A private equity group and a pension plan have agreed to acquire IMS Health in a cash transaction. While some shareholders as usual complained that not enough was being offered, the price was a nice premium over the recent trading range. (IMS Release) IMS has very good, relatively stable cash flows, which are obviously attractive to a financial buyer. The most interesting aspect of the transaction, however, is the apparent faith that the buyers have in IMS’ ability to grow. Currently revenue has stalled. The majority of the firm’s revenue continues to come from assisting in pharma sales and marketing management, with some launch services. Given the dearth of blockbusters in the pipeline, looming patent expirations on existing major drugs, regulatory limitations on certain uses of health information, and the potential effects of health care reform, there would appear to be a fair amount of risk in IMS’s future revenues and profits. And while no one has yet figured out an effective model to compete, it could happen through a consortium of retail pharmacies and/or PBMs. Finally, you have to assume that a company’s management usually has a pretty good reason for deciding that the time has come to sell and it probably isn’t because they see a phenomenal future for the business.
The Pharmacy Benefit Management Institute released its survey of employers regarding drug benefit designs for 2009-2010. (Report) It surveyed 417 employers of all sizes covering over 7 million people. About 87% of employers have a multi-tiered formulary. Almost 97% offer mail-service pharmacy coverage and about 17% require that mail be used for maintenance medications. Many employers, about 84%, are using retail pharmacies as well as mail service for longer-term (60 days or more) prescriptions. Most employers have a separate specialty pharmacy benefit and many have a limited network for that benefit. Individuals are paying about 25% of the cost of retail prescriptions and 19% of mail prescription costs. About half the employers have some form of value-based benefit design. Overall, the effort employers, health plans and PBMs have exerted to control drug costs have worked, largely because of generic penetration.
Walgreen’s delivered its State of the Industry Report on specialty pharma. (Walgreen Report) While the report is partly an advertisement for Walgreen’s own specialty division, it has useful information about the use and cost of specialty drugs and methods that can be used to manage cost and utilization.
IMS released its updated forecast for future drug sales. (IMS Forecast) Because sales in the US in 2009 have been stronger than initially estimated, projected growth in future years was also boosted. IMS sees sales in 2009 advancing about 5% and about 3-5% in 2010 in the US. The global market is anticipated to grow by 4-6% in 2010 and at a compound 4-7% rate through 2013. Emerging countries will have the highest growth rates. The imbalance between drugs going off patent and new drugs being approved will be a significant drag on revenue growth.