The Health Care M&A Monthly: Infusion Therapy Attracts Investors–

Renewed Buyer Interest Driving Valuations Up
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When Apria Healthcare Group (NYSE: AHG) announced its $350.0 million acquisition of Coram this month, one of the largest Home Health Care deals in some time, it highlighted the recent ascendancy of the home infusion therapy business over the closely related specialty pharmacy business. A number of recent moves in the industry, including an IPO, point to renewed investor enthusiasm for infusion therapy, which some believe is pushing up valuations.
Denver-based Coram is a provider of home infusion therapies to the home health market. Its services are provided to 65,000 patients through a network of over 70 branches and 50 ambulatory infusion suites. Coram is projected to generate revenue of $500.0 million in 2008. In effect, AHG is paying 0.7x 2008 projected revenue or $5,385 per infusion patient. This merger will expand AHG’s service offering by creating a leading nationwide provider of home infusion services. Combined, the two companies care for over 100,000 patients and are licensed to serve patients in all 50 states. And while the deal also allows AHG to enter the important, complementary specialty pharmaceutical market, home infusion is clearly its prime target in this deal.
This transaction follows several others, which have been discussed in the pages of this newsletter: Walgreens’ (NYSE: WAG) $850.0 million acquisition of OptionCare in July; DaVita’s (NYSE: DVA) acquisition of a 65% interest in HomeChoice Partners for $65.0 million in September; and Medco Health Solutions’ (NYSE: MHS) $2.5 billion acquisition of Accredo Health in February 2005.
As a further expression of interest in this business, in October, Critical Homecare Solutions, an infusion therapy services provider based in Conshohocken, Pennsylvania, filed its S-1 to go public. To prepare for going to the next level, the company has been bulking up by making a number of acquisitions. In what was arguably a transformative deal for the business, in January of 2007, it acquired Deaconess Enterprises, a New England-based provider of infusion therapy services, for $171.3 million.
As we were going to press, we received confirmation of a rumor that had been making the rounds. In its third quarter earning report, Medco announced its acquisition of Critical Care Systems, a home infusion company smaller than Coram. The deal is interesting because Medco’s Accredo at one time had a significant infusion therapy business that it acquired when it bought Gentiva Specialty Pharmacy in early 2002 for $462.3 million; Medco would have inherited that business but for the fact that Accredo divested much of its acute care business (infusion therapy) in favor of its chronic care business (specialty pharmacy). Now that the fortunes of infusion therapy are reviving, MHS is determined to get back in the business.
We spoke with Dexter Braff of The Braff Group about his take on the improving fortunes of the infusion therapy business. Part of the shift away from specialty pharmacy, he observed, is due to the fact that there have been no new blockbuster drugs recently for specialty pharmacies to administer, slowing margin growth. Another aspect of the shift to infusion therapy, Mr. Braff continued, is due to the increasing number of patients in outpatient settings, either ambulatory sites or patients’ own homes, as well as the increased linkage of disease management protocols to infusion therapy. In the near term, specialty pharmacy companies will seek to build complementary strengths in the infusion therapy market.
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