UnitedHealth-Catamaran deal sets up healthcare M&A chessboard

Mon Mar 30, 2015 3:22pm EDT
 
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By Caroline Humer

NEW YORK, March 30 (Reuters) - UnitedHealth Group Inc's planned takeover of No. 4 U.S. pharmacy benefits provider Catamaran Corp will give the companies added heft in price talks with drug companies, serving as a catalyst for deals allowing other insurers to bulk up.

The $12.8 billion deal comes at a time when Wall Street has been parsing the possibilities that top insurers like Aetna Inc with Cigna Corp could pair up. Smaller companies like Health Net Inc, Molina Healthcare Inc or WellCare Health Plans Inc are also increasingly seen as takeover targets.

"There has been chatter about large-scale M&A coming out of some recent investor conferences," Mizuho Securities senior healthcare analyst Sheryl Skolnick said. "I don't know if $12.8 billion qualifies as large scale M&A in the space, but now you have the answer. Yes, there will be transactions."

Express Scripts Holdings Corp, the largest pharmacy benefit manager and the only stand-alone PBM, may be pressed to do a deal with a distribution company or pharmacy if margins become too tight, analysts said on Monday.

The link-up could force a tie-up between Express Scripts and Walgreens Boots Alliance, for instance, which has pharmacy and drug distribution operations but no pharmacy management business, Evercore ISI analyst Michael Cherny said in a research report.

That could put it at a disadvantage to CVS Health, the No. 2 pharmacy benefit manager which also owns one of the nation's largest pharmacy chains. Meanwhile, Envision RX, a small pharmacy benefit manager, recently announced plans to be bought by national drug store chain Rite Aid.

Healthcare companies are able to use scale to negotiate better prices. Late last year, for instance, Express Scripts was able to negotiate a steep discount for an important hepatitis C drug from AbbVie Inc, and has said it will use its size to extract discounts for cancer drugs and cholesterol drugs in the future.

A spokesman for Express Scripts, whose shares were up 3.7 percent to $85.39 in mid-afternoon trading, declined to comment on the Catamaran deal but said its business model was differentiated and in demand.   Continued...