Centene starts pruning portfolio
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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.
