What’s Behind the Slowdown in Specialty Pharmacy M&A Deals?

It looks like specialty pharmacy merger & acquisition (M&A) activity has slowed down.

In 2017 so far, only seven deals involving specialty pharmacies and infusion services companies have been announced. Each is listed below, along with the 10-year M&A trends.

What’s going on? Are buyers skittish over slower specialty industry revenue growth? Are they nervous about the still-unsettled impact of Direct & Indirect Remuneration (DIR) fees? Are the big dealmakers on the sidelines, digesting their previous purchases? Or will we see a surge of deals before year’s end?

DEALS DEALS DEALS

We project that in 2021, the pharmacy industry’s revenues will be about $572 billion—and that specialty drugs will account for 42% of that figure. See Our Exclusive 2021 Outlook for Specialty Pharmacy Prescription Revenues.

Given these growth prospects, there has been an active market for the buying and selling of specialty pharmacy and infusion services companies. The chart below shows the Braff Group’s count of M&A transactions during the past 10 years.

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In the past few years, the total number of deals has been lower compared with the 2010 to 2012 period. The Braff Group attributes this slowdown partly to a decline in the number of very active serial acquirers. Many of these companies have slowed acquisition activity, e.g., Walgreens, or been acquired themselves, e.g., CarePoint Partners. For full details see Braff’s excellent report The Fine Young Cannibals in Pharmacy Services M&A.

For our review of last year’s 14 major publicly announced transactions, see Specialty Pharmacy M&A: Our Look at 2016’s Deals. For an overview of the specialty pharmacy market, see Chapter 3 of our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

7 FOR 2017 (SO FAR)

Below is our list of deals that were publicly announced in 2017. I include links to some relevant Drug Channels articles, but not to each deal’s public announcement. Transactions are listed alphabetically by acquirer’s name.

• The supermarket chain Albertsons acquired MedCart Specialty Pharmacy.

• Diplomat Pharmacy has made three acquisitions in 2017 so far:

• Accurate Rx Pharmacy Consulting, a specialty pharmacy that focuses on infusion services. Diplomat paid $8 million in cash and $1.8 million in Diplomat stock, and may pay an additional $3.6 million based upon profit performance. Accurate Rx had annual revenues of $17 million in 2015 and was one of 2015’s fastest-growing, private specialty pharmacies.
• Affinity Biotech, a specialty pharmacy and infusion services company that focuses on patients with hemophilia. Diplomat paid $16 million in cash and will pay up to $10 million in contingent consideration for Affinity Biotech, which had annual revenues of $27 million in 2016.
• Focus Rx, a specialty and infusion pharmacy with two locations. The purchase price wasn’t disclosed. Focus Rx is expected to have revenues of about $47 million for 2017. Focus Rx was one of 2016’s fastest-growing, private specialty pharmacies.

• Factor One Source Pharmacy, a specialty pharmacy headquartered in Maryland, acquired F.A.S.T. Access Rx, a specialty pharmacy based in Louisiana. The combined companies project $156 million in revenue for 2017.

• PharMerica acquired CareMed Specialty Pharmacy. Terms of the transaction were not disclosed. Per our August news roundup, investment firm KKR and Walgreens Boots Alliance (WBA) subsequently announced that they will acquire PharMerica.

• Value Specialty Pharmacy, which is owned by regional full-line drug wholesaler Value Drug, acquired Restore Rx, a small specialty pharmacy in Tennessee.

If I missed your favorite deal, email me. Be sure to include a link to the public announcement.

We could still see a flurry of deals before 2017 is over. I’ll revisit the list in January. In the meantime, remember: Money never sleeps.