After one of the busiest and most important years in its
) must now tackle another major project: holding on to its
Catamaran, formerly known as SXC Health Solutions, provides
pharmacy benefit services and health care information technology
systems to corporate clients, managed care organizations,
government entities and other customers.
As a PBM, the company handles drug benefits for health plans,
employers and other health care payers. It works to reduce drug
costs by helping clients' members get deeper discounts with
retail pharmacies and manufacturers.
Catamaran's PBM business got a big boost last year when the
company acquired rival Catalyst Health Solutions in a
cash-and-stock deal valued at $4.4 billion.
That deal, which closed in July, is expected to make Catamaran
more competitive with the nation's other major PBMs:Express
) andCVS Caremark (
Among other things, Catamaran has designs on landing more
contracts with the kinds of Fortune 500 companies that were
previously dominated by other PBMs.
"The business model Catamaran brings to the party is highly
transparent, customer friendly and flexible, which should be
attractive to Fortune 500 companies," said Brooks O'Neill,
analyst at Dougherty & Co. "We estimate that the Fortune 500
employee market is as big as the overall market Catamaran has
While Catamaran chases more business with Fortune 500 firms,
it must also focus on keeping its biggest customer: HealthSpring,
a Medicare carrier that accounted for 24% of Catamaran's business
during the 2012 third quarter.
Catamaran's contract with HealthSpring is set to expire at the
end of this year. The decision on whether to renew it now rests
with managed care firmCigna (
), which acquired HealthSpring in 2012.
"It's a big customer and, obviously, an important contract,"
Cigna is expected to make its decision by midyear. Although
the company has not tipped its hand, O'Neill and others sound
confident Cigna will renew the HealthSpring contract with
"Our speculation is that Catamaran is likely to retain its
relationship with HealthSpring and possibly even expand its
business with Cigna," O'Neill said. "The recent commentary from
Catamaran executives has been positive, where before it had been
In a Feb. 1 report for JPMorgan, analyst Lisa Gill offered a
similar view, noting that Catamaran "remains well-positioned to
win a larger outsourcing deal with Cigna."
Meanwhile, Catamaran has scored a couple of impressive wins
with other high-profile clients.
In early November, it signed a three-year contract to provide
PBM service toTarget (
), one of the country's largest employers. That deal covers about
188,000 of the retail giant's 365,000 workers nationwide. The
contract was previously held by Express Scripts.
"The Target win supports the thesis that as a larger entity,
Catamaran is much better positioned to win larger employer
contracts, which have historically been the sweet spot for the
larger PBMs," noted Gabriel Leung, analyst at Paradigm
Earlier last year, Catamaran signed a three-year contract,
$1.2 billion, to provide PBM services to Blue Cross & Blue
Shield of Rhode Island, or BCBSRI. The contract went into effect
BCBSRI, a health insurer based in Providence, is the state's
leading health insurer. It covers more than 600,000 members, over
half the state's population. The previous PMB provider to BCBSRI
was CVS, which is based in Rhode Island.
"It should be noted that CVS is the sixth largest employer in
Rhode Island and the largest private-sector employer," noted Tom
Liston, analyst at Cantor Fitzgerald Canada. "The BCBSRI contract
underscores the competitive advantage Catamaran has in situations
with complex requirements."
Those advantages include Catamaran's transparent pricing and
technology leadership, he says.
Another advantage is an efficient operation that lets
Catamaran be competitive on prices, analyst O'Neill said: "We
believe Catamaran's EBITDA per script is lower than competitors,
so they can be successful by charging customers less money."
Financially, Catamaran has built a reputation for delivering
consistently strong growth. The company has increased annual
earnings by double or triple digits every year since 2008.
Quarterly profit has risen by double digits each of the past
Earnings during the 2012 third quarter came in at 25 cents a
share, excluding buyout-related expenses. That was up from 22
cents the prior year and a penny above Wall Street views. Even if
you include the acquisition costs, Catamaran earned a profit of
10 cents a share.
Revenue for the quarter more than doubled to $3.2 billion. It
was the fifth time in the past seven quarters that Catamaran's
top line rose by triple digits.
The company is slated to report fourth-quarter results on Feb.
20. Analysts polled by Thomson Reuters expect EPS of 35 cents a
share, up from 24 cents a year earlier. They see full-year profit
rising 37% for 2012 and 64% for 2013.
Catamaran's stock price hit a record high of 53.77 Feb. 1.