Kinderhook’s Avita seeks to become nation’s largest covered entity pharmacy services provider

Since Kinderhook's initial platform investment in late 2019, the pharmacy management business has struck three deals and grown annual revenue to north of $1 billion, a source said.

Kinderhook Industries’ newly formed Avita is on the path to becoming the largest covered entity pharmacy services company in the US, a senior member of the private equity firm told PE Hub

The private equity firm last week revealed its acquisitions of Paramount Specialty Pharmacy and PharmBlue Holdings. The pair of businesses will combine with PharMedQuest and Long’s Drugs – both which were acquired last year – to create Avita. 

“Having a strong pharmacy services provider for covered entities is crucial to driving better patient outcomes,” said Chris Michalik, managing director at Kinderhook.  

Avita provides integrated on-site and central-fill pharmacy services to patients that receive healthcare through 340B covered entities, including Ryan White/STD Grantees, AIDS Services Organizations, and Federally Qualified Health Centers, or primary care services in underserved areas. 

Under a 340B program, eligible hospitals and providers provide care to low-income patients by obtaining prescription drugs from manufacturers at discounted prices. 

Including its latest pair of deals, Avita produces annual revenue north of $1 billion and expects to post between $75 million and $85 million in 2020 EBITDA, a source familiar with the transaction said.

Both the Paramount and PharmBlue deals were valued below $50 million, and each business generates south of $100 million in revenue, the source said.

The New York private equity firm looked for a long time before buying PharmedQuest, the platform’s initial investment, in December 2019, said Michalik.

Kinderhook’s PharmMedQuest shortly thereafter bought Long’s in a deal valued at $390 million, PE Hub wrote at the time. 

“We started looking at opportunities in the covered entity space in 2016 trying to understand what the dynamics were,” he said. 

Today the platform partners with over 250 covered entities to optimize pharmacy dispensing across Avita’s network of more than 63 company-owned pharmacies. The platform serves more than 120,000 patients.

The company has seen some impact from covid-19, but Michalik said it has found ways to offset that. 

“It [Avita] is impacted because when people don’t go to doctors, they generally don’t fill scripts. So as covered entities’ patient encounters go down, patient scripts typically go down too,” he said.

But, Michalik continued, the company pivoted to ensure patients were able to access prescriptions by mail order: “In response, management shifted our drug delivery model, ensuring patients received their scripts.”

Much of Avita’s specialty pharmacy volume serves chronic conditions, he added. Chronic conditions require long or indefinite treatment, versus acute care, or short-term illness.

With few scale acquisitions opportunities remaining – most assets are sitting with sub $100 million of revenue – Avita will concentrate on organic growth. That stems mainly through its dialogue with covered entities as it works to add more pharmacy relationships, both onsite and central-fill, said Michalik.  

Kinderhook in January closed its sixth fund at $1.11 billion. The private equity group invests in the lower-middle market, targeting the healthcare services, environmental/business services and automotive/light manufacturing sectors.

Action Item: Check out Kinderhook’s latest Form ADV