BUSINESS

CVS building position in long-term care market with $10.4B deal for drug distributor Omnicare

05/21/2015 07:20 EDT | Updated 05/21/2016 05:59 EDT
CVS Health will pay more than $10 billion for pharmaceutical distributor Omnicare in a deal primed to feed its fast-growing specialty drug business and tap a lucrative and growing market: care for the elderly.

The acquisition announced Thursday will give one of the biggest U.S. pharmacy benefits managers national reach in dispensing prescription drugs to assisted living and skilled nursing homes, long-term care facilities, hospitals and other care providers. Omnicare's long-term care business operates in 47 states and the District of Columbia.

The deal also will bring in more business doling out specialty drugs. These complex and expensive medications for cancer, hepatitis C and other conditions can represent treatment breakthroughs but are raising growing concerns over cost. Insurers and other bill payers want help containing that expense.

Specialty drug revenue soared 46 per cent for CVS Health in the first quarter, helping the company trump analyst expectations and make up for a sales hit from its decision to stop selling tobacco products last year in its drugstores. CVS Health also runs the nation's second largest drugstore chain, trailing only Wagreens Boots Alliance Inc.

Cincinnati-based Omnicare's core business involves distributing drugs and providing pharmacy services to long-term care providers, a market CVS Health doesn't currently serve.

CVS Health CEO Larry Merlo told analysts that represents a "substantial growth opportunity" for his company, with the U.S. population aging.

U.S. Census Bureau researchers have predicted that the population age 65 and older will approach 84 million people by 2050, nearly double its total in 2012, due largely to the aging baby-boom generation.

Merlo noted that older people are more likely to take several medications and can have trouble making sure their prescriptions follow them as they move from their own home to long-term care or other settings. He believes his company can help ease these transitions.

"Omnicare significantly expands our business and provides us with access into a new pharmacy dispensing channel," Merlo said.

CVS Health said Thursday that it would spend $98 in cash for each Omnicare share. The total value of the deal, expected to close later this year, is $12.7 billion counting about $2.3 billion in debt.

Omnicare has shelled out millions of dollars in recent years to settle federal lawsuits over kickback allegations.

Last June, it agreed to pay more than $124 million to settle lawsuits alleging it gave kickbacks to some facilities so they would keep the company as their drug provider for elderly Medicare and Medicaid recipients. Omnicare said it settled the case to end litigation and committed no wrongdoing.

In 2009, Omnicare said it would pay $98 million to settle allegations that it solicited or paid a variety of kickbacks. That included an accusation that it received kickbacks from Johnson & Johnson for recommending that doctors prescribe to nursing home patients the antipsychotic Risperdal, which can hasten death in elderly people with dementia.

In December, the U.S. Department of Justice filed another lawsuit against Omnicare alleging that it received millions of dollars in kickbacks from Abbott Laboratories in exchange for buying and recommending the prescription anti-seizure drug Depakote for controlling behaviour problems in nursing home patients with dementia.

CVS Health spokeswoman Carolyn Castel said in an email that these cases amounted to "legacy issues," and Omnicare management has worked "diligently over the past few years to create a new foundation around regulatory and compliance matters."

An Omnicare representative did not immediately return a call from The Associated Press seeking comment about the litigation.

Shares of Woonsocket, Rhode Island-based CVS Health Corp. climbed 2.2 per cent, or $2.21, to $103.48 in Thursday afternoon trading, while broader indexes edged up slightly. Omnicare Inc. shares advanced $1.63 to $96.26.

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AP Business Writer Damian J. Troise contributed to this story from New York. Murphy reported from Indianapolis.