McKesson Corp. (MCK) agreed to buy privately held US Oncology
Inc. for $2.16 billion, including the assumption of $1.6 billion in
debt, as the drug wholesaler and health services company continues
to expand in cancer services and distribution.
The move, which follows the 2007 acquisition of Oncology
Therapeutics Network, is another milestone in McKesson's drive into
the booming specialty distribution arena, which delivers complex
treatments for cancer and other diseases.
The company will hold 25% of the $25 billion U.S. specialty
pharmaceuticals distribution market, making it a solid second in
that segment to drug distributor AmerisourceBergen Corp. (ABC),
which has an estimated 55% share.
McKesson Chairman and Chief Executive John Hammergren said the
pharmaceutical industry's pipeline of more than 800 new cancer
drugs and new indications for existing treatments "is far greater
than any other therapeutic category," and as a result, demand for
oncology services is rapidly increasing.
US Oncology's service offerings include practice-management
services to physicians and cancer centers. The combined company
will serve nearly 3,000 U.S. oncologists, he said.
"This is a big win for McKesson," said pharmaceutical industry
consultant Adam Fein, president of Pembroke Consulting Inc.
McKesson has about 16% of the specialty distribution market, while
US Oncology holds 9%.
The purchase is just the latest deal in what's been an active
health-care M&A market since the health-care overhaul bill was
finalized in March. Since then, there have been an average of 104
deals per month for U.S. targets, according to Dealogic, compared
to 86 a month in the previous 12 months.
However, while 2010 already has seen more health-care deals than
a year ago, the total value of the deals remains 46% less than
those in 2009, which included Pfizer Inc. (PFE) buying Wyeth and
Merck & Co. (MRK) purchasing Schering-Plough.
The US Oncology deal, strategically, is viewed as a missed
opportunity for drug distributor Cardinal Health Inc. (CAH), which
"has been struggling to rebuild its position and play catch-up" in
specialty distribution, Fein said.
Last week, Cardinal took the unusual step of dismissing a rumor
that it was planning a leveraged buyout after a blog noted a surge
in its credit default swaps, which represent the cost of insuring a
company's bonds. Fein noted that acquiring a company with a lot of
debt, like US Oncology, also could cause credit default swaps to
rise, and am interest by Cardinal in acquiring the cancer-services
distributor might explain the unusual CDS activity last week.
Cardinal doesn't comment on whether it has participated in a bid
process, said spokeswoman Corey Kerr. She noted, however, that the
company acquired specialty pharmaceutical services business
Healthcare Solutions in July, and "we are confident in the
differentiated approach that we outlined" with the deal.
McKesson, the largest U.S. pharmaceuticals distributor by
revenue, and US Oncology expect the deal to close by Dec. 31. Along
with the assumed debt, the purchase price includes the acquisition
of $150 million to $160 million in tax benefits, arising from
certain net operating losses, that McKesson can use in the future.
The companies expect substantially all of US Oncology's debt will
either be repaid or refinanced.
The deal isn't expected to have an effect on McKesson's bottom
line this fiscal year, which ends in March, but should boost profit
modestly in the coming year, the company said.
The deal is positive for McKesson, as it gives the San Francisco
company "a significant increase in market share in specialty
distribution, the fastest growing segment for distributors," J.P.
Morgan analyst Lisa Gill said. She said the valuation appears to be
a discount to the Oncology Therapeutics Network deal.
Barclays Capital analyst Lawrence Marsh said the deal confirms
growth opportunities in the oncology supply chain space over the
next three to five years. Although the company seems to be building
conservative figures into its prediction of modest earnings
accretion in fiscal 2012, Marsh sees the potential for a boost of
more than 40 cents in cash earnings per share, or more than 25
cents based on generally accepted accounting principles.
Bruce Broussard, US Oncology's chairman and CEO, will lead the
combined McKesson Specialty Care Solutions business, which will
have headquarters in The Woodlands, Texas, where US Oncology is
based.
McKesson shares recently rose 1.8% to $67.19, while Cardinal
Health was up 0.6% to $34.89 and AmerisourceBergen was 9 cents
lower, at $32.74.
Last week, McKesson said its fiscal second-quarter profit jumped
8.6% as the company's revenue increased, though the bottom line was
skewed by items such as write-downs.
-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285;
dinah.brin@dowjones.com
(Nathan Becker and Thomas Gryta contributed to this report.)
US Oncology (NASDAQ:USON)
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