"As a result, new pharmacy business models that create critical, sticky relationships with health systems, manufacturers, or patients are becoming more prominent and experiencing a flurry of private equity activity," explains Hepper. These growing segments are adding significant value to the healthcare ecosystem by managing personalized relationships with patients and generating immense patient loyalty. “In addition, they’re ensuring patients get the right therapies at the right time, while reducing cost of care through a variety of innovative methods,” he says.
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Article - February 22, 2023
Specialty Pharmacy: Three Models Primed for M&A
Key Learnings
Driven by secular pharma trends, including the shift to complex and targeted therapies, specialty pharmacies are a critical link between pharma companies, healthcare providers, and patients.
Top-performing specialty pharmacies have evolved to make a greater impact on the healthcare system and are therefore commanding higher margins.
There are three business models primed for investment that are creating strong patient relationships, opening new revenue streams, and reducing cost of care.
Specialty pharmacies connect manufacturers of complex drugs to patients in need while building critical relationships along the pharmaceutical value chain. Within this evolving space, top-performing companies are adding greater value to key healthcare constituents, which allows them to receive higher margins.
Here, senior professionals from our Healthcare & Life Sciences Group share what’s changing in the specialty pharmacy sector and which business models are generating substantial investor interest.
An Answer to Margin Pressure
For a long time, private equity invested in the pharmacy space primarily through specialty pharmacies that provide treatments unavailable through retail pharmacies. “Because of ongoing pharmaceutical trends, like the shift toward targeted therapeutics for newly treatable conditions, specialty pharmacies grew quickly and became attractive investment opportunities,” says Paul Hepper, a managing director in the Harris Williams Healthcare & Life Sciences Group.
However, the value of this model has recently been diminished by payors. They’ve found ways to put pressure on reimbursement, or cut reimbursement entirely, making traditional specialty pharmacies thin-margin businesses that add little to the healthcare system other than customer service and dispensing medication.
New pharmacy business models that add value to the healthcare system are experiencing a flurry of private equity activity.
Models Commanding Attractive Margins
Winning pharmacy business models have evolved to create more value within the healthcare system, which is opening new revenue streams to get paid and reimbursed. Below are the three models demanding better margins that investors should seek out and prioritize in the pharmacy space.
INFUSION THERAPY PROVIDERS
Infusion companies provide their services to patients at a hospital, physician’s office, ambulatory infusion center, or their home. However, most of the growth and investor activity in the space is related to the business models that get patients out of the hospital and into more attractive, lower cost settings of care. These companies are adding value through expert clinical care, more patient-friendly and comfortable experiences, and close interactions with their patients.
“Due to their increased involvement, they’re able to create higher levels of patient satisfaction and retention, while enabling care to be delivered in lower cost settings outside of the hospital,” notes Andy Dixon, another managing director in our Healthcare & Life Sciences Group. “These factors are helping best-in-class infusion businesses generate greater interest from private equity.”
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Please contact our senior professionals to discuss infusion therapy provider opportunities.
OUTSOURCED PHARMACY MANAGEMENT
A variety of hospital outsourcing models are becoming established and experiencing growth, including outpatient specialty pharmacies. Outsourced companies are now setting up and operating these outpatient pharmacies on a hospital’s behalf, supplying specialty drugs and complex medications directly to patients.
This allows the health system to continue their relationships with high-value patients—rather than allowing them to be discharged and go elsewhere to fill their prescriptions—while leaving the management of the pharmacy to the experts. “Thanks to their unique ability to improve patient retention and create a new revenue stream for hospitals, best-in-class operators are setting up high-margin profit shares with their customers,” highlights Cheairs Porter, a Harris Williams Healthcare & Life Sciences Group managing director.
Hepper adds that, because they’re keeping patients within the healthcare system, top-performing companies are also better able to line up systems and records, monitor adherence to treatments, and track patient outcomes. “All these capabilities support the value-based care model more effectively,” he says.
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Please contact our senior professionals to discuss outsourced pharmacy management opportunities.
EXCLUSIVE / LIMITED DISTRIBUTION
Another area primed for investment is the exclusive distribution subsector, which includes businesses offering specialty distribution services of rare disease medications to patients that require white-glove service.
“These are therapies that often must be temperature controlled, taken on a very regimented schedule, and are extremely costly per dose,” points out Cameron Thomas, a vice president in our Healthcare & Life Sciences Group. To ensure the safe delivery of these high-value drugs, pharmaceutical companies are creating exclusive contracts with specialty pharmacies that can provide top-notch customer service and manage myriad complexities with small patient populations.
“These highly desirable pharmacies are able to capture healthy margins due to the value they add to patients and their pharma customers,” says Hepper. “They make sure patients are getting their drug, payors are paying for it, physicians know what do with it, and pharmacies are dispensing it at the right time.”
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Please contact our senior professionals to discuss exclusive and limited distribution pharmacy opportunities.
Adding Value is Key
As the trend toward specialty therapeutics continues, the role of specialty pharmacies will become increasingly essential throughout the pharmaceutical value chain. The companies best positioned for long-term growth are adding more value to the healthcare system by building critical relationships with key healthcare constituents, establishing new revenue models for hospitals, and reducing cost of care.
To learn more about these opportunities—including those in the infusion, outsourced pharmacy management, and exclusive distribution segments—please contact our senior bankers.
Featured Engagements
Contacts
Andy Dixon
Managing Director
Paul Hepper
Managing Director
Cheairs Porter
Managing Director
Healthcare & Life Sciences
Cameron Thomas
Vice President