Specialty Pharmacy Consolidation: A Trend that Continues to Grow

With an estimated $115 billion in dispensed drugs and an impressive 28 percent share of the pharmaceuticals market in 2016, the specialty pharmacy industry continues to boom. This skyrocketing growth brings major opportunities to impact the healthcare market as a whole – so it’s no shock to see that specialty pharmacy mergers and acquisitions (M&As) are constantly forming and shifting the core mechanics of the industry.

“Following a similar path as in the late 1990’s with long-term care pharmacy, specialty pharmacy has matured enough to undergo consolidation and roll-up into larger health care entities,” says Randy Vogenberg of the Institute for Integrated Healthcare. “Specialty represents a small distribution volume in the retail pharmacy space but also results in the greatest profit margin in a decreasing margin environment for pharmacies.”

Specialty pharmacy consolidation brings unique benefits and challenges to all stakeholders, from manufacturers to independent pharmacies to patients.

Notable M&As in 2016Specialty Pharmacy Consolidation blog-02

Consolidations are spanning all sectors of the industry, as big-box retailers and large retail pharmacy chains look to expand their holdings, build strategic partnerships, and earn their share of the revenue. Private equity investors are seeing opportunities to diversify their portfolios, and payers are saving costs while maximizing efficiency.

To illustrate the scope of this trend, take a look at a few of the industry’s most noteworthy consolidations from 2016:

  • April 2016: The largest drug wholesaler McKesson acquired Vantage Oncology (a leading provider in medical oncology, radiation oncology, and other integrated cancer care) and Biologics, Inc. (the largest independent U.S. specialty pharmacy with a focus on oncology) for two transactions that totaled $1.2 billion.
  • June 2016: Diplomat Pharmacy acquired the third largest independent specialty pharmacy, TNH Advanced Specialty Pharmacy. The transaction involved $65 million cash and $10 million in common stock for TNH.
  • July 2016: Supermarket chain Kroger acquired independent specialty pharmacy ModernHEALTH, which has multiple business segments and has seven operating locations. In 2012, Kroger acquired Axium Specialty Pharmacy, which was merged with ModernHEALTH.
  • November 2016: Private equity firms Triton Pacific Capital Partners and ACON Investments acquired BioMatrix Specialty Pharmacy, which specializes in infused and oral specialty drugs.
  • November 2016: The second-largest independent specialty pharmacy, Avella Specialty Pharmacy, acquired Oncology Plus (a B2B provider of compounded oncologic patient therapies) and Advanced Pharma Inc. (a B2B provider of compounded sterile preparations).

To see more, take a look at Drug Channels’ specialty pharmacy M&A article.

Benefits and Challenges of Specialty Pharmacy ConsolidationSpecialty Pharmacy Consolidation blog-03

Consolidation continues to shift increasing power into the hands of fewer entities. For example, in 2015, the top four companies claimed two-thirds of the revenue that was earned from pharmacy-dispensed specialty drugs.

This comes with benefits and challenges. A key benefit lies in operations and systems: fewer entities may allow for more reliability and systemization in terms of business-to-business (B2B) transactional relationships and negotiations, as well as business-to-consumer (B2C) service relationships. This can translate into more stability, lower costs, and ultimately, better patient health outcomes.

However, for many smaller and independent specialty pharmacies, consolidation often acts as a barrier for competing in the industry. These less-powerful companies may be excluded from networks or simply lack the buying power, relationships, or resources needed to stay afloat, further driving the industry’s trends of consolidation and localization of influence.

How Specialty Pharmacies Can Fortify Their Brands

It’s critical for specialty pharmacies to stay on top of industry trends, while ensuring that their business model allows for the simultaneous stability and flexibility needed to adapt to the changing landscape. A patient-centric therapy management software like TherigySTM can help ensure that operations and patient management are consistent, standardized, and well-documented across patients, across diseases, and across facilities and branches. In doing so, pharmacies are equipped for building and maintaining critical industry relationships while ensuring that their patients are receiving optimal care with the best possible outcomes.

Contact us to learn more about how Therigy can help your business stay competitive in today’s specialty pharmacy landscape.