Rite Aid is squaring up to its drugstore rivals.
The company said Wednesday it will pay nearly $2 billion to add EnvisionRx, a pharmacy-benefits manager, to its business stable.
EnvisionRx, which was owned by private-equity firm TPG, brings in sales of about $5 billion a year with earnings before interest, tax, depreciation and amortization of as much as $160 million. That will beef up Rite Aid’s income and give it the third-largest benefits service in the U.S., trailing behind second-place CVS and industry heavyweight Express Scripts.
“With the addition of EnvisionRx, we will create a compelling pharmacy offering across retail, specialty and mail-order channels, enabling us to deliver cost-effective solutions to employers and health plans,” said Rite Aid CEO John Standley.
U.S. Drugstore giants Rite Aid, CVS and the new Walgreens Boots Alliance are profiting from the growing number of baby boomers with prescription needs. (Though, after this deal, Walgreen’s is now the only one without a benefits-management unit.)
Pharmacy-benefits managers have gained prominence in the healthcare sector due to their ability to negotiate discounts with drug companies. They operate as a primarily business-to-business operation, and insurers and major corporations have come to depend on benefits managers to help manage costs, especially as high-priced specialty drugs become a growing concern.
For instance, the largest benefits-manager Express Scripts was able to negotiate the cost of AbbVie’s hepatitis C drug Viekira Pak from its listing price of $83,319 to around $60,000. The provider did not reveal its exact price but said it was closer to Western European listings for Gilead Science’s hepatitis C drug, which range from $51,000 to $66,000.
Gilead Science, whose new hepatitis C drug Solvadi is priced at $84,000 for a 12-week course, is also deeply discounting its drug after coming under pressure from benefits managers. Discounts will average 46% this year from 22% in 2014, the company said last week.
The EnvisionRx acquisition will also give Rite Aid’s sales growth a needed boost.
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Rite Aid’s (RAD) retail business sales grew 0.5% in 2014 to $25.5 billion. In comparison, CVS’s (CVS) benefits-managing segment increased revenue by 16%, reaching $88.4 billion. Rite Aid’s benefits-managing unit will be significantly smaller than its rival but gives it a leg-up in the expanding industry.