In May, CVS Corp agreed to purchase prescription distributor Omnicare for $10.4 billion.
Analysts see this as a move by the pharmacy company to create a stronger position as a dispenser of pricey prescription medications. Omnicare fulfills prescriptions for diseases like multiple sclerosis and cancer, which can range from $50,000 to $100,000 annually per patient.
Big prescriptions, big money. CVS offered $98 per share for Omnicare, which was at a 3.6% premium to Omnicare’s closing price. It was also 24% higher than the company’s average share over the last 100 days. The total deal is valued at $12.7 billion, including the $2.3 billion that Omnicare is bringing in debt form. The Omnicare Company has two main businesses that make up its portfolio. The smaller portion is what CVS is banking on for success.
This smaller arm is a specialty-pharmacy unit that can ship these expensive prescription drugs to patients, on behalf of pharmaceutical companies directly. These prescription medications normally aren’t available at brick and mortar retail pharmacies. Omnicare had signed agreements to dispense cancer medications for major manufacturers including Bayer AG, Novartis AG and Pfizer Inc.
Prescription medications and nursing homes. Omnicare’s second business is as the largest U.S. provider of prescription medications to nursing homes, homes that serve the elderly and homes that serve the disabled. These long-term care facilities comprise nearly three-quarters of Omnicare’s entire business model – to the tune of $6.42 billion in revenue in the last year. However, the unit has experienced some sluggish sales competing with smaller, more nimble competitors.
For CVS, the investment could give the company more buying power to negotiate discounts with drug manufacturers. In addition, it will allow CVS to tap into two of the biggest trends in the health and wellness industry – serving the rapidly aging population and providing relatively rare medications to patients who need special care.
CVS operates nearly 8,000 retail pharmacies across the U.S., and with its purchase of Caremark in 2007 it is the second-largest pharmacy-benefits manager in the U.S.