Thursday, July 16, 2015

How 2015’s Payer and Pharmacy Consolidation Will Affect Drug Wholesalers

It has been a record year for corporate mergers and acquisitions. Aetna’s recently-announced acquisition of Humana is just the latest of the many mega deals reshaping U.S. drug channels

Today, I examine how six major 2015 transactions could impact pharmaceutical wholesalers. As you will see below, both McKesson and Cardinal Health could experience revenue shifts. Consolidation and acquisitions, however, generally hurt wholesalers’ margins, because the acquired companies consolidate their buying power.

Scott Adams, the creator of the comic strip Dilbert, once opined: “There is no idea so bad that it cannot be made to look brilliant with the proper application of fonts and color.” Sound advice for evaluating deals in this consolidating marketplace.

Here are the key transactions included in our review. Except for the Aetna-Humana combination, the links take you to the relevant Drug Channels analysis:
The table below shows the primary drug wholesalers that supply both the acquiring and the acquired companies.

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Here are some observations on the four largest transactions:
  • Aetna-Humana: CVS Health’s Caremark business manages the purchasing, inventory management, and prescription fulfillment of Aetna’s mail order and specialty pharmacies. (See 2010’s CVS-Aetna: Less Than Meets The Eye?) Thus, Aetna’s prescription volume is coming via Caremark, which is being supplied by McKesson. If the Aetna-Humana deal is completed, Aetna may eventually restructure its pharmacy and PBM relationships and build an OptumRx-like internal PBM.
  • CVS Health-Target: McKesson is Target’s primary wholesale supplier for brand-name drugs, while Target primarily purchases generic drugs directly from the manufacturer. With the CVS deal, brand-name supply will likely switch to Cardinal Health, while generic sourcing will shift to CVS Health’s Red Oak joint venture with Cardinal Health.
  • OptumRx-Catamaran: In 2014, Cardinal Health won the Catamaran business from McKesson, which will presumably gain the volume back after the Optum deal closes. However, There’s no guarantee that an acquired company’s supplier will win the combined business. Recall that AmerisourceBergen won the combined Express Scripts-Medco business from Cardinal Health. So, UnitedHealth Group's OptumRx PBM may look for a competitive bid that would include both brands and generics.

Big deals have a funny way of spawning more deals. More disruption ahead.

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