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UnitedHealth (UNH) to Buy Diplomat, Expand Pharmacy Services

Sapna Bagaria

UnitedHealth Group Inc.’s UNH health service segment Optum’s pharmacy care services, OptumRx will acquire Diplomat, a provider of specialty pharmacy and infusion services.

The agreement includes buying Diplomat’s outstanding common stock for $4 per share through a cash tender offer and takeover of existing debt.

Diplomat is a perfect fit for OptumRx given the former company’s niche in treating patients with complex diseases, such as oncology and immunology. It also provides specialized infusion therapies in convenient and clinically appropriate settings with a vast presence in all 50 states and Washington, D.C.

The deal will aid the segment’s margin by lowering total cost of care, which will be achieved by improved health outcomes and reduced prescription drug costs.

Through OptumRx, the company aims to provide a full spectrum of pharmacy care services by making drugs more affordable and creating a better experience for consumers.  

OptumRx promotes the lowest net cost prescription drugs through negotiated discounts and outcomes-based contracts with drug manufacturers.  The company continues to focus on new ways to drive cost savings across the pharmacy supply chain.

Optum Rx’s services include Pharmacy Care, specialty pharmacy, infusion pharmacy, home delivery, community pharmacies, physician and consumer digital tools. It is one of the fastest growing businesses with more than 56 million people served, 1.3 billion of adjusted scripts processed annually and approximately $96 billion in total prescription spend managed annually. Last year, to expand business, it acquired specialty pharmacy company, Avella  and Genoa Healthcare, which run pharmacies in behavioral health clinics.

Over the long term, management expects OptumRx revenues to grow at an average annual rate of 5% to 8% with operating margins of 3-5%.

The pharmacy benefit management (PBM) space is witnessing tough competition and health insurers are foraying into this market to control drug cost, which forms a significant part of their medical cost. While some insurers have acquired PBM players, others are developing their in-house PBMs.

For instance, Humana Inc. HUM and Anthem have their in-house PBMs named Humana Pharmacy Solutions and IngenioRx, respectively. Last year, Cigna Corp. CI merged with  Express Scripts, the leading PBM player and Aetna got acquired by CVS Heath Corporation CVS.

Year to date, the stock of UnitedHealth has gained 11.4%, compared with the industry’s growth of 12.8%.

 

UnitedHealth carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Cigna Corporation (CI) : Free Stock Analysis Report
 
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