Change in the air

SXC, Catalyst latest in consolidation of PBMS

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.