Change in the air

SXC, Cat­a­lyst lat­est in con­sol­i­da­tion of PBMS

Modern Healthcare - - THE WEEK IN HEALTHCARE - Jaimy Lee

SXC Health So­lu­tions Corp.’s plans to buy Cat­a­lyst Health So­lu­tions sig­nals on­go­ing change and con­sol­i­da­tion within the na­tion’s phar­macy ben­e­fit man­ager mar­ket. The Fed­eral Trade Com­mis­sion this month voted 3-1 to ap­prove Ex­press Scripts’ $29 bil­lion ac­qui­si­tion of Medco Health So­lu­tions de­spite con­cerns from phar­macy and con­sumer groups that the deal was anti-com­pet­i­tive. The com­pany is now the largest PBM with about 30% mar­ket share, based on pre­scrip­tion vol­ume.

SXC, led by for­mer Care­mark ex­ec­u­tive Mark Thierer, is a health­care in­for­ma­tion tech­nol­ogy and PBM com­pany based in Lisle, Ill. Cat­a­lyst is based in Rockville, Md. The FTC has yet to for­mally re­view SXC deal, which was dis­closed last week.

“This is an ex­tremely com­pelling com­bi­na­tion that brings to­gether SXC’s in­dus­try-lead­ing tools and tech­nol­ogy with Cat­a­lyst’s full-ser­vice PBM, best-in-class ser­vice and grow­ing client base to cre­ate a com­pany that is even bet­ter po­si­tioned to com­pete in the mar­ket­place,” Thierer, chair­man and CEO, said in a news re­lease.

SXC has ac­quired three other com­pa­nies in the past year: HealthTrans, a mid­dle-mar­ket PBM and health in­for­ma­tion tech­nol­ogy com­pany, for $250 mil­lion; PTRx, a PBM, and SaveDirec­tRx, PTRx’s ex­clu­sive mail-or­der phar­macy provider, for $77 mil­lion; and MedMet­rics Health Part­ners, a PBM, for an undis­closed amount.

The ac­qui­si­tion of Cat­a­lyst for $4.4 bil­lion in cash and stock is by far the largest trans­ac­tion to date for SXC.

Be­cause the dy­nam­ics of the PBM mar­ket ben­e­fit larger com­pa­nies with the most scale to nego- tiate lower prices on drugs, the FTC’s ap­proval of the Ex­press Scripts deal was ex­pected to lead to con­sol­i­da­tion among com­pet­ing PBMs.

“The trans­ac­tion greatly en­hances SXC’s op­er­at­ing scale (specif­i­cally its pur­chas­ing power) and will en­able the com­pany to ag­gres­sively com­pete against and gain mar­ket share from larger PBMs,” Jefferies & Co. an­a­lysts wrote in a re­search note.

An­a­lysts have also said they ex­pect the Ex­press Scripts deal to pro­vide new busi­ness op­por­tu­ni­ties for other PBMs as Ex­press Scripts and Medco go through the in­te­gra­tion process.

In state­ments on the Ex­press Scripts deal, the FTC had cited SXC and Cat­a­lyst as ex­am­ples of the mar­ket’s smaller PBMs that are both “ex­pe­ri­enc­ing con­sid­er­able growth.”

How­ever, the FTC’s decision to ap­prove the deal in light of an eight-month-long in­ves­ti­ga­tion and an ag­gres­sive ad­vo­cacy cam­paign by phar­macy groups to fight the trans­ac­tion may have led SXC and Cat­a­lyst to move for­ward with the deal.

“The reg­u­la­tory risk isn’t there,” said Brian Tan­quilut, an an­a­lyst with Jefferies.

The deal is ex­pected to close in the sec­ond half of the year.

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