In early November, Diplomat Pharmacy, Inc. (NYSE: DPLO) revealed some troubling news. The company reported a net loss of $177.3 million in its third-quarter earnings report, its third in a row, and issued a “going concern” warning. Shares dropped 50% (from $6.20 to $3.10) that morning. Brian Griffin, chairman and CEO of Diplomat, cited industry headwinds pressuring its prescription benefits management (PBM) business, and its failure to renew network participation in their specialty pharmacy network. Diplomat’s PBM segment generated $82 million in Q3:19, compared to $170 million in the same quarter last year.
Diplomat Pharmacy’s efforts to expand in the PBM sector date back to 2017 when the group went on an acquisition spree, reporting four transactions, according to our Deal Search Online database. The largest was its purchase of LDI Integrated Pharmacy Services for $595 million. LDI was a full-service PBM that offered URAC–accredited mail-order and specialty pharmacies, a national network of retail pharmacies, and comprehensive clinical programs. Diplomat bought the group from Nautic Partners, LLC and Oak HC/FT Partners LLC.
In the three other transactions, the company bought Affinity Biotech Inc., a specialty pharmacy and infusion services company for $16 million; Focus Rx Pharmacy Services Inc., a home infusion and specialty prescription management services company, for an undisclosed price; and National Pharmaceutical Services, a full-service pharmacy benefit manager, for $47 million. The deals were intended to position Diplomat as a differentiated specialty company in the PBM sector, but it seems these acquisitions didn’t pan out the way Diplomat would had hoped.
And that’s where OptumRx, the pharmacy care business of Optum, a subsidiary of UnitedHealth Group (NYSE: UNH), stepped in. OptumRx is acquiring Diplomat for $300 million, or $4 per share, in cash. If we tack on Diplomat’s outstanding debt of $586.51 million, the transaction value totals $886.51 million.
This acquisition will expand OptumRx’s specialty pharmacy business while building out a national network of lower-cost infusion centers. The new network of infusion centers would most likely benefit from Optum’s recent digital health acquisitions involving companies like Vivify Health, which offers a robust remote care management service and biometric data monitoring. According to UnitedHealth, OptumRx had revenue of $18.5 billion in Q3:19, so even counting this deal, OptumRx has plenty of spending power to grow even further in the near future.