Wednesday, September 04, 2019

The Shakeout Begins: The Fastest-Growing, Private Specialty Pharmacies of 2018

Time for our review of the Inc. 5000 list, the magazine’s annual ranking of the fastest-growing private companies in the United States. The list—based on revenue growth from 2015 to 2018—offers a valuable snapshot of the dynamic specialty pharmacy industry. Today’s article marks our eighth annual analysis of the list.

The specialty pharmacy industry slowdown meant that fewer specialty pharmacies than ever before were eligible for the Inc. 5000 list. We have identified eight specialty pharmacies in this year’s edition. Annual revenues range from $15.5 million to $726.1 million. For the four companies returning from last year’s list, 2018 sales-weighted average revenues grew by 48%.

This year’s Inc. roster signals that the shakeout is beginning. Fewer new specialty pharmacies are starting up, the bigger companies are getting acquired, and market share is concentrating further with the biggest players. Look for other dramatic changes in the coming year.

The specialty pharmacy industry outlook will be a hot topic at next week’s 2019 NASP Annual Meeting & Expo. I’ll be there, so please share your thoughts with me if you see me there.

GROUND RULES

The 2019 Inc. 5000 list ranks companies based upon percentage revenue growth from 2015 through 2018.
  • To be ranked, companies must be based in the United States and be privately held, for profit, and independent—not subsidiaries or divisions of other companies—as of December 31, 2018. They must also have had revenues of no less than $100,000 in 2015 and no less than $2,000,000 in 2018.
  • Some companies have grown by acquisition. The Inc. growth figures do not necessarily reflect organic growth.
Click here to review of our analysis of last year’s list.

IS EIGHT ENOUGH?

Based upon the magazine’s company descriptions, we have identified eight firms whose primary business is the dispensing of specialty pharmaceuticals. That figure marks the fewest specialty pharmacies on the Inc. list since we began counting, in 2012. It is also one fewer company than the total on last year’s list.

[Click to Enlarge]

Here are my takeaways from the new list:
  • Although the Inc. list is a self-selected sample, the revenue growth rates remain impressive. Average (median) 2018 revenue for these eight businesses was $200 million ($123 million), and the average three-year revenue growth rate was 790% (520%).
  • Four of the eight companies appeared on last year’s list. The four returnees’ sales-weighted average year-over-year revenue growth rate for 2018 was 48%.
  • Only one company from the new Inc. list—PANTHERx Rare—made it onto our own list of the largest specialty pharmacies in The Top 15 Specialty Pharmacies of 2018: PBMs Keep Winning. As far as I know, PANTHERx holds the record for fastest-growing specialty pharmacy in the industry’s history. Its focus on rare diseases has allowed it to avoid the network access problems that plague other independent specialty pharmacies.
  • Avella Specialty Pharmacy is the most notable loss from last year’s list. Avella was acquired by UnitedHealth Group’s OptumRx. Avella’s 2017 revenues were $1.4 billion.
For a roundup of 2018's specialty pharmacy M&A, see section 3.2.4. of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

After attending Asembia’s most recent Specialty Pharmacy Summit, I remarked in The State of Specialty Pharmacy 2019:
”Many smaller independent pharmacies are struggling—and want to cash out … I spoke to numerous owners who told me about competitive pressures, struggles to gain access to payer and PBM networks, and profit challenges associated with direct and indirect (DIR) remuneration payments to Medicare Part D plans …
Consequently, I heard about many owners looking to sell their companies. Based on my chats with business brokers and bankers, these owners may face valuations far below their expectations.”
As I observed in the Drug Channels August news roundup, even Diplomat Pharmacy is planning an exit. The specialty pharmacy outlook reminds me of John Maxwell’s fantastic quote: “Change is inevitable. Growth is optional.”

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