Catalyst Acquires FutureScripts - Analyst Blog

Expanding its pharmacy benefit management (PBM) solutions, on Monday, Catalyst Health Solutions Inc. (CHSI) announced the purchase of all the PBM units of Independence Blue Cross (IBC) − FutureScripts LLC and FutureScripts Secure LLC − for an all cash transaction of $225 million. Both the entities have also received the regulatory approvals relevant for the deal.

According to the terms laid, IBC has agreed to allow Catalyst Health to manage the former’s PBM service operations for a new 10-year term period. Moreover, IBC has included the future tax benefit for Catalyst Health in the deal value, based on the arrangement of the transaction. On August 4, both Catalyst Health and IBC had agreed on the terms of the deal.

While Jefferies & Company Inc. of Jefferies Group Inc. (JEF) acted as the financial advisor to Catalyst Health for the acquisition, Cain Brothers & Company LLC served as financial advisor to IBC.

With healthcare cost inflation easily exceeding the overall level of inflation, employers and government agencies are looking for ways to control expenditures. These employers and government agencies look to PBMs like Catalyst Health Solutions to help solve this problem. Through its PBM business, Catalyst Health helps to control its clients spending on prescription drugs, which is one of the fastest growing components of healthcare costs. Besides, the aging U.S. population, driving higher drug utilization rates should continue to increase the demand for prescription drugs.
 
Hence, the decision of acquiring a long-term PBM contract from IBC appears to be a judicious step for Catalyst Health at the moment. The company’s Catalyst Rx PBM business is already benefiting from industry trends. Besides, FutureScripts provides PBM services to about 1 million members and manages over 14 million of annual prescriptions. We believe that Catalyst Health -IBC’s FutureScripts’ combination can blend well to deliver integrated health care solutions at optimum costs.
 
However, the PBM industry, in which Catalyst Health operates is highly competitive and dominated by large players such as CVS Caremark Corporation (CVS), Medco Health Solutions Inc. (MHS) and Express Scripts Inc. (ESRX), possessing significant resources, purchasing power and other competitive advantages, compared with Catalyst Health.

Overall, while we are pleased with the company’s wide product base, we remain concerned about the intense competition that Catalyst Health has to face for gaining contracts in the industry in future.

 
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