By Dutch Trader
In 2012, Americans filled more than 4 billion prescriptions at 62,000 retail, mail, and specialty pharmacies. The largest U.S. pharmacies ranked by total prescription you will find in the table below, some of these companies offer also specialty pharmacy services (CVS Caremark and Express Scripts). I believe that specialty pharmacies offer a great opportunity for investors that want to stay ahead of the curve.
Specialty drugs have seen an enormous boost within the pharmaceutical marketplace over the past several years. According to future-trending reports specialty drugs will account for the majority of new drug approvals in coming years and they will consume approximately 40% of health plan’s drug spending by 2020.
The rise of chronic illness, coupled with the increasing sophistication of the pharmaceutical sector to pinpoint more efficacious and personalized drugs, has created a dynamic environment for the growth of the specialty sector on the whole. When it comes to modern specialty pharmacy, like many other movements in healthcare, the trend is toward patient-centered care and patient management. In this report we will give some investment opportunities investors have in the specialty pharmacies sector.
The following three specialty pharmacies could be interesting investments going forward. The reasons you will find in the industry view and final note of this article.
|Assured Pharmacy||APHY||0.90||23.2M||-3.12||14.15M||N/A||0.17||0.36||N/A||28.32%||143.24%||Spec. Buy|
|Source: Finviz, Yahoo Finance|
PharMerica Corporation (NYSE:PMC)
PharMerica Corporation (NYSE:PMC) is an institutional pharmacy services company that services healthcare facilities and provides management pharmacy services to hospitals. The company operates 91 institutional pharmacies and 12 specialty infusion centers in 45 states. The company has a market capitalization of $382 million, and had revenues in 2012 of $1.83 billion.
PharMerica is among the companies in the specialty pharmacies sector with the lowest EV/EBITDA ratio of 6.79. The company’s P/E of 8.35 also indicates that it is undervalued compared to similar stocks in the specialty pharmacies sector. The company has potential upside of 31% based on a current price of $12.77 and analysts’ consensus price target of $16.83
BioScrip, Inc. (NASDAQ:BIOS)
BioScrip, Inc. (NASDAQ:BIOS) is a provider of pharmacy and home health services that partners with patients, physicians, hospitals, healthcare payers and pharmaceutical manufacturers.
BioScrip’s revenue guidance for 2013 of $830–$865 million, reflects growth in the range of 25% to 30% which outpaced many analyst’s estimates. The robust expectations are based on the solid ongoing growth momentum. The company is confident about witnessing stronger business momentum going forward on the back of strategic acquisitions.
On a segment basis, BioScrip has been recording persistent growth in the Infusion Services segment over the past few quarters. Further, the company surpassed its forecast of annual revenues of $100–$105 million from the PBM franchise.
Assured Pharmacy, Inc. (OTCMKTS:APHY)
Assured Pharmacy, Inc. (OTCMKTS:APHY) operates pharmacies that provide prescription pain medications for chronic pain management to patients and physicians in the United States. The company is planning an aggressive new store opening campaign for 2013, which has to lead to a national foot print over the next 3 years. The company will not have many of the hurdles that expansion entails for many companies, as the current infrastructure should be able to handle the additional load without incurring much higher SG&A costs.
The company’s business model targets physicians specializing in pain management — orthopedics, neurology, oncology, psychiatry, physical rehabilitation and industrial medicine. The focus is on treating patients with long-term, acute, chronic pain conditions. Assured Pharmacy generates its revenue principally from the sale of Schedule II and III prescription pain relievers.
Assured Pharmacy alleviates the burden of the refill/authorization process on the physician’s administrative staff. Patients can count on their prescriptions being filled accurately and completely without long, needless delays or return visits. They may pick up prescriptions at the pharmacy or have them delivered to their home or office via courier or next day delivery.
The company has made a nice run up in price to a level of $0.90, a year-to-date gain of more than 140%. As the company matures I believe they will get cash flow positive very soon. Start-up costs are low for new branches—at about $250k—and success has already been demonstrated, and is completely replicable throughout the country. Any new location becomes profitable with a mere 75 scripts a day, according to company sources.
- Specialty pharmacies offer access to and support for most pharmaceutical and biological products that have high acquisition costs, are difficult to manage, and present reimbursement challenges.
- In addition to filling prescriptions, specialty pharmacies offer other value services including compliance monitoring, support services, reimbursement processing, and drug utilization reviews for patients with rare conditions that require special care.
- Specialty pharmacies focus on serving narrow patient populations with chronic conditions that require high levels of support and the use of higher-than-average prescription prices as opposed to the retail drugstore model of selling high volumes of lower margin drugs.
- Three fourths of health plans currently use specialty pharmacies in a further push to manage costs and increase access outsourcing.
- Specialty pharmacies also help streamline the delivery process of drugs that often require strict inventory control, while helping make other services more efficient, such as carrying out prescription drug billing and expediting reimbursement.
As shown below, specialty pharmacies offer a platform of services that other distribution channels are unable to effectively provide.
These services include offering high-touch pharmaceuticals, access to knowledgeable pharmacist staff, compliance monitoring, nursing services, clinical management of disease specific programs, coordination of home care, medical benefit management, and billing/reimbursement expertise.
These services not only make specialty pharmacies more competitive than their retail counterparts, but they realign the traditional configuration of the broader pharmacy value chain, shifting focus of ancillary services from partner businesses to the pharmacy point of contact.
Specialty pharmacies offer patients, physicians, payers, and manufacturers significant benefits to traditional retail pharmacies that can be measured by the indicators in the table below.
The services mentioned above not only make specialty pharmacies more competitive than their retail counterparts, but they realign the traditional configuration of the broader pharmacy value chain, shifting focus of ancillary services from partner businesses to the pharmacy point of contact.
While non-specialty drugs maintain year-to-year spending increases of between roughly 2% and 6%, specialty drug costs are increasing more rapidly, contributing to specialty pharmacy sales growth. As a result of higher utilization owing to expanded indications and a strong pipeline, specialty pharmacy expenditures are expected to grow from $87 million in 2011 to over $1 trillion by 2030.
As the specialty pharmacy market continues to grow at an annual rate of over 20%, driven by both the number and cost of new specialty product introductions, it has attracted the attention of managed care organizations and become a critical component of many health plans. Further examination of specialty products by health plans and other healthcare intermediaries, such as distributors, pharmacy benefit managers, and retail pharmacies, has contributed to several recent trends, including market consolidation.
This rise in M&A interest may result in elevated exit multiples as specialty pharmacies are
acquired by industry conglomerates or private equity. In total, $21 billion worth of private equity capital was invested in healthcare companies in 2012. Interest in the healthcare provider and services sector outstripped other sectors in 2012. Healthcare private equity buyout activity in North America is dominated by the US, where both cost pressures and incentives to contain costs are robust. US-based employers, especially the larger employers that typically subsidize healthcare insurance for employees, have long been trying to contain their costs for pragmatic reasons. Legislative reforms—namely the Patient Protection and Affordable Care Act (PPACA)—are expected to accelerate the trend by creating more incentives for healthcare organizations and insurance companies to reduce costs themselves while improving outcomes.
For the most part, private equity investors in the US are looking to ride the trends that have been set in motion or accelerated by healthcare reform, such as cost containment, payment reform, new care-delivery models and hospital-physician alignment, without getting ensnared in the uncertainty about future reimbursement levels.
That theme has led to meaningful increases in the number of deals within the provider and services categories with more limited or indirect reimbursement risk, such as retail health, healthcare-related IT and outsourced services; however, an inﬂux of new entrants in these “healthcare light” sectors is leading to increased valuations and trickier return equations.
Looking ahead, there is no question that healthcare investing remains attractive, thanks to the unique combination of stability and innovation it offers. Ithink small players in the specialty pharmacies field such as PharMerica, BioScrip and Assured Pharmacy could be interesting acquisition targets going forward. I already have a small position in PharMerica and Assured and will continue to add both companies to my portfolio, as I feel that these companies offer tremendous near and long term potential.