Feb 28, 2022 - Economy & Business

Centene starts pruning portfolio

Scissors cutting health care folder
Illustration: Gabriella Turrisi/Axios

Centene is rationalizing its portfolio, with Magellan Rx and PANTHERx divestitures in the cards and more to come over the course of the year, sources tell Axios.

Why it matters: The government-sponsored managed care company is revisiting its strategy amid a major refacing of its board that includes a changing of the guard at the center. Noncore asset sales may suggest where its priorities will (and will not) lie during the company’s next, newly governed era.

What’s happening: Processes have kicked off for both Magellan Rx and PANTHERx, via Evercore and Barclays, respectively, with the two likely to draw a different universe of buyers, sources say.

  • Centene in December said it was exploring divesting its international operations as part of a broader noncore portfolio review process.

Zoom in: First-round bids are coming up for Magellan Rx, the pharmacy benefit manager inherited through Centene's $2.2 billion acquisition of Magellan, which closed in January.

  • Sources estimate Magellan Rx in totality comprises $100 million-plus in EBITDA.

What we're watching: Will any big strategics — like Rite Aid via elixir or the in-house PBMs of Humana or Anthem — show up for Magellan Rx, or will new PE money ultimately take home the unit?

  • Middle market PBM companies need scale to achieve major synergies, such as the ability to push for a greater share of rebates, one source notes.

State of play: PE would take interest with a view around rolling up other targets, but will likely “want to come in with another angle so there’s more than just consolidation” to unlock value, this source says.

  • Midsized PBM players including Carlyle’s WellDyneRx, BPOC’s Maxor or Court Square Capital’s Integrated Prescription Management are likely sellers and not buyers.
  • There’s also Advent International- and Great Hill Partners-backed RxBenefits, last valued at $1 billion-plus, that has “taken share from the middle market PBMs,” the source notes.

Meanwhile, Centene is exploring the sale of PANTHERx, a specialty pharmacy business specializing in orphan drugs and rare disease treatment.

  • PANTHERx is projecting approximately $75 million in 2022 EBITDA, up from around $60 million last year, sources say.
  • Centene only 14 months ago closed its acquisition of PANTHERx.
  • Private equity is perhaps the most logical buyer. Still, one person adds that there could be PBMs looking for growth that take interest.

Between the lines: Rare disease drug development is accelerating, and specialty pharmacies play a critical role in getting these niche drugs to those who need them most.

  • Most recently, Carlyle acquired a stake in Consonance Capital’s Orsini Specialty Pharmacy.
  • In January, TPG Growth took a minority stake in Memphis-based AnovaRx.

Catch up quick: Centene in December settled with activist investor Politan Capital Management, appointing five new board directors amid Michael Neidorff’s plans to retire.

  • Ending 25 years at the helm, Centene said Thursday that 79-year-old Neirdoff would take medical leave, effective immediately.
  • James Dallas is stepping in as interim chairman, and the company expects to appoint a permanent CEO by Q2.

Centene did not return Axios' requests for comment. Evercore and Barclays declined to comment.

Sarah Pringle co-authors the Axios Pro Health Tech deals newsletter. Start your free trial at AxiosPro.com.

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