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SXC Health Solutions, the fast-growing pharmacy benefits manager, will pay about $4.4bn for rival Catalyst Health Solutions in a further step toward consolidation in the healthcare industry.
SXC will pay $28 in cash and two-thirds of a share of its stock for each Catalyst share, representing a premium of 28 per cent above Catalyst’s closing share price on Monday. Upon completion of the deal, the company is expected to have about $13bn in annual revenue this year.
Mark Thierer, SXC chief executive, will continue in his role. “By joining forces, we will be able to accelerate our shared goal of providing affordable and high quality healthcare solutions that enhance value for employer, health plan and government customers,” he said in a statement.
Pharmacy benefits managers, or PBMs, negotiate drug prices with pharmaceutical companies and manage employee prescription claims.
The deal comes two weeks after Express Scripts got approval from the US Federal Trade Commission to close its $29bn deal to acquire Medco Health Solutions. After two of the big three PBMs joined forces, other smaller players were expected to consolidate to compete with Express Scripts and Medco, which handle about a third of all prescriptions in the US.
Critics of the Express Scripts deal argued it would reduce competition in the industry and allow prices to rise, while Express Scripts and Medco made the case that consolidation would help them lower drug costs by giving them more negotiating power.
PBMs have been looking to consolidate since the Obama administration’s healthcare plan was passed in 2010 in anticipation that businesses will offer fewer workers health benefits after state insurance exchanges are set up.
In spite of those concerns, PBMs are expected to see big profit boosts in the next few years as many of the world’s most expensive drugs see their patents expire, allowing doctors to prescribe cheaper generic alternatives. Profits at PBMs are linked to cutting clients’ drug costs.
SXC is headquartered in Lisle, Illinois, a suburb of Chicago. It had net income of $91.8m on revenues of $4.98bn last year. Its stock rose more than 25 per cent over the past two months before the deal was announced.
SXC will take on $1.7bn in debt to finance the transaction and expects interest costs of about $70m annually.
JPMorgan and Barclays advised SXC, and Sidley Austin acted as its legal counsel. Goldman Sachs and Citigroup advised Catalyst, and Milbank, Tweed, Hadley & McCloy acted as its legal counsel.