Walgreens buys McKesson specialty unit

10/22/2008

DEERFIELD, Ill. In hot pursuit of a bigger stake in the fast-growing specialty pharmacy market, Walgreens today announced an agreement to buy McKesson Corp.’s specialty operations for an undisclosed sum. The purchase, expected to close in 60 days, will “further strengthen Walgreens’ position as the fourth-largest specialty pharmacy in the country,” the company reported.

The acquisition includes the McKesson specialty pharmacy in Pittsburgh, Pa.;?and IVPCARE, based in Frisco, Texas, with operations in Torrence, Calif.; Wilmington, Mass. and St. Louis.

“The acquisition of McKesson?s specialty pharmacy operations offers the opportunity to grow our own specialty pharmacy business with preferred payer agreements,” said Stanley Blaylock, president of Walgreens Health Services. “This transaction will broaden access for patients and clients in?the fast-growing oncology area and other specialty areas including multiple sclerosis, rheumatoid arthritis and reproductive health services.”

Added Michael Nameth, executive vice president of Walgreens Health Services, “Both organizations complement each other with disease-focused care teams and enhanced clinical and therapy management programs.”

Citi Investment Research analyst Deborah Weinswig, who covers Walgreens, called the deal “another example of how the company is continuing to look outside of its traditional retail drugstores for sales and earnings growth.

“We are not surprised by the announcement, as we been of the belief that WAG would continue to grow its specialty pharmacy business through acquisitions following its July 2007 acquisition of OptionCare,” she observed in a report issued today.

Weinswig estimated that specialty pharmaceuticals generate approximately $200 million in annual sales for McKesson’s specialty business, “since the majority of revenues in its specialty division come from the distribution portion of the specialty value chain.” As a result, she noted, the impact on Walgreens’ overall business will be modest. “We expect specialty pharmacy to contribute about $0.18/share to Walgreens’ 2008 [estimated] EPS [earnings per share], or about 8.5 percent,” Weinswig said.

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