Updated 4:09 p.m.
Cardinal Health (NYSE: CAH) plans to expand its specialty pharmaceuticals business by buying Healthcare Solutions Holding LLC for $517 million in cash with the potential to pay another $150 million over three years.
Healthcare Solutions Holding is the privately owned parent of operating companies that provide software tools, services and data to specialty-care physicians, drug companies and insurers to improve the efficiency of their practices and the quality of patient care. Both outcomes help lower the cost of healthcare.
For instance, Healthcare Solutions’ P4 Healthcare and its P4 Pathways in Ellicott City, Maryland, offer oncology practice and disease management tools to healthcare providers.
The acquisition could extend Cardinal Health’s reach in the specialty pharmaceuticals market, which is expected to grow at twice the rate of traditional pharmaceuticals during the next five years and produce sales of more than $160 billion worldwide by 2013, according to IMS Health.
It also is consistent with the Dublin, Ohio, company’s increasing ability to use information to better its own drug and medical product distribution efficiency, as well as the efficiency of customers. Health Solutions companies are leveraging information to support cancer and other specialists in the emerging environment of evidence-based medicine.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“This acquisition is an important building block in our strategy to create a differentiated set of services for oncology and specialty customers,” said George Barrett, chairman and chief executive officer of Cardinal Health, in a release. “Healthcare Solutions Holding is a natural extension of Cardinal Health’s businesses and will enable the growth of our specialty distribution operations.”
Cardinal expects to complete the acquisition early in fiscal 2011, which begins July 1. The acquisition is expected to have a neutral-to-slightly accretive effect on Cardinal’s earnings next year.
“Cardinal Health is our ideal partner as we look to grow our business in oncology and other specialty therapeutic areas, as well as increase the scale and scope of our offerings,” said Dr. Jeffrey Scott, CEO of Healthcare Solutions Holding and an oncologist, in Cardinal’s release. “We bring unique specialty care offerings and expertise to Cardinal Health, and we are excited to tap into their existing capabilities, which offer complementary services to help better serve our customers.”
Cardinal also expects Healthcare Solutions leaders Scott and Raj Mantena, CEO of P4 Healthcare, to continue to lead their business.
On Wednesday, Cardinal executives held the financial profile of privately held Healthcare Solutions close to their vests. “I can tell you after its formation in 2005, it has been consistently profitable and growing rapidly,” Jeff Henderson, Cardinal’s chief financial officer, told securities analysts during a morning conference call.
Cardinal found Healthcare Solutions during a months-long search for strategies to enhance its position in the specialty pharmaceuticals industry, Barrett told the analysts.
“We have looked at the unique needs of patients, payers, providers and pharmaceutical companies,” Barrett said. “We’ve studied the products currently on the market and those in clinical trials, as well as the diseases which these drugs treat. And we’ve tried to consider the pressures our health system will feel as our
population ages and more Americans have access to health coverage.
Cardinal Health wanted to find a company that could help its specialty pharmaceuticals business grow.
“Specialty pharmaceuticals are increasingly used to treat a wide range of diseases, particularly those that are difficult to manage and expensive to treat,” Barrett told analysts. “And with the explosion of knowledge in the biological sciences, and our ability to develop more targeted therapies, we believe that this sector of healthcare will continue to grow.”
Ohio’s largest company also wanted to find a way to look forward rather than back. “We started looking for approaches that might allow us to step into a position that is more consistent with where we think healthcare is going,” Barrett said.
Healthcare Solutions’ P4 businesses appear to answer several emerging needs of stakeholders in the oncology pharmaceuticals value chain. One answer for meeting evidence-based care standards coming from healthcare reform could be “clinical pathways” — management tools for standardizing the ways physicians and other healthcare providers, and their managed care organizations, treat cancer.
Clinical pathways, such as those developed by P4 Pathways, reduce error, increase the quality of care and reduce costs, according to a Biotechnology Healthcare journal article posted online by the National Institutes of Health. All of these outcomes are goals of the nation’s healthcare reform efforts.
University of Pittsburgh Medical Center Cancer Centers have been using clinical pathways for four years, according to the article. Using these pathways to encourage doctors to use the right cancer drugs for the right patients — and to not use the wrong drugs — is saving the cancer centers millions of dollars per year and leading to better patient outcomes.
Clinical pathways also may be a way to reap the rewards of personalized medicine, the article points out. Personalized medicine — basing patients’ care on their genes — could transform healthcare institutions by 2020, according to business consultant PricewaterhouseCoopers.
Cardinal Health hopes to use Healthcare Solutions and its clinical pathways to launch an integrated service for specialty pharmaceutical customers. “Healthcare Solutions’ innovative business model supports this important specialty area by providing essential data, tools and insights that serve key participants in the chain of oncologic care, linking physician practices, pharma companies and payers,” Barrett said.
“Its model helps these parties work together in an integrated approach, which aligns incentives and uses data to drive better clinical health outcomes. Ultimately, the patient should benefit through improved treatments and lower healthcare costs.”
Cardinal Health shares ended Wednesday flat at $33.84 on the New York Stock Exchange. Cardinal recently increased its quarterly dividend by 11 percent to 19.5 cents and expects to repurchase $250 million-worth of its stock by the end of June.
