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FTC files suit to block Omnicare's bid on PharMerica

January 30, 2012
by Kevin Kolus
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This story was updated on January 31 at 9:32 a.m. with PharMerica's statement.

The Federal Trade Commission issued a complaint last Friday to block Omnicare, Inc.'s, hostile acquisition of rival long-term care pharmacy provider PharMerica Corporation, alleging that the combination of the two largest U.S. LTC pharmacies would harm competition.

The complaint also argues Omnicare’s attempted takeover would enable the pharmacy services provider to raise the price of drugs for Medicare Part D consumers and others.

“If Omnicare is allowed to purchase its biggest and only national competitor, it will diminish competition and raise healthcare costs—leaving taxpayers and patients to foot the bill,” said Richard Feinstein, director of the FTC's Bureau of Competition.

In its complaint, the FTC charges that a deal combining Omnicare and PharMerica would significantly increase Omnicare's already substantial bargaining leverage by dramatically increasing the number of SNFs that receive pharmacy services from the company. Due to its substantial market share, the FTC alleges that the combined firm likely would be a "must have" for Medicare Part D prescription drug plans, which provide subsidized prescription drug benefit coverage for most SNF residents.

Omnicare, headquartered in Covington, Ky., owns and operates 204 LTC pharmacies in 44 states and had $6.1 billion in revenue during 2010. PharMerica, headquartered in Louisville, Ky., owns and operates 97 LTC in 43 states and had $1.8 in revenue during 2010.

The FTC said more than 1.6 million Part D Medicare beneficiaries are expected to require long-term care in a SNF during 2012. About 1.1 billion prescriptions per year are processed under Part D on behalf of approximately 29 million beneficiaries, the FTC said.

According to the FTC's complaint, Omnicare's takeover would be in violation of the FTC Act and Clayton Act. The FTC alleges that the combined firm would serve approximately 57 percent of all licensed SNF beds in the United States.

Under the Merger Guidelines used by the FTC and Department of Justice, a transaction that leads to that much market concentration would be presumed illegal, the FTC said.

The FTC also charges that even without the acquisition, Omnicare has been able to use its current size to exert bargaining leverage over Part D health plans by threatening to terminate contracts if its terms are not met. The FTC argued that the proposed merger would allow Omnicare to “exert even greater bargaining power to raise the price of drugs to Part D health plans.”

Omnicare released a statement last Friday saying it disagreed with FTC‘s decision, as well as its “claim for the need to protect insurance companies as a result of this combination.”

“The FTC has already examined the institutional pharmacy industry, noting the numerous players and explaining how the ease of entry and other market conditions facilitate competition,” Omnicare said in a statement. “The institutional pharmacy business is competitive and Omnicare is confident it would remain so after the transaction.”

Omnicare also announced last Friday it had extended its offer to purchase all shares of PharMerica common stock until February 17.

PharMerica released a statement Monday saying the company was “pleased” by the FTC’s actions.

“As we have said from the beginning, we believed antitrust clearance would be difficult to achieve and, with that belief now confirmed, we hope that Omnicare will end its hostile pursuit of PharMerica,” the company statement read.

The Omnicare and PharMerica saga first began in July 2011 when PharMerica rejected an unsolicited acquisition bid from Omnicare. PharMerica has since rejected several bids by Omnicare.

The FTC’s vote to issue the administrative complaint against Omnicare was 3-1, with Commissioner J. Thomas Rosch voting no. The case will be heard before an administrative law judge at the FTC in June 2012.

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