Fred’s Inc. said CVS Health is buying its specialty pharmacy business EntrustRx for $40 million.
Under a definitive agreement announced Monday afternoon, Fred’s said the “aggregate consideration to be paid is $40 million, plus an amount equal to the value of inventory of EntrustRx.” The three specialty mail order facilities are located in Mississippi and Tennessee, CVS said.
“One of Fred’s top priorities for 2018 has been to monetize non-core assets and we are pleased to have reached an agreement for the sale of EntrustRx,” Fred’s interim CEO Joseph Anto said in a statement Monday afternoon. “The cash proceeds will allow us to pay down a significant portion of our debt and also be used for general corporate purposes.”
For CVS, the acquisition should provide a boost to an already expanding specialty pharmacy business. In its first quarter earnings report, CVS said revenues in its pharmacy services segment grew more than 3% with the increase “primarily driven by growth of pharmacy network and specialty claim volume.” And a report out released last week at the annual Asembia Specialty Pharmacy Summit from Avalere Health shows specialty drugs as a percentage of total U.S. pharmaceutical sales are already at 40% with expectations they will soon eclipse 50% given there are some 900 specialty drugs in development.
Fred’s three “specialty pharmacy-only locations” are part of a portfolio of assets that also includes 600 general merchandise and pharmacy stores. CVS, which is working its way through an acquisition of health insurance giant Aetna, said the transition of Fred’s Entrust specialty pharmacies to CVS Specialty “will be seamless to patients” when the deal is complete at the end of May.
Anto late last month replaced Michael Bloom, who resigned as CEO to “pursue other interests.” Shortly after Bloom became CEO in late August of 2016, he began to shed the company’s past as “Fred’s Super Dollar” to focus on the faster-growing industry of personal healthcare, hiring new executives and investing heavily in both retail pharmacy and specialty pharmacy.
But Fred’s was unable to escalate its shift to healthcare when a deal to buy hundreds of Rite Aids stores ended abruptly last year. An attempt by Walgreens Boots Alliance to buy Rite Aid and satisfy the Federal Trade Commission by selling 865 Rite Aid stores to Fred’s was unable to pass regulatory muster. Walgreens instead bought just 2,186 of the more than 4,500 Rite Aids, turning Rite Aid into a multi-regional drugstore chain and preventing Fred’s from buying hundreds of drugstores all at once.
Now Anto is shedding assets that include possible sales of retail pharmacies in an effort to improve earnings and cash flow. Last week, Anto said Fred’s was “evaluating various options for our retail pharmacy portfolio.”
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