Changing times fuel drug company deals

The $12.8 billion merger between health insurer UnitedHealth Group and drug benefits manager Catamaran Corp. is the latest of a spate of deals in the pharmaceutical industry.

“Certainly it’s been a trend that’s been happening between manufacturers and supply chain partners,” says Charles Rhyee, an analyst with Cowen and Co. “There’s a lot going on in terms of jockeying for purchasing power.”

Both drug buyers and sellers want to scale up to get more leverage as drug prices rise, says Rhyee. UnitedHealth and Catamaran, a pharmacy benefits manager, will control up to a fifth of the industry’s business.

Mergers are also being driven by short supplies of certain generic drugs.

“There are companies out there acquiring manufacturing capacity for sterile injectibles, ophthalmology drugs, and topical drugs,” says Donald Ellis of Avondale Partners.

Those particular types of drugs are hard to manufacturer and have few suppliers, says Ellis. And shortages could grow now that some foreign firms have left the U.S. market.

At the same time, George Hill of Deutsche Bank says the Affordable Care Act has meant more patients and more prescriptions, “which makes more companies comfortable that future revenue and earnings trends are sustainable.”

Which means that mergers are likely to continue, analysts say.