CVS Health to acquire Omnicare for $12.7 billion: more consolidation in pharmaceutical distribution

Acquisition will affect both specialty-pharmacy and long-term care markets

Ending weeks of speculation, CVS Health (Woonsocket, RI) has agreed to acquire Omnicare (Cincinnati), expanding its role in both specialty pharmacy and now long-term care drug distribution, Omnicare’s core business. A relatively small premium over Omnicare’s closing price on May 20 is belied by the runup in Omnicare’s stock price over the past several weeks and the roughly 33% rise in the company’s stock over the past year, which has to be pleasing to Nitin Sahney, who took over as Omnicare CEO a year ago. Leading up to the announcement, there had been speculation that Express Scripts, or Walgreens, or any of the Big Three wholesaler-distributors, would make a bid, but CVS Health won out.

Omnicare’s 2014 revenue was $6.3 billion. The acquisition also blows right by litigation Omnicare is engaged in with the Dept. of Justice over improper payments to prescribers, initiated in December and against which Omnicare said it would defend itself. (Coincidentally, Omnicare was also party to an April Supreme Court decision concerning responsibility for stockholder disclosures; the court ruling, while not concluding the case, was generally favorable to Omnicare.)

“The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel," said CVS Health President and CEO Larry Merlo, focusing on the long-term care market. “It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients as they transition across the care continuum.” Even so, the specialty pharmacy and specialty distribution businesses greased the wheels of this deal; those parts of Omnicare have been experiencing double-digit growth while the long-term care part has been in the low single digits.

This acquisition is the latest (and probably not last) in a series of mergers in the specialty-pharmacy and pharmacy benefit-management fields since the beginning of the year, notably Rite Aid/Envision and Optum/Catamaran. Pharma marketers are confronting an increasingly consolidated market in the US.