In this discussion, leaders in our Chartis Oncology Solutions and Private Equity Practices examine the recent acquisition announcement of the highly successful oncology physician practice management (PPM) organization OneOncology—and the implications for others in the oncology space.
Mike Brown: OneOncology’s acquisition may be the biggest oncology deal of the year. Why is it so significant?
Ryan Langdale:
For those not familiar with OneOncology, it has been one of the most talked about oncology PPMs over the last 5 years. The group was formed in 2018 and in the first year, it pulled in a few large practices, including Tennessee Oncology, the West Cancer Center, and New York Cancer and Blood Specialists. Those 3 groups quickly pushed the provider count close to 500, and OneOnc had immediate scale. General Atlantic (GA) came on the scene soon after, and its investment pushed OneOnc to 15 practices with more than 250 locations, 900+ providers, and $2 billion in partner practice revenue.
The OneOnc platform, like other oncology PPMs, offers partner practices a number of services, including drug purchasing, payer contracting, back office/revenue cycle services, technology support, and a clinical trials platform. OneOnc receives a management fee in exchange for these services as a percentage of pre-distribution earnings. So while the platform and the business architecture are similar to what we see in other environments, OneOnc’s success—and ultimately its attractiveness—comes largely from its ability to scale in such a rapid fashion.
We’ve known for a few months now that GA was planning the OneOncology transaction, and many have been speculating about who the buyer might be. Would it be another investor, or would it be a strategic buyer looking for a vertical or horizontal integration opportunity? It turns out, the answer was both! The news recently broke that TPG and Amerisource Bergen would jointly acquire OneOncology from GA.
Mike: What should people know about AmerisourceBergen (ABC) as one of the buyers in this transaction?
Ryan:
ABC, soon to be known as Cencora, has been in the pharmaceutical sourcing and wholesale distribution business for 100 years or more. Its continued success has been, at least in part, related to its early and successful adoption of technology to support its distribution business.
In the last 10 years, ABC has expanded globally, inked partnerships with Walgreens Boots to manage distribution, expanded into the animal health space, and now (following in the footsteps of one of its biggest competitors, McKesson) is jumping into the specialty PPM space. For context, this is a huge organization—with more than 40,000 employees, more than $200 billion in revenue, and 150 offices around the world.
Mike: And what is the significance of TPG as the other buyer of OneOnc?
Sri Mani:
TPG has been in the alternative investment management game since 1992. The firm serves a number of sectors, including healthcare, and has deployed over $20 billion in capital in the healthcare space since 2003. TPG invests across the healthcare value chain, including:
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Leading value-based care platforms like Evolent Health and the Kelsey Seybold Clinic.
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Technology companies like IQVIA, a data and analytics company supporting the life sciences industry, including the clinical trial management space.
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Pharma and biotech companies, including Allogene, a company in the cell therapy space for oncology.
So, we’re talking about a large, sophisticated investor with a lot of history and success in the healthcare space, including a number of oncology-adjacent investments.
Mike: What are the key details of the transaction?
Ryan:
Structurally, TPG, ABC, and OneOnc practices and management teams will form a new joint venture to acquire OneOnc from its current shareholders at GA. The deal is expected to close by Q3 of this year. ABC will invest $685 million in cash to take a minority interest—approximately 35%. The total transaction is valued at $2.1 billion. In addition, TPG has a put option it can exercise in the third year post-closing that requires ABC to purchase its interest at 19 times trailing 12 months EBITDA. On the flip side, ABC has a call option to acquire TPG’s interest, which it can exercise starting on the third anniversary date of the close through the fifth anniversary under the same terms as the TPG put option.
Mike: Why did ABC specifically want to make this deal?
Ryan:
The deal makes a lot of sense for ABC: it protects its massive drug buy as OneOnc’s current distributor. There was a real danger that OneOnc could have traded to another distributor like McKesson, given the attractiveness of the drug contract and the synergies with US Oncology. So ABC gets to maintain that contract—and they do so without having to put up the whole $2.1 billion, with just a 35% stake to start.
Mike: Why would TPG partner on a deal like this when it has had so much success on its own in the healthcare space? What’s different about this deal?
Sri:
TPG has a long history of successfully growing across all segments of healthcare services. Given this, its interest in OneOncology isn’t surprising. We often see investors like TPG partner with other parties because they each bring different capabilities and sources of capital to the table. In this case, they will both be partners for a defined period and then have pre-negotiated a mechanism for TPG to sell its interest to ABC at a certain date or for ABC to buy TPG’s interest.
Mike: For cancer program executives in markets where OneOnc is today or where they might be tomorrow, how might this deal impact them? And what should they be doing about it?
Ryan:
For cancer program leaders in OneOnc markets, I would expect a ramp-up of existing trends. OneOnc trading to TPG and ABC does not fundamentally change the strategy and take them into entirely new business models (as an Optum acquisition might have). I would expect OneOnc to continue being aggressive in acquiring practices, expanding via local tuck-ins, and vertically integrating ancillary businesses like imaging, radiotherapy, and retail pharmacy.
There are really interesting adjacent plays to be made by a platform of One Oncology’s size—like monetization of its data and expanding industry-funded clinical trials—but I don’t expect this to change the in-market competitive dynamics with other PPMs or hospital-based cancer programs.
The acquisition by a distributor likely implies OneOnc will continue to pursue “partnership” with hospitals and health systems in a narrow fashion, like co-location (as they do in Brooklyn with Memorial Sloan Kettering Cancer Center)—but not professional services agreements (PSAs) or other models that would involve flipping the infusion therapy billing to a hospital-based licensure (and in some cases, changing the drug distributor away from ABC).
Mike: With the attention this deal is getting in the investment community, is it a harbinger of things to come? How might this impact deals for the remainder of 2023?
Sri:
The credit markets remain challenged, so we do expect large deals similar to this to have multiple parties involved. But this could be a harbinger for more large deals and a signal of further deals to be announced in oncology services. For example, one week after this deal was announced, AON announced it had received a strategic growth investment from AEA Growth, and Haystack Oncology agreed to be acquired by Quest Diagnostics. These 3 deals alone suggest oncology will be a hot sector for 2023.
