Apria Healthcare Group Inc. has largely flown under the radar since it left Orange County’s public company ranks five years ago.
The Lake Forest-based home healthcare provider continued its low profile even as it struck a $2.1 billion deal for one of its two operating units on the eve of the Thanksgiving holiday last month.
Apria said Nov. 27 that it would sell its Coram LLC drug infusion business to Woonsocket, R.I.-based CVS Caremark Corp., a deal that’s expected to close in 2014’s first quarter.
Coram, based in Denver, provides infusion drugs and nutritional products to more than 20,000 patients monthly.
Apria paid $350 million for Coram in 2007, a deal that was among the biggest in the home healthcare industry since the $1.2 billion combination of Orange County-based Abbey Healthcare Group Inc. and Homedco Group Inc., a combination that created Apria in 1995.
Larry Higby, Apria’s former chief executive, defended the $350 million price tag for Coram in an interview with the Business Journal at the time. Apria paid roughly 16 times Coram’s cash flow—the same as Chicago-based Walgreen Corp. paid for another infusion company, Option Care Inc., a few months earlier.
“If you look at what infusion companies have been selling for over the last couple of years, this is right in line with what other people are doing,” said Higby, whose outlook appears to have been justified by the sale price.
Private
Apria went private with a $1.4 billion sale to New York-based private equity investor Blackstone Group LP, its current owner, about a year after the Coram buy.
The sale of Coram, which has about $1.2 billion in annual sales, leaves Apria with another unit of similar size: its Lake Forest-based Apria Healthcare LLC, which offers respiratory therapy and home medical equipment.
The deal has drawn little attention so far, and executives on all sides have remained mum, leaving no clues about whether Blackstone—now in its fifth year of ownership—is marketing the Orange County-based half of Apria’s operations.
Groundwork
Apria laid the groundwork for the Coram sale last year by reorganizing and announcing separate chief executives for Coram and Apria Healthcare Daniel Starck and Daniel Greenleaf were the original business unit heads.
John Figueroa became Coram’s chief executive and chairman of parent Apria Healthcare Group in January and moved to Denver to oversee the Coram business. Greenleaf left the company to seek other opportunities. Starck remained head of Apria Healthcare LLC.
CVS executives said they sought Coram to boost its competitive presence in what’s known as the “specialty pharmacy” market.
“Infusion will be a valuable component of our broad specialty pharmacy offering going forward,” said Jon Roberts, president of CVS Caremark pharmacy services, in a news release.
Having Coram in CVS’ fold “will enable us to streamline care management for patients as well as their physicians, leading to better health outcomes while avoiding unnecessary costs,” Roberts said.
Coram and other infusion pharmacy providers take care of patients who are too healthy for extended hospital stays but aren’t well enough to rely on traditional oral drugs that pharmacies dispense. Infusion pharmacy services are used for treating conditions such as immune deficiencies, rheumatoid arthritis, multiple sclerosis or nutritional deficiencies.
Figueroa directed requests for comment to CVS executives. He said in the deal announcement release that Coram “has a demonstrated track record of providing access to infusion services delivered by experienced and knowledgeable clinical staff.”
Starck couldn’t be reached for comment.
CVS spokeswoman Christine Cramer said in an e-mail that there “are no plans in the foreseeable future for relocation of the Denver headquarters or job cuts.”
Apria doesn’t break out Coram’s employee numbers but has more than 13,000 workers companywide, according to a Securities and Exchange Commission filing.
CVS Numbers
CVS has more than 7,600 stores, $123 billion in annual revenue and a recent market value of about $80 billion. Coram is expected to generate about $1.4 billion in revenue for it during the first year after the deal’s close.
Infusion pharmacy is part of a broader market known as specialty drugs. Industry experts say that even though the specialty drug market is relatively small—annually, fewer than 1 million Americans receive home infusions—the drugs represent about 25% of healthcare costs because of the complexity of the patients’ cases, making them an attractive play for CVS and competitors.
The market CVS will enter with the Coram buy has been estimated at $9 billion to $11 billion annually. Walgreen, Minnetonka, Minn.-based BioScrip Inc., and Sugar Land, Texas-based Healix Inc. are considered pacesetters in the market.
Wall Street
Wall Street had a muted but positive reaction to the deal.
Buying Coram “is relatively consistent with CVS’ strategy to focus on high-growth markets and to bring the most comprehensive suite of services to clients and patients, including new approaches to improve management of specialty pharmacy costs that are covered by the medical benefit as well as those covered by the pharmacy benefit,” wrote analysts John Ransom and Michael Baker of St. Petersburg, Fla.-based Raymond James & Associates Inc.
Having Coram “will help CVS in enhancing relationships with health systems and [accountable care organizations] in our view,” Ricky Goldwasser, an analyst with Morgan Stanley, said in a research note about the deal.
And the deal “dovetails” with CVS’ desire to improve patients’ prescription drug adherence, “which also lowers medical care costs,” wrote Mark Miller, who covers CVS for Chicago-based William Blair & Co.
