CVS Health gets more drug pricing clout with $12B deal for Omnicare

CVS CEO Larry Merlo

Get ready for more of a squeeze on drugs used by seniors. CVS Health ($CVS) agreed to pay $12.7 billion for the pharmacy services company Omnicare ($OCR), which specializes in assisted living and long-term care facilities.

Adding Omnicare to CVS's pharmacy benefits management operations--with its substantial presence in Medicare Part D--will give the company control over a major swath of the market for senior prescriptions. Rhode Island-based CVS will pay $98 per share in cash and assume $2.3 billion in Omnicare debt to gain control of the company.

The deal follows a couple of smaller mergers that consolidate operations in the PBM business. UnitedHealth ($UNH) said in March that it would shell out $12.8 billion for the pharmacy benefits manager Catamaran ($CTRX), in a deal that would create the third-largest company in that field. Rite Aid ($RAD), meanwhile, agreed to buy the smaller PBM EnvisionRx for $2 billion.

Already, CVS and its chief rival, Express Scripts ($ESRX), have used their market heft to press drug prices downward. They've set up formularies that specifically exclude dozens of drug brands, including several that pharma companies had been counting on to revive their post-patent-cliff fortunes.

Emboldened by the success of those exclusionary formularies, the top PBMs have declared war on other pricey drugs, and succeeded in negotiating big discounts on the expensive hepatitis C therapies that hit the market last year. Express Scripts has said it's looking to push down the cost of cancer treatment in a "much bigger" effort than the price negotiations in hepatitis C. Forthcoming cholesterol fighters in the PCSK9 class are also among the targets.

Swallowing Omnicare can only give CVS more sway over drug pricing, particularly in the Part D market. In addition to Omnicare's long-term-care dispensing business, it operates a specialty pharmacy.

- get the CVS Health release
- read the Bloomberg story

Special Report: Pharma's 10 biggest price increases since 2007

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