IHS Global Insight Perspective | |
Significance | The deal signifies McKesson's entry into physician management, bringing it closer to direct patient services. The acquired firm is a network of 1,300 community-based oncologists in 39 states, supplying over US$2-billion worth of drugs every year. The transaction includes US Oncology's US$1.6 billion debt. |
Implications | The acquisition is strategic, and bolsters McKesson's speciality pharmaceuticals division, which was established with the 2007 buyout of Oncology Therapeutics Network for US$575 million. |
Outlook | The move reflects a subtle but dynamic shift in McKesson's business operations, which is driven by recognising the increased demand for oncology care and pharmaceuticals in the United States. Given the near-term challenges in its domestic market, particularly the impact of the health reform legislation, the deal provides further diversification of risk for McKesson. |
U.S. firm McKesson Corporation has announced a definitive agreement with privately held firm US Oncology, purchasing all outstanding shares and debt of US$1.6 billion, bringing the price tag to US$2.16 billion. The transaction is expected to be closed by year-end, subject to regulatory clearances and conditions. The deal will see the U.S. distributor gain access to 1,300 community-based oncologists in 39 states. The acquired firm provides a range of cancer care in the United States through its physician management system. McKesson will inherit 500 affiliated care sites, including 100 radiation facilities, along with the oncologists and cancer researchers' network, gaining access to 850,000 patients. US Oncology has expertise in oncology research, conducting all phases of clinical trials, patient advocacy through patient assistance support programmes, and integrated cancer care in the community setting through its network of physicians, as well as managing the oncologist network.
Following the completion of the acquisition, the new entity is expected to complement McKesson's Specialty Care Solutions business. Significantly, the U.S. distributor will maintain the US Oncology brand name and continue to operate the United Network of US Oncology, including US Oncology's Comprehensive Strategic Alliance offering and US Oncology Research, key services of the acquired firm. The deal will see McKesson offering strategic support to community oncology practices with technology, distribution solutions, and value-added clinical and reimbursement management services. Although the transaction and integration costs are expected to be neutral to McKesson's diluted earnings per share in the fiscal year 2010/11, they will be "modestly accretive" from 2012, the firm said.
For the first half year, ending 30 September 2010, McKesson reported a 2% year-on-year (y/y) rise in revenues to US$54.9 billion, with net income increasing 6% y/y to US$625 million. US Oncology reported total revenues of US$1.79 billion, up 4.06% y/y, with product revenues up 4.4% y/y to US$1.20 billion during the first six months, ending 30 June 2010.
Outlook and Implications
The acquisition is a strategic initiative for McKesson, particularly as the move is illustrative of a subtle shift in business-area focus. The addition of US Oncology will see the firm continue to provide its variety of services through McKesson's Specialty Care Solutions business. This business unit has provided a more focused approach to oncology services since the acquisition of Oncology Therapeutics Network (OTN) in 2007 for US$575 million. Three years on, the division is expected to intensify its focus on oncology care services, providing solutions not only for distributing speciality pharmaceuticals (through OTN), but also moving closer to patient care services. Most importantly, US Oncology will provide access to potentially 17% of all domestic cancer patients, and US$2.4 billion worth of oncology pharmaceuticals annually (source: Forbes Blog).
The overall context of the buyout will see expansion of McKesson's operations and a strategic diversification of risk, with a view to potentially offsetting some of the challenges in the near term. The rollout of the U.S. health reform process is one of the key areas posing challenges as well as opportunities for the U.S. distributor. The expansion of the healthcare insurance system in the medium term will see coverage for the majority of the uninsured population—currently 46 million—providing a surge in demand for pharmaceuticals and patient care. Given that the oncology drugs market is poised for a double-digit growth trajectory in the medium term, the recent deal puts McKesson in an advantageous position.