Acquisition brings CVS into new pharmacy distribution channel

WOONSOCKET, R.I. — CVS Health is entering a new market segment with a $12.7 billion deal to acquire Omnicare, a provider of pharmacy services to long-term care facilities.

CVS said Thursday that the addition of Omnicare will significantly expand its ability to dispense prescriptions in assisted living and long-term care facilities, serving the senior patient population. The acquisition also will enable CVS to expand its presence in the specialty pharmacy business, with Omnicare’s complementary specialty pharmacy platform and clinical expertise.

Cincinnati-based Omnicare has about 13,000 employees and 160 locations in 47 states. In entering this new customer distribution channel, CVS Health said it will deliver benefits to consumers, patients, caregivers and payers by providing coordinated clinical pharmacy care across multiple treatment settings, from retail to long-term care. The addition of Omnicare also stands to help improve patient outcomes and provide enhanced continuity of care to patients and caregivers as they transition through the health care system, the company added.

CVS noted that, given the aging U.S. population, more people are expected to use assisted living facilities and independent living communities in the coming decades, presenting a major growth opportunity for companies serving the health care needs of seniors.

“The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel,” CVS Health president and chief executive officer Larry Merlo said in a statement. “It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients as they transition across the care continuum. We have been impressed by the Omnicare team and what they have created for the patients they serve.”

The boards of directors of both companies have approved the agreement. CVS said the transaction, which includes about $2.3 billion in debt, is expected to close near the end of 2015, pending approval by Omnicare shareholders and other customary closing conditions.

“We are pleased to have reached this agreement with CVS Health, one of the leading companies in the health care industry, which we believe will allow us to accelerate our mission of enhancing the quality and cost-effectiveness of care for complex patient populations,” stated Omnicare president and CEO Nitin Sahney. 

According to William Blair & Co. analyst Mark Miller, the Omnicare acquisition will provide another growth avenue for CVS Health.

“This attractive strategic acquisition provides CVS with an incremental dispensing channel in long-term care and assisted living, which represents 72% of Omnicare’s revenues. Retail and long-term care are complementary channels, as patients cycle between assisted living and home health settings,” Miller wrote in a research note on Thursday. “CVS has a strong record of improving health outcomes at the lowest possible cost — a vision shared by Omnicare — and the combined companies should be able to improve gaps in existing care.”

He added that CVS likely will give a boost to Omnicare’s specialty pharmacy business, which is the market’s eighth-largest and represents 28% of Omnicare sales.

“CVS has a strong record of execution, in our view, and some finesse may be required here as Omnicare’s specialty business has been more closely aligned with pharmaceutical manufacturers versus CVS’ aggressive formulary management on behalf of payers,” Miller stated.

*Editor’s Note: Article updated with analyst comment.