PBMs & the Continued Vertical Integration of the Pharmaceutical Supply Chain: A Visual Look at Recent Moves by CVS & Diplomat
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PBMs & the Continued Vertical Integration of the Pharmaceutical Supply Chain: A Visual Look at Recent Moves by CVS & Diplomat

From Manufacturers to Payers, Companies Continue to Reach Outside of Traditional Models to Stay Dominant in the Supply Chain.

Traditional Supply Chain


*PBMs additionally work with manufacturers to secure rebates but those agreements are obscure and therefore not included in the diagram.


Can’t beat them? Join them – Diplomat Pharmacy Makes Moves into the PBM World

Diplomat Pharmacy Makes Two PBM Acquisitions in Nine (!) Days
Diplomat Pharmacy has a deal in place to acquire LDI Integrated Pharmacy Services for $595 million in cash and stock. Earlier this month, Diplomat purchased National Pharmacy Services, another PBM. “Bringing on LDI is an even bigger step as Diplomat evolves from a specialty pharmacy provider to a broader healthcare company,” said Diplomat chairman and CEO Phil Hagerman.


The stock dipped 23% in the days following the announcement of LDI. This is because the PBMs are facing increasing regulatory scrutiny, coordinated lobbying/activities by the PhRMA trade group, customers unhappiness ($15 billion lawsuit against Express Scripts by Anthem), and growing competition.
They might be late in getting to the game (and therefore, overpaying for the assets) but they are only following tried-and-true methods: get as big as possible in your horizontal and then use that size to either expand vertically or build leverage for deal-making upstream and downstream.



*For most of Diplomat’s portfolio, they are exclusive distributors or direct with manufacturers.

CVS to Buy Aetna

CVS Market Cap: $71.6 Billion; Annual Revenue: $177.5 Billion
With Aetna, Market Cap: $137 Billion; Annual Revenue: $240.7 Billion

Of course, most of CVS’s manufacturer product supply occurs outside of Major & Rugby 99%+; but the recent acquisition demonstrates the vertical ambitions of the company. They made the Aetna announcement only days after Amazon licensing became public.

Walgreens Boots Alliance


Walgreens has focused mostly on horizontal pharmacy acquisitions, international and domestic, more so than vertical acquisitions. They then leverage their prescription volume for deal-making, upstream and downstream.


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