The largest health insurer in the United States, UnitedHealth, plans to spend more than US$12 billion to buy pharmacy benefits manager Catamaran Corp., one of the top healthcare stocks listed on the Toronto Stock Exchange.
Catamaran stock was up about 25% at US$60.11 on Nasdaq and at C$76 in Toronto on the TSX. United Health shares were up US$4.18 or 3.5% at US$122.19 on the New York Stock Exchange.
Pharmacy benefits managers, or PBMs, help negotiate the prices that customers pay for prescription drugs. They are seen as a key component in the push to contain rising specialty drug costs, an expense that could overwhelm parts of the U.S. healthcare system, especially the federal-state Medicaid program, insurers and other bill payers have warned.
Read: U.S. PBM usage on the rise due to increasing drug costs
Specialty drugs are complex medicines often represent treatment breakthroughs but come with much higher prices than older drugs. Experts say specialty drugs have always been pricey but confined to relatively small patient populations. That’s changing, due in part to some relatively new hepatitis C treatments that could be used by millions of patients.
UnitedHealth and Catamaran said Monday that their deal will combine businesses that have “distinctive, rapidly growing specialty pharmacy services” for a segment of the market that is expected to quadruple from an estimated US$100 billion in revenues last year to US$400 billion by 2020.
UnitedHealth Group Inc.’s OptumRx PBM business fills about 600 million prescriptions annually. Catamaran expects to fill 400 million this year. The largest U.S. PBM, Express Scripts Holding Co., filled about 1.3 billion prescriptions last year.
Read: Using PBMs to control prescription drug costs
Express Scripts executives have spoken out frequently about soaring costs from specialty drugs, and the St. Louis company threw its weight into this fight late last year by restricting coverage. It said in December it will no longer cover Sovaldi and Harvoni—two Gilead Sciences drugs that cost more than US$80,000 each for a full course of treatment—or Johnson & Johnson’s Olysio except under limited circumstances.
Instead, it made AbbVie Inc.’s Viekira Pak the preferred treatment for its patients.
PBMs can make these restrictions in part because of the leverage they get from the millions of customers they represent. Acquisitions have been a key means of growth in the sector for years.
In 2012, Express Scripts became the nation’s largest PBM by completing a US$29.1 billion acquisition of rival Medco Health Solutions. That same year, Catamaran changed its name from SXC Health Solutions after spending more than $4 billion to buy another PBM, Catalyst Health.
UnitedHealth said Monday that, for the latest deal, it will spend US$61.50 in cash on each share of Catamaran. That’s a 27% premium to Catamaran’s closing price Friday.
Read: PBMs help drug plan sponsors cut costs
Catamaran, based in Schaumburg, Illinois, had about 207.5 million shares outstanding at the end of January, which puts the deal price at roughly US$12.76 billion.
The acquisition is expected to close during the fourth quarter.