Catamaran anticipates new advantages with recent mergers

Catamaran, a pharmacy benefits manager (PBM) has been on a buying binge since 2008, snapping up its sixth PBM, Restat. The $409.5 million cash purchase is expected to close in the fourth quarter of 2013.

“Restat will be the first PBM we have acquired that is not a current client,” said Tony Perkins, vice president, investor relations for Catamaran. “Our claims adjudication technology is widely installed serving one-third of the country’s PBMs.”

He said that although Catamaran is on a merger streak, it has no specific goals for completing a certain number of acquisitions each year.

“We would rather find companies whose books of business and people could drive more benefits for shareholders and clients, such as providing savings and economies of scale in the supply chain,” he said.

Randy Vogenberg, principal at the Institute for Integrated Healthcare based in Greenville, SC, said the word on Wall Street is that Catamaran is buying lives and contracts primarily in its race to grow larger, as well as to fill in niche gaps. It has gradually moved up within the top three PBM players.

“Due to health reform and general market changes that are moving fast now, it becomes more important to either innovate or get bigger to survive the next 18 to 24 months. My expectation is that there will be more mergers and acquisitions,” Vogenberg said.

Market position

With the buy, Catamaran anticipates generating $20 million in annualized synergies. Restat is expected to contribute about $650 million of annual drug spend and $45 million of annual earnings before interest, taxes, depreciation and amortization.  

Perkins said that Restat is an attractive addition with its high-touch service model and a client base in the middle market, while also enabling Catamaran to expand its benefits, including mail order, specialty pharmacies and formulary management.

“We have core competency in acquisitions with a dedicated group that uses a targeted approach to seeking out PBMs,” Perkins said. “I consider Catamaran an organic growth engine.”

In June, the PBM won a large 10-year contract with Cigna.

Catamaran, previously operating as SXC Health Solutions, purchased:

■ National Medical Health Card in 2008;

■ MedMetrics, PTRx and HealthTrans in 2011; and

■ Catalyst Health Solutions in 2012, when it changed its name to Catamaran.

Catamaran ranks fourth among the nation’s PBMs, trailing Express Scripts, CVS Caremark and Optum Rx. Perkins says that prior to its 2012 purchase of Catalyst, Catamaran’s revenues were $7 billion but by the end of the year, had risen to $9.9 billion.

With the Restat purchase, Catamaran expects to drive revenue to about $14.6 billion in 2013, covering 25 million lives. Its next closest competitor, Optum Rx, covered 12 million in 2011 with annual revenue of $19.28 billion. Number-one PBM Express Scripts reported  2012 revenue of $93.9 billion.