Specialty Pharmacy, Infusion M&A Activity Is Slowing Down
Reprinted with AIS Health permission from the February 2020, issue of RADAR on Specialty Pharmacy
The level of merger and acquisition (M&A) activity within the specialty pharmacy and home infusion arenas that has been occurring for numerous years has certainly depleted the number of companies available for deals. But that’s not to say they aren’t happening. Last month, Shields Health Solutions unveiled a deal to acquire ExceleraRx Corp. And approximately one month ago, Centene Corp. acquired PANTHERx Rare, LLC, and revealed a deal to acquire Magellan Health, Inc. (RSP 1/21, p. 1). AIS Health spoke with Bill Bolding, a senior analyst for Provident Healthcare Partners, and Michael Patton, managing director at the firm, to get their perspective on M&A trends within those industries.
AIS Health: Did you notice any COVID-spurred M&A activity last year?
Bolding and Patton: Two areas within health care that observed some COVID-spurred M&A activity were diagnostics and telehealth. Interest in testing, lab and diagnostics capacity spurred interest from both capital investors and strategic consolidators. Telehealth, which was undergoing investment and consolidation activity at very attractive valuations even prior to COVID, clearly benefited from potentially permanent adoption at both the provider and patient levels. It’s also important to state that generally speaking, areas of health care that are relatively insulated from the direct effects of COVID benefited in the market due to simple supply-and-demand factors. Private-equity dry powder remains very high, and investors need to deploy the funds they’ve raised, which explains why an industry such as pharmacy could benefit from a valuation perspective.
AIS Health: What are some trends over the past year within the specialty pharmacy space?
Bolding and Patton: We observed the continuing trend of significant independent specialty pharmacies partnering with strategic consolidators. Diplomat closed its deal with Optum in Q1 2020, while PANTHERx sold to Centene in Q4. Both were two of the largest independent specialty pharmacies in the U.S. prior to their exits.
AIS Health: How did the 2020 M&A specialty pharmacy activity compare/contrast with that of past years?
Bolding and Patton: Specialty pharmacy M&A activity is trending downward, with less than 10 deals occurring in 2020. This is largely due to many of the larger independent players exiting over the past five years or so. We expect this trend to continue for years to come.
AIS Health: What trends/activity do you think we’ll see within the specialty pharmacy space in 2021, and why?
Bolding and Patton: Provident has observed an influx of early-stage and venture capital into software-based pharmacy services platforms over the past few years. We expect as some of these new entrants gain traction and scale, many players will choose to partner with large strategics like Amazon, Optum, CVS, etc. as well.
AIS Health: What are some trends over the past year within the infusion therapy space?
Bolding and Patton: We observed the formation of two new infusion platforms, one of which is particularly unique. Linden Capital invested in Vital Care, which operates 60-plus franchise home infusion pharmacies across the U.S. Peak Rock Capital also invested in Paragon Healthcare, which offers both ambulatory and home infusion services.
AIS Health: How did the 2020 infusion therapy M&A activity compare/contrast with that of past years?
Bolding and Patton: Much like pharmacy, total deal volume is trending downward. With that being said, there are just under 10 private-equity-backed infusion therapy platforms in the market. This creates a strong buyer ecosystem for emerging players that may be considering exit opportunities.
AIS Health: What trends/activity do you think we’ll see within the infusion therapy space in 2021, and why?
Bolding and Patton: We expect to see some of the mid-sized infusion therapy providers consolidate in the coming year(s), particularly those that have been sponsored by private equity for a few years. Option Care Health (which merged with BioScrip in 2019) is by far the largest player in this market and would certainly represent a potential strategic partner to some of these mid-sized players.
AIS Health: Has the focus on drug prices had any impact on M&A activity in these two industries?
Bolding and Patton: If the MFN [i.e., most-favored-nation] pricing model is implemented in its current state, it will put significant pressure on the margins for stakeholders in this space. Should this cut begin to affect commercial payer reimbursement, it could force many small and mid-size players to re-evaluate their ability to dispense certain drugs and biologics.
AIS Health: Is there anything else that you’d like to add?
Bolding and Patton: We see the trends affecting infusion and specialty pharmacy in 2020 to be very similar. While scrutiny of drug prices will continue to pose risks to stakeholders in both spaces, we believe that COVID disproportionately has affected investor interest in areas of medicine that are elective in nature. For this reason, we believe interest in pharmacy and infusion will remain steady for the foreseeable future.
Contact Bolding and Patton via Gina Casiello at firstname.lastname@example.org.
by Angela Maas
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