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Walgreens sells PBM unit to Catalyst Health

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DEERFIELD, Ill. — Walgreen Co. is stepping out of the pharmacy benefits management (PBM) business.

President and chief executive officer Greg Wasson said Walgreens’ deal to sell Walgreens Health Initiatives Inc. (WHI), its PBM unit, to Catalyst Health Solutions Inc. for $525 million will enable the company to concentrate on the prescription drugs and health services offered through its vast store network.

“With nearly 7,700 drug stores as our center of gravity, we are focused more than ever on delivering convenient, affordable, high-quality pharmacy, health and wellness solutions and on enhancing our full scope of services to become America’s first choice for health and daily living needs,” Wasson stated.

Under the cash deal, announced in early March, Catalyst will acquire all of the capital stock of WHI. The transaction is slated to close by the end of June, according to Walgreens.

Plans also call for Walgreens, under a transition services pact, to provide certain services to Catalyst after the deal closes, to ensure an orderly transition for WHI’s customers and patients.

In addition, Catalyst has agreed to provide prescription benefit services for Walgreens’ 244,000 active employees, plus retirees and dependents, and to administer the Walgreens Prescription Savings Club.

“Catalyst has an outstanding reputation and is committed to service excellence and innovation,” Wasson commented. “We are confident that WHI’s customers will benefit from Catalyst’s programs, resources and access to state-of-the-art PBM services. We look forward to working with Catalyst to ensure a smooth transition.”

The companies said Catalyst will maintain a significant presence in the Chicago area for the Walgreens employees joining Catalyst as part of the sale.

Meanwhile, the chain drug retailer aims to hold onto and continue growing its specialty pharmacy and mail-service businesses and to provide those services in support of Walgreens, WHI and Catalyst patients.

“Our specialty, infusion and mail pharmacy services are an important extension of our drug stores, retail clinics, work-site health centers and medical facility pharmacies,” Wasson explained. “These services and locations are part of our industry-leading 8,000-plus points of care and are on the front line of helping millions of patients live well, stay well and get well.”

Industry analysts saw the sale of WHI as a positive move for Walgreens.

“Walgreens never had scale in the PBM industry,” said Helene Wolk of Sanford Bernstein & Co. “Their exit from the PBM industry is because they were never able to scale that business to where it would have real viability as a retail-PBM combination. It was a distraction in some ways for Walgreens, which really has a much broader strategy. And that [WHI], frankly, was a subscale business that didn’t really fit in with their strategy.”

In a research report on the deal, Mark Miller of William Blair & Co. noted that Walgreens will keep its mail-order and specialty pharmacy assets and remain a preferred provider for Catalyst’s mail fulfillment.

“We believe that Catalyst represents a good partner for Walgreens, enhancing the strategic value of the deal,” Miller wrote. “The transaction removes one element of uncertainty for Walgreens and reinforces the organization’s focus on driving ‘more from the core.’ Considering that Walgreens is generating more than $2.5 billion of free cash flow annually (with $1 billion for dividend payments), the deal is further affirmation that the company is unlikely to diversify unwisely.”

According to Rockville, Md.-based Catalyst, the purchase of WHI brings together two of the nation’s leading PBMs. With the acquisition, Catalyst’s PBM membership will swell from about 7 million people to more than 18 million, with annual prescription volume rising from 80 million to over 165 million.

“This is a significant milestone for Catalyst and an important next step in our long-term growth strategy,” stated Catalyst chief executive David Blair.


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