Rite Aid Buys Leading Independent Pharmacy Benefit Manager For $2 Billion

NEW BRUNSWICK, NJ–Rite Aid Corporation and Envision Pharmaceutical Services announced on February 11 that Rite Aid will acquire EnvisionRx, a portfolio company of private investment firm TPG, for about $2 billion, according to a Rite Aid news release.

Envision, a national full-service pharmacy benefit manager, offers pharmacy and mail-order services, in addition to traditional options through its EnvisionRx and MedTrak networks.

Rite Aid’s stock was up by as much as 12% on February 11, in reportedly heavy trading of its shares.

The company is the third-largest U.S. drug-store operator.  There is a Rite-Aid in downtown New Brunswick, located at 366 George Street, as well a location in Highland Park and two in Edison. 

The merger will allow Rite Aid to reduce drug procurement costs and better compete in the rapidly changing health-care marketplace where reimbursement rates are falling, according to reports.

EnvisionRx is projected to see revenue of about $5 billion this year.

Pharmacy benefit managers administer drug benefits for employers and manage large mail order pharmacies, enabling them to get better prices from drugmakers.

Rite Aid will pay approximately $1.8 billion in cash and $200 million in Rite Aid stock, or approximately 27.9 million shares, under the deal, which includes the value of an expected future tax benefit of $275 million.

The terms of the agreement were unanimously approved by the Boards of Directors of both companies.

"The acquisition of EnvisionRx meaningfully expands our health and wellness offerings, enhancing our ability to provide a higher level of care to the patients and communities we serve," said Rite Aid Chairman and CEO John Standley.

"With the addition of EnvisionRx, we will create a compelling pharmacy offering across retail, specialty and mail-order channels, enabling us to deliver cost-effective solutions to employers and health plans while driving growth and creating long-term value for our shareholders. We also look forward to welcoming EnvisionRx's proven management team and talented associates to Rite Aid."

Envision Rx CEO Frank Sheehy boasts large growth potential with the opportunity to serve both new and existing customers.

“Combining our comprehensive suite of pharmacy benefit management services with Rite Aid’s established retail health-care platform is a natural fit that is increasingly preferred by plan sponsors,” said Sheehy.

Almost 10 years ago, CVS Health Corporation purchased Caremark Rx for $21 billion, the only other case of a drugstore chain acquiring a benefits manager.

But according to reports, Rite Aid will not even be close to challenging CVS/Caremark because, even after the merger, its revenue will only be a projected quarter of that of CVS/Caremark.

“CVS obviously does have more scale in the market than we do. We have many strategic relationships with other pharmacy benefit managers,” said Stadley.

“I laugh at Walgreen's for getting it wrong – they aligned with another retailer instead of looking for vertical integration," wrote one Wall Street Journal commenter.

"CVS has been very successful with Caremark and now Rite Aid is following the same recipe for success. WAG is left in the dust.” 

Dave is an award-winning business reporter who has authored over 200 articles for New Brunswick Today.