Omnicare-PharMerica combination will control nearly 60% of the market

Updating our original post below from last August. Omnicare extended its $440 million takeover of rival drug-supply company PharMerica Corp. (PMC) for the fourth time as U.S. regulators review the bid. Omnicare made a $456 million offer to buy smaller competitor PharMerica in a deal aimed at lowering health-care costs, but PharMerica rejected the bid amid worries about high regulatory hurdles.

The bid has not yet been accepted or rejected.

Omnicare has approximately 43% of the market while PharMerica has 15%. The estimated 400 regional/local providers have approximately 42% market share.

The combination, if completed, would solidify Omnicare’s position in the market for providing pharmacy services to customers such as nursing homes. Omnicare—which has dealt with legal issues and a management shake-up over the past year—expects increased scale to help lower costs and broaden its offerings. The acquisition will also help increase Omnicare’s rate of generic prescriptions. PharMerica, though, has concerns about Omnicare’s approach.

There are a number of significant trends within the long-term care industry that will support the continued growth of the long-term care industry. These factors include:
•Demographic trends – the 75 and older age group is one of the fastest growing segments of the United States population.
•Cost containment pressures – in response to rapidly rising health care costs, governmental and other third-party payors have adopted cost-containment measures to reduce admissions and encourage reduced lengths of stays in hospitals and other acute care settings.
•Limited supply of centers – as the nation’s elderly population continues to grow, life expectancy continues to expand, and there continue to be limitations on granting Certificates of Need (“CON’s”) for new skilled nursing centers, leading to continued demand for skilled nursing beds.
•Reduced reliance on family care – historically, the family has been the primary provider of care for seniors.

Omnicare’s long-term care pharmacy services dispense over 110 million prescriptions per year. Omnicare’s generic prescriptions dispensed as a percent of total scripts exceeds 75%. Omnicare’s 2010 revenues exceeded $6.1 billion, while its six-months 2011 revenues were approximately $3.1 billion. Omnicare serves approximately 1.4 million beds across the United States and Canada.

As of June 30, 2011, PharMerica operated 94 institutional pharmacies in 44 states. PharMerica dispenses approximately 43 million prescriptions annually and has 360,000 licensed beds under contract. PharMerica’s 2010 revenues exceeded $1.8 billion, while six-month 2011 revenue neared $1.1 billion.

Institutional pharmacy represents approximately 7% of total prescriptions. The opportunity for the long-term care pharmacy senior market was estimated to be $13-14 billion in 2010; and is forecast to grow to over $20 billion in 2015. The combination of Omnicare and PharMerica would control nearly 60% of the market.