October Brings Tricks and Treats to the PBM Market

Happy Halloween! October has been one of the most active months in recent memory for the pharmacy benefit management (“PBM”) sector, full of tricks and treats. More disruption and transformation has taken place within the PBM market this past month than almost any other sector of the healthcare industry. Going door-to-door reveals all kinds of surprises in the PBM bag:

1. Walgreens Boots Alliance (WBA) Has Moved On From Its All-out Acquisition of Rite Aid, as well as Rite Aid’s EnvisionRx PBM platform.  WBA will instead secure a retail footprint land grab, picking up nearly 2,000 stores (just under half of all Rite Aid stores) for a price of $4.3B. Regulators ended up blocking WBA’s original plan to acquire the entirety of Rite Aid, which would have included EnvisionRx. The blocked deal and the smaller carve-out also reaffirm the joint venture that WBA and Prime Therapeutics have, AllianceRx. This is not really a Halloween surprise since the intended deal was two years in the making, but October finally brings closure and clarity to the ultimate outcome between WBA and Rite Aid.
2. Anthem Launches its Own PBM with CVS Health (CVS).  In mid-October, Anthem announced plans to launch IngenioRx in partnership with CVS. The five-year partnership combines Anthem’s member and provider engagement initiatives and market leading pricing along with CVS’ expertise in point-of-sale engagement, including member messaging and Minute Clinic. CVS will also provide prescription fulfillment and claims processing services.  IngenioRx is expected to begin serving Anthem members in January 2020.
3. Express Scripts Expands into Medical Benefit Management Services by acquiring eviCore for $3.6 billion (disclosure: TripleTree served as a financial advisor to Express Scripts on this transaction). Express Scripts CEO Tim Wentworth described the major evolution of its own business model as the company evolving from Pharmacy Benefit Management to Patient Benefit Management.  According to Express Scripts’ press release, “the acquisition of eviCore will give Express Scripts an attractive entry point into a growing market. Today, pharmacy is an industry with approximately $400 billion in annual spend. Healthcare spend represents nearly $3.4 trillion. Medical benefit management is a large and growing market with more than $300 billion spent annually in the areas eviCore manages today. Establishing a cornerstone platform in this market will enable Express Scripts to build a uniquely comprehensive suite of solutions, with significant opportunities for cross-selling to both client bases.”
4. CVS To Add Health Insurance, at least if the rumors are to be believed. On October 26th, rumors started circulating that CVS was in discussions to acquire Aetna for $66 billion, providing a huge run-up on Aetna stock. Of course, there have been no definitive denials or comments on either side, but multiple “unnamed” sources have confirmed that discussions are taking place.
5. Is Amazon Primed to Expand Into the PBM Space? Such has been an undying rumor that has been gaining steam over the last few months. Amazon has been silent on the matter, but some state-level wholesale medical license filings surfaced last week, which may suggest that Amazon is attempting to enter some segment of the healthcare market. Amazon has also hired health plan and PBM executives, which isn’t enough on its own to suggest that they are ready to enter the market, but these hires may highlight Amazon’s intent to explore the move. From our vantage, we see that many individuals are excited at the prospect of Amazon’s potential extension into the market. PBMs also appear open to finding ways to collaborate and partner with Amazon rather than directly compete. John Prince, CEO of OptumRx recently commented: “As you look at various retail partners, we are open to new distribution partners. We are willing to partner with anybody that drives value, decreases cost and also improves the consumer experience.”  In its third-quarter earnings call, Express Scripts’ CEO, Tim Wentworth, commented: “If [Amazon] wanted to move into the space we could be a very natural collaborator.” As with many parts of healthcare, and especially within PBM, wholesale and retail drug distribution is highly regulated, and it is not clear yet that this is where Amazon ultimately wants to be. Regardless, PBM investors are taking note, especially since the Amazon noise has been disruptive for industry player’s stock prices.

This has been an exciting month in the PBM sector. Lots of new tricks, investor treats, and a few surprises as well. As a healthcare merchant bank, it has been exciting to watch, a pleasure to participate in and fun to write about. Let us know your thoughts, and have a happy Halloween!