Much like home health and hospice, pharmacy services providers have been consolidating for many years. And yet, go-forward opportunity remains. A pipeline of emerging therapies that, in some cases, have transformed once fatal ailments into chronic conditions that can be managed with specialty drugs, have enabled providers with go from start-up to $100 million seemingly overnight. And with its far greater margins, traditional home infusion therapy still gets its share of attention. That said, demand far exceeds supply, creating challenges for buyers – and unique opportunities for sellers.
Pharmacy Services Experts
If we normalize transaction volume to account for the tax fueled “bump and slump” when many sellers moved up their divestitures from 2013 to 2012 to capture more favorable capital gains treatment, aggregate deal volume in pharmacy services has been relative ly steady since 2010. That said, performance within the individual segments (home IV, specialty Rx, institutional Rx) has varied significantly from year to year.
One look at this chart would suggest that the risk-return fundamentals of home infusion therapy have deteriorated, driving down M&A activity. However, demand for traditional IV providers – and their service driven higher margins – remains robust. But as we have seen across the pharmacy space, the supply of acquisition candidates has diminished. And with new entrants chasing after specialty Rx, this imbalance in supply and demand is likely to continue over the foreseeable future.
Deal volume may appear haphazard, but we note that the sector has produced a repeated, two year cycle of volume going up one year, and down the next. This is likely due to the fact that buyers are demanding increasingly-sizeable acquisition candidates
, for which there is limited – and “bumpy” supply. Moreover, when you add a trend line, we can see that the sector been in period of prolonged, slowly escalating growth. What’s more, it has produced many blockbuster transactions that keeps specialty Rx in the health care M&A limelight.
As noted in the previous charts, the supply of acquisition candidates in pharmacy services is extremely limited. Moreover, in specialty Rx, the buyers themselves have gotten so large, that they must target larger and larger acquisitions in order to “move the needle” in revenues, and more so in profits (given extremely skinny margins). This has likely scared off many new investors, producing a slide in PE sponsored deal volume since 2012.