OptumRx and Catamaran Corporation (CTRX, Financial), the two leading companies providing pharmacy benefit management (PBM) services and technology solutions in the United States, announced that they are merging together in an effort to contain pharmaceutical drug prices. OptumRx is UnitedHealth Group’s (UNH, Financial) free-standing pharmacy care services business. UnitedHealth Group is the largest health insurer of the country and after this deal it will be one of the competitors among the PBMs in the U.S., PBMs are the middleman between drug manufacturers and employers when it comes to purchasing pharmaceuticals. Other PBMs which are turning to be of great value like Catamaran Corp are Caremark subsidiary of CVS Health (CVS, Financial) and Express Scripts (ESRX, Financial) as biological drugs take on a greater share of total U.S. drug costs.
The big deal about the deal
The two companies said in a statement that “the combined organization will help customers manage the complex costs and outcomes as this portion of the pharmaceutical market expands from an estimated $100 billion in revenues in 2014 to potentially $400 billion annually by 2020.”
As the deal is valued at $12.78 Billion, UnitedHealth will pay $61.50 per share in cash to buy Catamaran. UnitedHealth plans to finance the deal using existing cash resources and new debt. The deal is expected to close during the fourth quarter of 2015 and is expected to be accretive to the health insurer’s earnings for 2016.The deal is designed to help UnitedHealth find better prices with pharmaceutical companies and drug stores. Catamaran shares surged 25% to $60.20 on Monday. UnitedHealth Group is up 4% to $122.92.
About Catamaran and UnitedHealth Group
UnitedHealth Group is a diversified company headquartered in Minnesota. UnitedHealth Group offers a variety of products and services through its two operating businesses: UnitedHealthcare and Optum. UnitedHealth Group serves approximately 70 million people in the United States. OptumRx subsidiary provides pharmacy benefit management (PBM) services for more than 30 million people nationwide. This business processes nearly 600 million adjusted retail, mail and specialty drug prescriptions annually.
Catamaran Corp. is a pharmacy benefit management (PBM) company, and it sells services related to pharmacy benefit management and medical record keeping to various businesses. Catamaran corp. was previously known as SXC Health Solutions, it was renamed after acquiring rival Catalyst Health Solutions Inc. in 2012. Catamaran offers retail pharmacy network management, mail service pharmacy, pharmacy claims management and patient-centric specialty pharmacy services to a large number of clients. Catamaran manages more than 400 million prescriptions for 35 million customers.
As Catamaran Corp is under Optum’s umbrella with this deal, it is expected that they will create significant value for their combined customer base resulting from integration of their businesses. This deal is expected to create a new giant in the PBM industry.
Takeaway
This is a crucial time as Gilead Sciences Inc. (GILD, Financial) and AbbVie Inc. (ABBV, Financial) have recently launched expensive treatments for hepatitis C with prices as high as $1,000 for a pill. Both the companies have launched competitive products and are in talks with PBMs for exclusive deals. This can turn out to be vital for the combined company as hepatitis is a key reason for increase in drug spending in the United States.
Optum CEO Larry Renfro said he believes that this combination can create a unique offering in the industry unparalleled by current participants.
