Cardinal Health Pays $517 Million for Obscure Specialty Pharma Firm

Cardinal Health Buys Healthcare Solutions
Cardinal Health Buys Healthcare Solutions

In light of the changes that will come with both Obama-care and the aging U.S. population, the health care industry is looking for some new long-term strategies. But one part of the industry that already looks poised for success is the specialty pharmaceuticals industry, which focuses on hard-to-treat diseases. The growth rate for that market segment is expected to be twice as much as traditional pharmaceuticals and, it's forecast to exceed a whopping $100 billion by 2013, according to IMS Health.

Obviously, all that potential for profit is attractive to major health care distributors like Cardinal Health (CAH), which needs to leverage its size by finding large market opportunities and using its platform to provide lower costs. So this week, the company agreed to pay $517 million for Healthcare Solutions Holding, a privately-held operator in the specialty pharmaceuticals market. Interestingly enough, the purchase price includes an earn-out that could be worth as much as $150 million over the next three years.

Yes, this is certainly a sign that Cardinal thinks this category is poised for growth.

A Look at Healthcare Solutions

For a company that is trailblazing innovative solutions -- and that has caught the attention of major players -- Healthcare Solutions remains somewhat obscure. A cursory search on the Internet will yield little information about it, and Cardinal Health apparently wants to maintain its low profile. On the conference call about the purchase, the company said it will not provide any financial information for competitive reasons.

However, it looks like Healthcare Solutions is growing quickly and is consistently profitable. What's more, the acquisition is expected to be neutral to slightly accretive for fiscal 2011.

Essentially, Healthcare Solutions provides a variety of tools, services and data analysis to determine improved patient outcomes and cost savings -- with a focus on oncology. Some of the tools include web-based reimbursement management, patient education programs and medical surveys. To enhance its effectiveness, Healthcare Solutions has created an ecosystem in the specialty pharmaceuticals markets. This involves the connection of a network of pharma companies, HMOs and specialty physicians.

The Opportunity

For the most part, Cardinal's footprint in the specialty pharmaceuticals market has been relatively small. In fact, the company has made several previous acquisitions in the space that had to be divested.

Yet Cardinal needs to be in this business and that means making significant investments. It looks like the company has been studying the category for some time and is ready to move things forward.

What's more, the deal may be an indication of renewed confidence for Cardinal Health. After all, the stock has risen 36% over the past year and the company recently increased its quarterly dividend by 11%.