This a great deal for CVS Health, which extends its leadership in specialty dispensing, expands into long-term care and assisted living, and enlarges its generic and brand buying power. The transaction is a bit pricey, but strategically sound and a good use of capital.
The Wall Street Journal and The New York Times had good coverage of the story. Both included a few comments from yours truly and cited data from our 2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies. Cool!
Links and highlights below.
Here are the two major stories:
- CVS to Buy Drug Provider for $10.4 Billion,The Wall Street Journal
- CVS Health Agrees to Buy Omnicare in $12.7 Billion Deal,The New York Times
Both articles provide nice summaries of the deal’s structure and benefits. Here’s what I told the NYT:
“I think it’s an excellent move by CVS,” said Adam J. Fein, president of Pembroke Consulting, a management advisory and business research company based in Philadelphia. “It opens up a really great new market for them in long-term care and assisted living.”The WSJ included the nifty chart below. It shows CVS Health’s revenues from its two major business segments: Pharmacy Services (which the WSJ calls “Retail”) and Pharmacy Benefit Management (which the WSJ calls “Services”). Below, the big circles highlight major acquisitions since 2004.
In addition to operating retail pharmacy stores around the country, CVS manages pharmacy benefits, handling the fulfillment of prescriptions on behalf of major insurers and employers. Dr. Fein said this deal would help the company control the rising cost of specialty drugs by having a presence in a variety of markets.
He added that the deal would fit in well with the acquisition CVS made in 2013 of Coram, a provider of infusion services, which also allowed it to expand into a new market. “It demonstrates an ability to manage specialty drugs across many care settings, with a broader set of patients,” Dr. Fein said.
[Click to Enlarge]
Here’s what I told the WSJ:
In 2014, CVS was the leading provider of specialty drugs in North America, with $20.5 billion in revenue, representing 26% of the total market, according to an analysis by Adam J. Fein, a pharmaceutical-supply-chain consultant. Omnicare was the eighth-largest specialty drug provider, according to Mr. Fein.For manufacturers, this deal creates a more complex customer that crosses even more classes of trade. The channel blurring continues.
“The specialty business is the crown jewel of Omnicare,” Dr. Fein said in an interview. “Long-term care is growing very slowly,” but it dispenses high volumes of prescription drugs, which should help CVS negotiate better discounts, Dr. Fein said.