans changed and even the modest benefit disappeared. However, the insurer partnered with a mail-order pharmacy that, originally, offered significant discounts by using them for 90-day supplies of recurring drugs, and had negotiated deals with retail pharmacies to reduce cost for ones you had to get on the spot.

I knew the discounts weren't great, but some drugs I needed were brand name (Lipitor) and others were very cheap. I didn't price check that often, but I thought I was paying reasonable prices. Lipitor went off-patent, and the generic was much cheaper. I turned to Canada for one drug before it also went off-patent. But then I hit the wall when I had a stent put in recently.

After the diagnosis and intervention for my artery issue, I needed to add four new medications and continue one I'd started a few months ago for what seemed to be gastric issues. Aspirin is cheap. The rest vary. When I was discharged from the hospital, I went to the pharmacy, and they assembled all the meds I needed. One of the pharmacists went over all the drugs with me and said, "We gave you the discharge pricing; your insurance plan has terrible coverage." (I had technically been discharged by a different branch of the same hospital group, but the nearby one I was in didn't have Sunday pharmacy hours.) "You should really check out Costco for refills. It will be much less for many of these."

While still in my hospital room, I had priced one of the drugs, Plavix (an antiplatelet medication that keeps the stent clean): $2,500 a year for the brand name and $1,000 a year for the generic equivalent. I had a little sticker shock. Lynn said, "Don't look up the price of drugs while you are in the hospital recovering from a heart intervention." She was right.

A few days later, I did more research. My insurance company's partner, Express Scripts, offered a price that was always more (except, oddly, for one generic drug) than Costco's prices. Costco is a vast buyer, of course. And Express Scripts is enormous, too, and only handles prescriptions. It's absurd to think that a generally available generic drug should cost 10 times as much from Express Scripts than from Costco. [Update: I originally said one has to be a Costco member for these prices. That's apparently untrue. Not clear on the site.]

The total is $3928 per year for my new drugs and existing ones from Express Scripts and $953 for the identical generic drugs from Costco. (I have a query in to Costco about its Synthroid pricing, too.) I'll be sending a letter to the state insurance commissioner asking about this. The markup is absurd, assuming that Costco isn't losing thousands on my orders.

Is it legitimate for an insurer to refer its subscribers to a pharmacy that has such high prices relative to a legitimate, in-country retailer? It smells, but may be perfectly legal. I would like my insurer to require that its partners provide an up-to-date list of drug pricing databases and offer comparisons among major retailers.

DrugExpress ScriptsQtyPer dayCostco PharmacyQtyPer day
Pantoprazole (Protonix) 40mg$298.4890$3.32$21.7490$0.24
Carvedilol (aka Coreg) 3.125mg (2x/day)$156.24180$1.74$9.99180$0.11
Clopidogrel (aka Plavix) 75mg$197.8990$2.20$28.71100$0.29
Ramipril 2.5mg$130.4690$1.45$23.46100$0.23
Levothyroxine (aka Synthroid) 75mcg$22.1890$0.25$86.43100$0.86
Atorvastatin (aka Lipitor) 40mg (cut in half)$85.5390$0.95$26.4990$0.29
Montelukast (aka Singulair) 10mg$77.7290$0.86$51.9390$0.58
Yearly total$3,927.81$952.61