Omnicare, PharMerica Fall on U.S. Move to Cut Elderly Drugs

Shares of Omnicare Inc. and PharMerica Inc., pharmacy suppliers to nursing homes, tumbled after the U.S. government proposed rules that may reduce the volume of prescription drugs for the elderly.

The proposed regulations call on nursing homes to hire independent pharmacists to review residents’ drug regimens rather than use services being offered by companies such as Omnicare and PharMerica at below cost. Omnicare, the largest U.S. drug supplier for nursing home patients, has made a hostile bid for Louisville, Kentucky-based PharMerica.

Arrangements between the nursing homes and pharmacy suppliers may result in “recommendations that conflict with the best interests of nursing home residents,” the U.S. Centers for Medicare and Medicaid Services said in its proposed rule. The Baltimore-based agency also estimated that three long-term care pharmacy companies control 90 percent of the market, a finding that may block Omnicare’s takeover of PharMerica.

“This statement would appear to suggest that CMS is likely to take a dim view of an OCR/PMC combination, in our opinion,” A.J. Rice, an analyst at Susquehanna Financial Group, said today in a note to investors. Even though the proposed regulations must go through a 60-day comment period, Rice said the prospect will “lead to an overhang on the group until there is greater clarity.”

Covington, Kentucky-based Omnicare declined $2.96, or 12 percent, to $21.62 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest single-day drop since July 2009. PharMerica fell $2.14, or 15 percent, to $11.91, in its biggest one-day decline since August 2010.

Omnicare began a tender offer to buy PharMerica for $440.8 million in cash on Sept. 7. PharMerica’s management has opposed the acquisition, adopting a shareholder rights plan, or poison pill as it’s commonly known, to block the takeover.

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