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Giant Eagle, Nautic get involved in deals for specialty pharmacies QoL Meds, Rx21

| Wednesday, Jan. 8, 2014, 12:01 a.m.

Traditional pharmacy chains and investors are snapping up specialty pharmacies to grab a piece of the fastest-growing segment of the pharmaceutical industry.

Within the past month, Pittsburgh-area companies were involved in two deals for specialty pharmacies, which handle an increasingly popular and often pricey class of drugs used to treat complex diseases such as cancer and multiple sclerosis.

The two local deals make four in the past two months alone, signaling a boom in acquisitions in the specialty pharmacy industry, said Adam Fein, president of Pembroke Consulting, a pharmaceutical industry consulting firm in Philadelphia.

“Deals are happening all the time,” he said. “The pharmacy industry is shifting to specialty drugs. As a result, everyone wants to get in the game.”

Specialty pharmacies are hot acquisition targets because spending on specialty drugs is growing quickly while spending on traditional pharmaceuticals has leveled off because of few breakthroughs and competition from generic drugmakers.

The nation's largest pharmacy chain, CVS Caremark, said in November that it expects Americans' spending on specialty drugs to more than quadruple to $401.7 billion by 2020, up from $87.1 billion in 2012. The 2012 figure accounts for about a quarter of all drug spending.

Driving the trend are advancements in drug development, leading to breakthroughs with biologic compounds that work better than older therapies, said Kathleen Jaeger, a senior vice president with the National Association of Chain Drug Stores.

These drugs are more expensive. While there's no single accepted definition for specialty drugs, the Food and Drug Administration considers any medication costing more than $600 a month to be “specialty,” Jaeger said.

“When you look at this market, you see potential for high growth,” she said.

Specialty pharmacies differ from traditional pharmacies in that they're typically connected to outpatient treatment centers or other medical settings and employ skilled clinical pharmacists trained to counsel patients on proper dosing, Jaeger said.

“There's really a need to ensure that the patient is taking the drug safely and consistently and appropriately,” she said.

Taking part in the trend recently were grocery and pharmacy chain Giant Eagle Inc., which purchased a specialty pharmacy business in Cleveland, and a Ross specialty pharmacy that was acquired by a private equity firm.

O'Hara-based Giant Eagle said it acquired Rx21 Specialty Pharmacy for an undisclosed price last month as a way to expand into the specialty pharmacy business.

“We greatly value the expertise gained with the new acquisition of Rx21, particularly at a time when two significant new Hepatitis C treatments are becoming available,” said Brett Merrell, Giant Eagle's senior vice president of health and wellness.

Western Pennsylvania's largest grocery chain said the FDA recently approved Olysio, a hepatitis C treatment from Johnson & Johnson, and was preparing to approve sofosbuvir, also a hepatitis drug from Gilead Sciences.

“These medications could offer a more effective approach to treating and eliminating Hepatitis C,” Giant Eagle said.

In the second deal, Nautic Partners, a Rhode Island private equity firm, acquired QoL Meds LLC of Ross for an undisclosed price. QoL operates 87 pharmacies around the country that specialize in mental health medications.

Chris Corey, a principal with Nautic, said insurers are increasingly covering the cost of mental health medications, which could lead to more customers for QoL.

“The market for mental health services is large and growing,” Corey said.

Nationally, Rhode Island-based CVS in November agreed to a $2.1 billion deal to buy a pharmacy specializing in infusion therapies for treatment of immune deficiencies, rheumatoid arthritis, multiple sclerosis and nutritional deficiencies. Jon Roberts, president of CVS Caremark Pharmacy Services, said the purchase of Coram LLC indicated that “infusion will be a valuable component of our broad specialty pharmacy offering going forward.”

And PharMerica Corp., a Louisville-based company that operates pharmacies at long-term care centers around the country, said this month that it was taking a minority stake in Onco360, a network of pharmacies specializing in cancer drugs, for an undisclosed price. PharMerica said spending on cancer drugs is expected to quadruple by 2020 to $175 billion, from $40 billion in 2012, as an expected 1,000 new cancer drugs hit the market.

“Onco360's annual revenues are currently in excess of $100 million, and we believe revenues will grow rapidly over the next several years,” PharMerica's CEO Greg Weishar said.

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.

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