More Specialty Consolidation: Cardinal Health Buys Metro Medical (EXCLUSIVE)

Cardinal Health just acquired Metro Medical, the largest independent specialty distributor. There was no public announcement—unless you count my @DrugChannels tweet yesterday morning. So,  today's article counts as another Drug Channels exclusive.

It’s a great move for Cardinal, which dramatically expands its small specialty distribution business while gaining access to new practice settings. The Metro deal also puts Cardinal a little closer to the specialty businesses of AmerisourceBergen and McKesson. Below, I provide a few details about specialty distribution market share, Cardinal’s position, and the mysterious Metro Medical.

Hmmm, I wonder if Express Scripts will ever spin off its CuraScript SD business? I can think of at least one Midwestern company that would happily buy it.

THE MARKET

Independent physician offices and outpatient clinics are the largest customer group for specialty distributors. These sites are privately owned, community-based centers that have office space as a direct cost to the physician and not typically in a hospital outpatient department area. Due to market changes, this group has declined as a share of specialty distributor revenues, from 72% in 2011 to 63% in 2013. (source)

The largest specialty distributors are divisions of full-line wholesalers. These include the distributors in AmerisourceBergen Corporation’s Specialty Group (Oncology Supply, ASD Healthcare, and Besse Medical) and McKesson Specialty Health (a business unit of McKesson Corporation).

As the chart below shows, we estimate that these two companies generate about three-quarters of total specialty product distribution revenues to physician offices and clinics. The chart appears in our 2014-15 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.

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CARDINAL AND METRO

Like its peers, Cardinal operates multiple distribution and services businesses focused on specialty pharmaceuticals. Although Cardinal is secretive about its Specialty Solutions division’s size, we estimate that its revenues were $3.2 billion in its 2014 fiscal year. We estimate that about half of Specialty Solutions revenues came from Cardinal’s specialty drug distribution business. See Exhibit 70 (page 127) and Chapter 7 (pages 130-131) of our wholesale report.

In recent conference calls, Cardinal has hinted that its specialty division’s revenues will be more than $5 billion in its 2015 fiscal year. Metro will add significantly to the division's size.

Metro Medical is notoriously secretive about its business. Visit www.metromedical.com and you’ll wonder if the business is just two guys in a warehouse. Nonetheless, I estimate that revenues could be as high as $2 billion. But who knows?

Metro’s oncology distribution business and its Bellweather GPO will complement Cardinal’s existing operations. Metro has a presence in rheumatology and nephrology offices—two segments where Cardinal has minimal share.

My bottom line: This is another good tuck-in acquisition for Cardinal. Who’s next?