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Omnicell, Pharmaceutical Strategies Enter Acquisition Deal

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Omnicell, Inc. (OMCL - Free Report) recently entered into a definitive agreement with Pharmaceutical Strategies Group (“PSG”) regarding the acquisition of the latter’s 340B Link Technology Solutions business. The acquisition will add a comprehensive and differentiated suite of software-enabled services and solutions to Omnicell's portfolio for compliance management. Additionally, the buyout will help Omnicell tap into the federal 340B Drug Pricing Program. The company will now work on drug cost savings on outpatient prescriptions, which are filled via the eligible entity’s pharmacy or a contracted pharmacy partner.

For investors’ note, the buyout has been finalized at a total aggregate cash consideration of $225 million. The deal is expected to be completed in 2020 and is subject to Hart-Scott-Rodino clearance and the satisfaction of other customary closing conditions.

With the recent buyout, Omnicell aims to strengthen its Automation and Analytics business across the globe.

Few Words on 340B Drug Pricing Program

The federal 340B Drug Pricing Program provides financial assistance to hospitals serving vulnerable communities. The program offers drug discounts to support eligible entities, including certain hospitals and other federally-qualified health centers that serve underinsured and uninsured patients. The program is an important source of funding for vital patient care as covered entities face rising healthcare costs, reimbursement cuts and uncompensated care.

Rationale Behind the Acquisition

The latest acquisition fast-tracks Omnicell’s aim of the fully Autonomous Pharmacy. The buyout builds on the company’s Omnicell One (launched in July), which leverages cloud-based data, and predictive and prescriptive analytics.

Per management, the 340B program is a significant part of an increasingly complex medication management supply chain. PSG’s 340B Link business adds software-enabled services to Omnicell’s portfolio, thus aiding its business.

Industry Prospects

Per a report by MarketsAndMarkets, the pharmacy automation market is estimated to reach $5.38 billion by 2022 from $3.63 billion in 2017, at a CAGR of 8.2%. Factors like the growing need to minimize medication errors and the rapid decentralization of pharmacies are expected to drive the market. Also, expanding elderly population and mounting labor costs are other contributors.

Given the market potential, the acquisition seems to be well-timed.

Recent Developments in Automation & Analytics

Of late, Omnicell has been witnessing a slew of developments in its business arm.

The company, during its second-quarter earnings call in July, confirmed about implementing a variety of technology-based tools to assist customers amid the pandemic. Its virtual tools, which enable customers to self-install certain automation products, have been appreciated. The company has also enabled some implementations of its solutions to continue without the need for onsite presence of service personnel. Omnicell also confirmed to have co-developed a multi-year medication management automation plan to drive increased levels of medication management automation to deliver improved accuracy, patient and financial outcomes.

In February, Omnicell inked a six-year sole source agreement with Geisinger (a key health system, serving Pennsylvania and New Jersey) to improve clinical and operational efficiency, increase medication safety, and reduce costs.

In January, Omnicell announced that its point-of-care automated workflow technology — XT Automated Dispensing Systems — was adopted by various key health systems across North America. The health systems include Duke University Hospital, which aims to improve hospital efficiency and provide better patient care by adopting automation.

In the same month, Allegheny General Hospital, PA (part of Allegheny Health Network) incorporated Omnicell’s Central Pharmacy IV Compounding Service — a comprehensive, turnkey approach for insourcing some sterile compounding operations.

Price Performance

Shares of the company have lost 0.7% in the past year against the industry’s 19% rise and the S&P 500’s 15.4% growth.

Zacks Rank & Stocks to Consider

Currently, Omnicell carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks from the broader medical space are QIAGEN N.V. (QGEN - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Hologic, Inc. (HOLX - Free Report) .

QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 15%. It currently carries a Zacks Rank #2 (Buy).

Hologic’s long-term earnings growth rate is estimated at 15.5%. The company presently sports a Zacks Rank #1.

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