Cardinal in specialty drug deal for over $500 million

NEW YORK (Reuters) - U.S. drug wholesaler Cardinal Health Inc CAH.N will buy privately held Healthcare Solutions Holding LLC for more than $500 million to expand its business in the fast-growing area of specialty medicines.

Cardinal will pay $517 million up front and could pay up to $150 million more over the next three years should Healthcare Solutions reach certain financial targets.

Cardinal, one of the three biggest U.S. drug wholesalers, has a specialty drug distribution business, but the deal will widen its customer base and allow it to add more services.

Healthcare Solutions’ subsidiaries provide tools, services and data to help improve patient outcomes and increase efficiency in healthcare delivery, Cardinal said on Wednesday. Their customers include specialist physicians, drug companies and managed-care companies.

Specialty pharmaceuticals address conditions such as cancer and chronic, difficult-to-treat diseases that tend to be infused or injected or otherwise require special handling and can carry high price tags.

Market forecasts call for sales of such medicines to rise twice as fast as traditional pharmaceuticals over the next five years and exceed $100 billion by 2013, Cardinal said.

Cardinal has generally been underrepresented in specialty medicines over the years, William Blair & Co analyst John Kreger said, in part because it did not want to upset drugstore chains Walgreen Co WAG.N and CVS Caremark Corp CVS.N, which are active in the area.

“If Cardinal has now figured out how to more broadly participate in specialty without harming its Walgreen and CVS relationships, then this could help improve their longer-term outlook,” Kreger said, although he cautioned he did not know enough about Healthcare Solutions to gauge the financial impact.

The deal is expected to close early in Cardinal Health’s 2011 fiscal year, which begins on July 1. The company expects the transaction to be neutral or slightly add to earnings in fiscal 2011 and continue to boost the bottom line in fiscal 2012 and beyond.

Reporting by Lewis Krauskopf, editing by Maureen Bavdek and Derek Caney