UnitedHealth pays $12.8 billion for pharmacy benefits manager Catamaran

UnitedHealth Group Inc. agreed to buy Catamaran Corp. for about $12.8 billion, bulking up its drug-benefits business to get better negotiating power in talks with pharmaceutical companies over prices.

UnitedHealth will pay $61.50 a share, financing the acquisition with cash and debt, the companies said in a statement. The offer, which would be UnitedHealth's largest purchase ever, is 27 percent more than Catamaran's closing share price of $48.32 on Friday.

Benefits managers like Catamaran help administer the drug coverage in health plans, working with employers and insurers to negotiate with drug companies and pharmacies. They also often oversee patients' drug use, maintaining lists of covered drugs and handling mail orders or complex treatments.

The deal will put more pressure on drugmakers and the prices they charge. The pharmacy benefits industry has become the focal point of tensions between drug companies and customers over the cost of new treatments. Express Scripts Holding Co., the biggest in the industry, successfully led a campaign last year to push for discounts on $1,000-a-day treatments for hepatitis C from drugmakers Gilead Sciences Inc. and AbbVie Inc.

The Catamaran deal lets UnitedHealth bet more on growth in drug benefits as the initial surge of new health-insurance customers from Obamacare begins to slow. The biggest U.S. health insurer will combine Catamaran with its drug-benefit unit, called OptumRX, giving it a broader base of customers.

Optum "has largely been servicing United's captive business," said Ana Gupte, an analyst at Leerink Partners. "They have aspirations to broaden that."

Adding scale will help UnitedHealth bargain harder in negotiations with drugmakers and pharmacies said Steve Halper, an analyst at FBR & Co.

"They have a lot more clout," Halper said. "You're negotiating with the manufacturers for rebates and pricing with a much larger base."

The drug-benefits industry gets about $100 billion in annual sales, a figure that may quadruple by 2020, the companies said.

Even with the acquisition, Minnetonka, Minn.-based UnitedHealth will remain third in the industry behind Express Scripts and CVS Health Corp. in revenue, according to data compiled by Bloomberg. Optum covers about 30 million people, while Catamaran represents about 35 million. That compares with 90 million for Express Scripts and more than 65 million for CVS.

Catamaran gets about a third of its revenue from Cigna Corp., a rival to UnitedHealth in the insurance business. By joining with UnitedHealth, Catamaran increases the risk that Cigna will end the relationship to avoid helping one of its chief competitors, Peter Costa, an analyst at Wells Fargo & Co., said in a research note.

"We expect the combination of Catamaran and Optum Rx will provide significant value" to Cigna, Tyler Mason, a UnitedHealth spokesman, said by e-mail. "We respect this relationship and look forward to discussing the benefits of this transaction with them and all of Catamaran's current business partners."

Cigna agreed to a 10-year relationship with Catamaran in 2013. "Our goal of maintaining a strong and competitive PBM has not wavered since we signed an agreement with Catamaran," said Matthew Asensio, a Cigna spokesman. "We expect no impact on service or operations that meet our customers' needs."

Lauren Denz, a Catamaran spokeswoman, declined to comment.