CVS Takes On Age With $10.4 Billion Cash Deal For Omnicare

In the latest deal making the pharmaceutical industry ever more monolithic, CVS is acquiring Omnicare, the nation’s largest provider of prescription meds to those in long-term care, for $10.4 billion in cash. It will also assume debt of $2.3 billion, putting a $12.7 billion price tag on the deal.

Speaking on Bloomberg’s “Market Makers,” Bloomberg News’ Ed Hammond acknowledges that Bloomberg broke all three parts of the story over the past six weeks: first telling us that Omnicare was on the block, then naming the bidders and finally, news of the agreement with CVS.



“So what it is about Omnicare that interests CVS,” says Hammond, “… is it gets them fantastic access to retirees, it gets them access to these sort of enormous assisted-living communities, which are expected to grow, obviously, with the aging population …”

“People who consume — let’s be honest, right? — lots of drugs …,” interjects the co-anchor.

“A lot of drugs,” agrees Hammond. “And so this is kind of not a very nice way of saying it — sounds kind of trashy — but the way Larry Merlo, the CVS chief executive put it on the phone is they want access to ‘patients transitioning across the care continuum.’”

Sounds kind of jargony, actually — as does the rest of the news release announcing the deal. 

“The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel,” Merlo is quoted as saying. “It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients as they transition across the care continuum."

That continuum, which starts with a blood pressure pill here and a cholesterol-lowering med there, also includes half a million Americans spending more than $50,000 on prescriptions annually, according to a study by pharmacy benefits manager Express Scripts, CNBC’s Meg Tirrell reported earlier this month. 

Indeed, “nearly half of all Americans aged 55 and above are on a prescription drug, vs. just 23% of those 18-24 years old,” Forbes contributor David Maris wrote three years ago based on a Google Consumers Survey commissioned by his investment firm. “If we look at those on 4 or more drugs — only 2.6% of 18-34 year olds are on 4 or more drugs vs. 12.6% of those 65+ years old.”

And that transitioning older cohort, active as some may be, is, as everybody knows, exploding.

“By 2050, one-fifth of the total U.S. population will be 65 or older, up from 12% in 2000, according to Congressional Budget Office,” reports Roger Yu in USA Today. “And nearly all nursing homes and residential care communities offer on-site pharmaceutical services. In the first quarter, Omnicare's sales rose 5.6% to $1.7 billion.

“Omnicare’s position as a market leader is indisputable: It filled about 111 million prescriptions in 2014, while PharMerica, its second largest competitor, filled 35 million,” points out Charley Grant for the Wall Street Journal in a piece that proclaims that “CVS Ages Gracefully” with the acquisition. “And because the deal won’t increase the size of Omnicare’s long-term care business, analysts at J.P. Morgan reckoned it won’t be held up by regulators.

“The three largest pharmacy benefits managers — CVS, Express Scripts and UnitedHealth — control between two-thirds and three-quarters of the market, depending on the measurement used. That’s a troubling development for trustbusters and consumers,” observes Robert Cryan in a piece for the New York Times

And it could be nettlesome for CVS, too, Cryan suggests, since its Caremark division “[focuses] on extracting discounts from pharmaceutical firms” and a quarter — and growing — of Omnicare’s money is made through “expensive niche medicines,” which seems to be a conflict. “It might have made more sense to craft a merger with Express Scripts or another rival, given the potential synergies,” Cryan writes.

The AP’s Tom Murphy points out that “Omnicare has shelled out millions of dollars in recent years to settle federal lawsuits over kickback allegations. 

“Last June, it agreed to pay more than $124 million to settle lawsuits alleging 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,” Murphy writes.

“CVS is the biggest U.S. retailer of prescription drugs and the second-largest pharmacy benefits manager, handling plans for health insurers and employers,” reports Shannon Pettypiece for a Bloomberg News piece running on “It operates 7,700 retail pharmacies, 900 walk-in clinics and managed pharmacy benefits for 65 million people.” And growing.

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