Thursday, November 01, 2018

Surprise Deal: Cardinal Health Sells Its Specialty Pharmacy (Again)

The evolving specialty market has just claimed another victim. Cardinal Health is selling its specialty pharmacy to BioMatrix Specialty Pharmacy LLC, a private-equity-backed company. There was no public announcement, so today's article counts as another Drug Channels exclusive. Below, I provide background about BioMatrix and the specialty pharmacies that wholesalers operate.

Cardinal’s capitulation highlights the challenges for smaller specialty pharmacies. Cardinal operates a small, sub-scale specialty pharmacy that has had difficulty attracting patients. What’s more, Cardinal’s overall size as a $137 billion business couldn’t help its pharmacy gain sufficient access to manufacturers’ and payers’ limited networks.

Each of the Big Three wholesalers—AmerisourceBergen, Cardinal Health, and McKesson—is encountering challenges to its diversification efforts. Will Cardinal’s move prompt a rethinking of wholesalers’ broad business portfolios over the next 12 to 18 months?

WHOLESALERS’ SPECIALTY PHARMACIES

The following material comes from Section 2.4.2. of our new 2018–19 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

The Big Three wholesalers operate the following specialty pharmacies:
  • AmerisourceBergen owns US Bioservices, a specialty pharmacy with seven URAC-accredited locations. It focuses on oncology, rare and orphan diseases, and specialty infusion. AmerisourceBergen’s Lash Group subsidiary provides a free-goods pharmacy that dispenses starter kits, replacement products, and patient assistance programs.
We estimate that the pharmacies AmerisourceBergen and McKesson operate are among the industry’s largest specialty pharmacies. (See The Top 15 Specialty Pharmacies of 2017 .)

Cardinal’s specialty pharmacy never achieved the scale of its peers’ pharmacies. You may recall that this is the not the first time that Cardinal has exited the specialty pharmacy business. In 2010, Cardinal sold its SpecialtyScripts pharmacy services to Walgreens.

Some smaller wholesalers also own specialty pharmacies. But in total, only 2% of accredited specialty pharmacy locations are operated by wholesalers, per this chart from my presentation at Asembia’s 2018 Specialty Pharmacy Summit.

WHO IS BIOMATRIX?

In 2016, the private equity firms ACON Investments and Triton Pacific Capital Partners purchased BioMatrix Specialty Pharmacy, which focuses on both infused and oral specialty drugs. I highlighted this deal in Specialty Pharmacy M&A: Our Look at 2016’s Deals. The transaction was reportedly valued at $80 million.

As far as I know, the Cardinal transaction will be BioMatrix’s second deal since the private equity investment. In April 2018, BioMatrix acquired Decillion Healthcare in Ohio.

SIGN OF THE TIMES

As I noted in How 2017’s Fastest-Growing, Private Specialty Pharmacies Highlight an Industry Slowdown, the specialty pharmacy industry is maturing. The go-go growth years are fading.

It’s becoming harder to enter the industry and more challenging to scale a business. The network strategies of PBMs and health plans have concentrated market share for dispensing specialty drugs into the largest specialty pharmacies that are all owned or co-owned by a PBM.

BioMatrix typifies the next generation of independent specialty pharmacies: smaller, nimbler companies that are growing quickly with the help of outside capital. Another recent example is SMP Pharmacy Solutions, which received a major investment from private equity firm Galen Partners.

Each of the Big Three wholesalers has built sprawling operations in multiple segments and countries. In 2018, Cardinal divested its China business and sold a majority interest in naviHealth. I wonder if it’s time for more pruning.

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