CVS Caremark's Big Thanksgiving Purchase: The Coram Buyout

CVS Caremark (NYSE: CVS  ) made a huge play to secure its position as a market leader in the specialty drug market with its recent acquisition of Coram Infusion from Apria Healthcare. With a price tag of $2.1 billion, the deal completes a circle started in 1995 by then CVS Corporation when CVS sold its home infusion business for $310 million in an effort to focus on expansion of its retail pharmacy business.

Against the background of the uncertain future of health care including traditional pharmacy models, the newly acquired assets give CVS Caremark access to not only tens of thousands of high-margin patient cases monthly but also grants it a major foothold into billion-dollar home infusion and alternative-site infusion markets currently dominated by a small number of major players.

The acquisition of Coram is expected to boost CVS Caremark revenues by a healthy $1.4 billion in the first 12 months after acquisition. More importantly, the acquisition gives CVS a footprint within the infusion market that levels the playing field with fellow pharmacy titan Walgreen (NYSE: WAG  ) and longtime infusion players Bioscrip (NASDAQ: BIOS  ) and Healix.

The little known market
While technically a pharmacy service, the relatively unknown home infusion and alternative-site infusion markets combine a variety of health care services to care for a very specialized population of patients.

Simply put: Infusion pharmacies take care of patients who are too healthy for an extended hospital stay but too sick to rely on traditional oral medications dispensed by retail pharmacies. Usually these patients are either serviced at home (home infusion) or make regular visits to infusion suites for a nurse to administer their medication (alternative site infusion). Both approaches require a significant "high touch" approach that often combines the expertise of infusion nurses, patient coordinators, and pharmacists that follow a patient's therapy for lengthy periods.

While retail pharmacies number in the tens of thousands, the infusion market is relatively small with an estimated 4,000 to 6,000 providers located nationally -- from small single-pharmacy operators up to big box retailers. In fact, the entire specialty drug market, of which infusion services is a part, represents less than 4% of all patients; a measly 829,000 patients receive home infusion services annually compared to the tens of millions patients receiving traditional pharmacy services.

Despite the relatively small patient caseload, specialty drug patients represent as much as 25% of health care costs with each patient producing much higher margins than the average patient on oral medications due to the complexity of their care. The infusion market size into which CVS Caremark has now deeply invested represents a $9 billion to $11 billion opportunity.

A significant strategic presence
It's worth noting exactly how big the Coram buyout is compared to other major figures in this specialized market space. The hefty price tag paid by CVS Caremark gives it control of 85 locations across the country including 65 alternative infusion sites totaling more than 20,000 patients per month.

This is somewhat smaller than Walgreen Infusion Services' 75 infusion pharmacies and 100 infusion suites which at any given time cares for as many as 40,000 infusion patients.

Similarly, Bioscrip operates 40 infusion pharmacies and 33 alternative infusion sites and recently acquired fellow infusion provider Carepoint Partners for $223 million. The acquisition switched over an additional 15 pharmacies and 10 infusions to BioScrip which estimates it now sees roughly 100,000 patients per year.

CVS Caremark already provides a wide assortment of specialty drug services, including a range of infusion products, so it is certainly no stranger to the field. The possibility of additional acquisitions from a growing pool of mid-sized regional players or even national operators like BioScrip are also not out of the question.

Bottom line: While the acquisition of Coram does not give it a leading position over the largest infusion providers, CVS Caremark is now strongly positioned to extend national reach over a highly lucrative market.

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