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 percent 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.
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.
Last June, Omnicare agreed to pay $124 million to settle lawsuits that alleged 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.
CVS Health said Thursday that it would spend $98 in cash for each Omnicare share in a deal that has already been approved by the boards of both companies. The deal’s total value is $12.7 billion counting about $2.3 billion in debt.
Omnicare shareholders still need to approve the acquisition, and the companies expect the deal to close near the end of the year.
CVS Health said the addition of Omnicare will add about 20 cents to its adjusted earnings next year, excluding deal costs, and it will become more beneficial in subsequent years.
Shares of Woonsocket, Rhode Island-based CVS Health (CVS) climbed 2.7 percent, or $2.74 to $104.01 in Thursday morning trading, while broader indexes edged up slightly. Omnicare (OCR) advanced $1.31 to $95.94.