PharMerica + KKR + Walgreens Boots Alliance = $$$$$$$ -John G. Baresky

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Under The Radar Of Most Healthcare Executives…

…Looking ahead, KKR and Walgreens Boots Alliance ( WBA) have quietly disrupted the home infusion / specialty pharmacy marketplace and added another source of revenue…

On Wednesday, 8/2/2017, PharMerica was acquired by private equity firm KKR (Kohlberg Kravis Roberts). KKR paid $1.4 billion for PharMerica. Headquartered in Louisville, Kentucky, PharMerica is a leader in pharmacy services for assisted living facilities (ALF), hospitals, long term care facilities (LTC), skilled nursing facilities (SNF) and other specialty pharmacy service sectors. Its Amerita business unit focuses on home infusion services, Onco360 focuses on oncology pharmacy services and Luker pharmacy management unit operates in hospital pharmacy management.

…Based on estimates from NHIA (National Home Infusion Association), the annual alternate-site infusion business segment is approximately $9 billion to $11 billion per year and primarily serviced via 1,500 infusion pharmacy centers; the segment’s growth is forecasted to be about 15% per year…

Overall, PharMerica is comprised of approximately 99 institutional pharmacies, 19 specialty home infusion pharmacies and 4 specialty oncology pharmacies in 45 states. PharMerica was founded in 2006 through the merger of the institutional pharmacy business of Louisville-based Kindred Healthcare and a pharmacy services subsidiary of AmerisourceBergen Corp. PharMerica, created from two healthcare segment market leaders, is now embarking on a new corporate journey and Walgreens is part of it…

Healthcare Sector M & A…

The healthcare industry is rife with large scale mergers and acquisitions in the tens of billions of dollars. KKR’s PharMerica deal may not be considered all that meaningful in terms of a comparatively low transaction number of $1.4 billion ($909 million-plus the assumption of about $490 million of PharMerica debt). KKR has successfully conducted far larger, more complex purchases and sales; it presently has a handful of healthcare industry companies in its portfolio and is adding more. In July 2017 KKR took healthcare website WebMD private in a $2.8 billion dollar acquisition and also acquired Envision Healthcare’s ambulance service unit (American Medical Response) for $2.4 billion with the intent to merge it with its Air Medical Group (a leading medical helicopter service provider). The PharMerica acquisition is extraordinarily strategic in nature as a minority stakeholder in it will be Walgreens Boots Alliance ( WBA ).

…WBA, based in Deerfield, Illinois (a Chicago suburb), ranks at number 17 in the Fortune 500 and is a global healthcare services conglomerate best known for its “Walgreens” and “Boots” retail pharmacy stores…

…New York City-based KKR was founded in 1976 and is a global investment firm managing over $148 billion in assets…

Friends With Benefits…

Well-known WBA ( NYSE: WBA ) provides an array of retail, mail order and specialty pharmacy services worldwide. It owns a large stake in OptionCare, one of the nation’s largest home infusion companies. The company also owns almost 25% of AmerisourceBergen (which happens to own all of PharMEDium, the nation’s largest compounding pharmacy). By staking a claim to part of PharMerica, WBA widens its reach and revenue stream in the non-retail pharmacy services sector.

While it may not completely own AmerisourceBergen, OptionCare or PharMerica; it owns enough to have a degree of influence in each. Equally important, it has a cut of their profits. Through this arrangement, WBA benefits from owning a portion of businesses and profiting from them and being able to invest in other opportunities — while avoiding prohibitive debt loads and antitrust issues.

In partnership with KKR, WBA is also able to widen its pharmacy services operational footprint in defense against Amazon’s expected entry into the pharmacy market. By having multiple conduits ( retail, mail order, specialty pharmacy, home infusion pharmacy, long term care pharmacy ), WBA is better able to service a wider variety of patients, more assertively negotiate with pharmaceutical manufacturers and medical device manufacturers while collectively competing against Amazon as it elbows its way into the pharmacy realm.

Outflanking Established Competitors …

The PharMerica deal has another significant aspect to it. Its competitors are now prohibited from freely and directly acquiring it. Two examples are BioScrip and CVS Health; two well-established competitors in the home infusion / specialty pharmacy services sector which may have benefitted by acquiring at least a portion of PharMerica in a similar arrangement. Another is United Healthcare’s Optum division; it has a home infusion / specialty pharmacy services business unit, BriovaRx, which operates more than 30 branches. Potentially, there may have been highly strategic value for them to bolster these operations through acquiring PharMerica.

Market Sector Disruption And Future Opportunity…

KKR and WBA can re-organize and invest in PharMerica accordingly to make it a larger, more robustly competitive player. This includes acquiring other pharmacy service entities to couple with PharMerica or they may choose to eventually integrate it with OptionCare. Meanwhile, pharmacy industry competitors and other sector stakeholders will have a new challenge in monitoring a clinically, financially and technically well-supported contender assertively moving into a new chapter of development and growth under the cover of private ownership.

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Hi, my name is John Baresky ( pronounced “ buh — ress — key “) and I have over 25 years of experience in healthcare.

Throughout my career, I have been writing about healthcare while developing and sharing important information with physicians, nurses, pharmacists and other clinicians plus consumers, patients, healthcare business professionals, investors and other stakeholders.​​

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