CVS Health just acquired Omnicare Inc. for $10.4 billion. Omnicare ships expensive therapies directly to patients on behalf of drug companies, ie therapies and drugs not sold in brick-and-mortar retail pharmacies. Omnicare also is the largest provider of prescription drugs direct to nursing homes and assisted living homes in the USA. The acquisition enables CVS to capitalize on 1) a rapidly aging population and 2) rapidly growing sales of expensive drugs for rare ailments. CVS operates nearly 8.000 retail pharmacies, and also owns Caremark, the second largest pharmacy-benefits manager (PBM) in the world (after Express Scripts Holdings). Acquiring Omnicare expands CVS’s reach, distribution, to the elderly and disabled. Forward integration is a strategy to gain control of distributors, and is oftentimes used when current distributors are costly and/or not reliable or interested for marketing the firm’s products, or when controlling distribution channels could yield great competitive advantages. CVS reaps all the benefits by acquiring Omnicare.

Based on: Joseph Walker, For CVS, Big Bet on Pricey Medicines, Wall Street Journal, May 22, 2015, B1.