UnitedHealth to buy pharmacy benefit firm Catamaran for $12.8 bn

US health insurer UnitedHealth Group Inc yesterday struck a $12.8 billion in an all-cash deal to buy Catamaran Corp that would see the merger of the third and fourth-largest pharmacy benefit companies in the US.

Larry Renfro, CEO of Optum with Mark Thierer, chairman and CEO of Catamaran

UnitedHealth has offered to pay $61.50 per share, a premium of 27-per cent to Catamaran's closing price on Friday  on Nasdaq.

The acquisition will be accretive to to its net earnings by about 30 cents a share in 2016, UnitedHealth said, affirming its $6- to $6.25-a-share earnings outlook for 2015.

UnitedHealth administer drug benefits for employers and health plans and run large mail order pharmacies, helping them get favourable prices from pharmaceutical firms by keeping a check on the prices they charge for prescription treatment.

UnitedHealth said that the merger will help customers manage complex costs as this part of the pharmaceutical market expands from an estimated $100 billion in revenues in 2014 to potentially $400 billion annually by 2020.

Reuters quoted a research note from BMO Capital Markets analyst Jennifer Lynch to say the purchase of Catamaran will increase UnitedHealth's market share to 15 per cent to 20 per cent of the people who receive their drug benefits through pharmacy benefit managers.

Catamaran is one of the industry's fastest-growing pharmacy benefits manager, managing more than 400 million prescriptions each year on behalf of 35 million members or one in every five prescription claims in the US.It reported revenues of $21.58 billion in last year, compared with

The Illinois-based company offers retail pharmacy network management, mail service pharmacy, pharmacy claims management and patient-centric specialty pharmacy services to a broad client portfolio, including health plans and employers, as well as health care information technology solutions to the industry.

Minnesota-based UnitedHealth is a diversified health and well-being company, offering a broad spectrum of products and services through two distinct platforms   - UnitedHealthcare, which provides health care coverage and benefits services; and OptumRX, which provides information and technology-enabled health services.

Analysts say the deal with Catamaran will give UnitedHealth's pharmacy benefits unit, OptumRx, the scale to negotiate better prices from pharmacy companies.

In 2015 Catamaran expects to fulfill more than 400 million prescriptions which, combined with OptumRx's roughly 600 million annual scripts, will enable the combined entity to be a competitive force in the PBM industry.

Quoting a reserch note by Wells Fargo & Co analyst Peter Costa, Bloomberg reported Catamaran gets about a third of its revenue from Cigna Corp., a rival to UnitedHealth in the insurance business. By joining with UnitedHealth, Catamaran increases the risk that Cigna, with whom it entered a 10-year relationship in 2013,  could terminate the deal to avoid helping one of its chief competitors.

Mark Thierer, chairman and CEO of Catamaran, said, ''The creation of a differentiated, channel-agnostic delivery model will provide payers and individuals a broader portfolio of services and a deeper product offering while aggressively focusing on managing costs. Together, we believe we will have the talent, scale, technology resources and innovative spirit to build the most modern, effective and consumer-focused PBM in the history of the industry.''

Larry Renfro, CEO of Optum said, ''We believe this combination will create significant value for health plan, government, third party administrator and employer customers and, most importantly, the individual consumers who depend on us for accurate, affordable and convenient pharmacy benefit products and services.''