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Omnicell Raises 2014 Guidance on SurgiChem Takeover

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Augmenting its non-acute care medication adherence solutions further, Omnicell, Inc. (OMCL - Free Report) completed the acquisition of SurgiChem Limited, a wholly-owned subsidiary of Bupa Care Homes, for a cash transaction valued at $19.6 million.

The company plans to integrate SurgiChem with MTS Medication Technologies Limited, Omnicell’s existing medication adherence business in the U.K.

The significance of medication adherence is gaining importance with each passing day. According to the World Health Organization, poor adherence increases chances of medical complications, to the extent of death and morbidity. As per Omnicell, up to two-thirds of all medication-related hospitalizations are caused by medication non-adherence. Notably, 50% of population in developed countries does not follow the prescribed course of medication.

Omnicell believes with the need for medication adherence rising, the SurgiChem acquisition will be a strategic fit to the company’s growth plans. The company currently expects to shield itself by pursuing a three-pronged strategy of domestic expansion, selective acquisitions and targeted international expansion.

Accordingly, the company upgraded its financial guidance for 2014. Following the SurgiChem acquisition, earnings per share (EPS) expectation has been raised to the range of $1.18 to $1.24 (from earlier guided range of $1.17 and $1.23) on revenues of $420 and $430 million ($415 and $425 million), representing annualized growth of 10% to 13%. The Zacks Consensus Estimate for EPS is 92 cents, way below the guided range while the benchmark for revenues of $425 million remains within the range. The company also expects the acquisition to be accretive by 3 cents per share annually. Estimated product booking for 2014 has also been raised to the range of $345 to $355 million from $340 to $350 million.

Omnicell, a provider of medication and supply management solutions to healthcare systems, serves a niche industry but faces stiff competition in the market. However, the MTS Medication Technologies subsidiary has consistently yielded encouraging results for Omnicell. This has prompted the company to further penetrate the non-acute care market on the back of strategic investments.

Medication non-adherence has emerged as a potent issue in public health care systems. The market holds underlying opportunities as both healthcare systems and community pharmacies are of the view that medication adherence is a key to delivering better clinical outcomes and financial results. The present market scenario has encouraged Omnicell to undertake such an acquisition.

It is expected to set a platform for the company to provide comprehensive solutions, as its MTS brand and the SurgiChem products complement each other well in addressing the medical adherence problem in the U.K. This integration is expected to widen the range of products and services across the U.K. medication adherence packaging market.

The acquisition will widen Omnicell’s scope within a niche segment by increasing penetration levels in the overseas market. We believe such selective buyouts, particularly outside the U.S., will help Omnicell generate impressive revenues and ease the pressure on margin expansion in the long run.

Currently, Omnicell carries a Zacks Rank #2 (Buy). Investors interested in the broader medical industry can also look at stocks like Merge Healthcare Incorporated , Abaxis, Inc. (ABAX - Free Report) and Hologic Inc. (HOLX - Free Report) , all carrying a similar Zacks Rank #2.

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