McKesson Targets Specialty Pharma Growth with Deal for CVS's RxCrossroads
RxCrossroads will be part of McKesson's specialty health unit.

CVS Health Corp. (CVS) has agreed to sell RxCrossroads, a service provider to pharmaceutical and biotechnology manufacturers, to McKesson Corp. (MCK) in a deal valued at $735 million, the acquirer said after the market close on Monday, Nov. 6.

The deal value net of the present value of incremental cash tax benefits is about $635 million, McKesson said.

San Francisco-based McKesson said the purchase will enhance its commercialization offerings for makers of branded, specialty, generic and biosimilar drugs. The deal will also add plasma logistics to its manufacturer services.

"We view [the deal] as a smart strategic move to help position the company for the continued importance and growth of specialty pharma products," wrote Leerink Partners David Larsen in a note Monday.

The transaction is expected to close in McKesson's fourth quarter of fiscal 2018, which ends on March 31. RxCrossroads will be part of McKesson's specialty health unit.

"RxCrossroads provides tailored services to pharmaceutical and biotech manufacturers and will enhance MCK's existing solutions for manufacturers," added Larsen.

McKesson plans to fund the purchase with cash on hand. The company said it expects the acquisition to be about 20 cents accretive to adjusted earnings per diluted share by the third year following the deal's close.

Omnicare Inc. acquired RxCrossroads for $235 million in 2005. Omincare, in turn, was purchased by CVS in 2015 for a total enterprise value of about $12.9 billion.

Shares of CVS closed at $66.80 on Monday, down 3.5%. McKesson shares closed at $135.21, down 1.7%.

CVS also unveiled on Monday third-quarter results and raised its full-year guidance range. The Woonsocket, R.I.-based posted earnings per share of $1.50 and $46.2 billion in revenue. That's compared to analysts' estimates of $1.48 per share and revenue of $46.17 billion, according to Factset Research Systems.

Same-store sales in pharmacy dipped 3.4%, while front-store same-store sales also declined by 2.8%.

For full-year 2017, CVS said it now expects earnings to be between $5.87 and $5.91 per share, up from between $5.83 and $5.93. Cash flow is now projected to a total of $8.6 billion, up from $7.7.

The earnings release and the RxCrossroads divestiture came on the heels of a Reuters report on Nov. 3 that a deal between CVS and Aetna Inc. (AET) could come as soon as next month. The Wall Street Journal reported on Oct. 26 that CVS has been in talks over the past six months to buy Aetna for more than $200 a share.

--Cathaleen Chen contributed to this article

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