Shortly after this article went to press, McKesson announced that it had completed its acquisition of US Oncology. The original article is below.
In a matter of days, a David versus Goliath battle will be fought in a New York City courtroom, as a small oncology services firm seeks to halt McKesson's $2.16 billion acquisition of US Oncology.
Cancer Clinics of Excellence (CCE) of San Rafael, CA, is suing McKesson of San Francisco over the latter's proposed acquisition of US Oncology, a privately held corporation in The Woodlands, TX, that provides a potpourri of services to oncologists, including a medical record system and a cancer care and research network.
In a complaint filed in the Supreme Court of the State of New York, CCE is charging McKesson with violating a noncompete deal that CCE had in place with another firm that McKesson acquired in 2007. Should CCE prevail in court, McKesson's acquisition could be delayed for a year until the noncompete agreement expires.
Delayed deal
When McKesson announced the deal to acquire US Oncology on November 1, the firm stated that it expected the acquisition to be completed by year's end. And, in fact, the U.S. Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice approved the acquisition, posting an early termination of the premarket waiting period on December 20.
But CCE threw a monkey wrench into those plans on November 30, when it filed a complaint charging that McKesson and its subsidiary, McKesson Specialty Care Distribution Joint Venture, violated an agreement made with CCE stating that McKesson would not invest in a competitive physician network until January 1, 2012. CCE also accuses McKesson of misappropriation of confidential information, unfair competition, and violation of fiduciary duties.
What's at stake is fast-track access for McKesson to the physician-owned cancer treatment center market in the U.S. The oncology industry is one of the fastest-growing segments in healthcare, spurred by the ability to detect cancer at earlier stages and administer more effective chemotherapy and radiation therapy treatments. Demographic trends are also favorable, as the first members of the baby boom generation turn 65, reflecting the reality that older individuals have a higher risk of developing cancer.
McKesson's two core businesses are distribution of specialty prescription drugs and the provision of healthcare information systems and services. The acquisition of US Oncology will expand its current customer base of oncologists and radiation oncologists from 1,000 to nearly 3,000, according to Caroline Helwick in an article published in the December issue of the ASCO Post (2010, Vol. 1:7).
US Oncology provides oncologists with drug distribution, technology solutions, and management services, including clinical trial management. As of November, it was affiliated with almost 1,400 physicians at 517 sites in 39 states, including 89 comprehensive community cancer centers and 14 hospitals.
US Oncology also owns the iKnowMed electronic health record (EHR) system, which it acquired in 2004. Roy Beveridge, MD, US Oncology medical director, was quoted as saying that one of the chief benefits to physicians and patients of the impending merger was the strength of McKesson's IT platform.
The allegations by CCE
CCE was formed in January 2007 by CCE Partners to provide evidence-based guidelines to physician-owned, community-based cancer treatment centers, and to provide business support, capital, and purchasing power for members of its network. CCE Partners is owned by a network of 21 oncology practices located throughout the U.S.
To help implement its business plan, CCE Partners invited Oncology Therapeutics Network (OTN) as a joint venture partner to provide business support and capital. OTN made an investment of $6 million in exchange for a 27.5% interest in CCE, and in April 2007 the two parties signed a number of formal agreements.
Meanwhile, CCE Partners made an investment of $1 million to CCE, contributed intellectual property, and held a 67.5% interest. Today, CCE offers 67 evidence-based treatment protocols for 11 different kinds of cancer to its members, and it considers these its most valuable intellectual asset.
In October 2007, McKesson's Specialty Care Distribution division acquired OTN for $575 million, in the process acquiring OTN's computerized drug management system for oncology offices, called Lynx Technology System.
Lynx stores and dispenses drugs that oncologists use in treating patients, and it collects and transmits marketable data about dosages and usage back to OTN or to CCE. CCE has rights to resell the Lynx system to oncology practices, which CCE found to be valuable because it provides the framework for CCE to receive, analyze, and commercialize electronic data from oncology practices, according to the complaint CCE filed in the New York court.
CCE charges that McKesson's acquisition of US Oncology will violate a noncompete clause in the original joint venture agreement between CCE and OTN. The clause was designed to enable CCE to build its physician network and commercialize its evidence-based treatment protocols without having to worry about OTN investing in a competing network.
CCE claims that if McKesson acquires US Oncology before the noncompete agreement expires in January 2012, "its vast resources will enable US Oncology to expand and compete with CCE unfairly at a level and with a speed that would be impossible otherwise."
CCE also contends that McKesson inappropriately utilized confidential information about all aspects of CCE's business. After McKesson acquired OTN, two of its senior executives became officers on CCE's board of directors. The complaint contends that these officers were made aware of CCE's business and strategic plans, financial pro formas and statements, target practices for expansion, management and staffing, and detailed plans for insurance company reimbursement strategies.
The complaint also alleges that McKesson secretly began to "misappropriate" the work of OTN staff that were helping CCE develop its evidence-based guidelines, and enabled McKesson to develop its own "substantially similar" ones, which were introduced at an October 2009 meeting for practicing oncologists.
The complaint specifically states that "several former McKesson employees have confessed that they attended internal meetings to plan how McKesson could misappropriate for itself the information its employees were developing for CCE while working on its evidence-based treatment protocols."
In January 2010, CCE decided to buy back McKesson's 27.5% share in the joint venture company, remove McKesson's directors from its board, and agreed to shorten terms of the Lynx software licensing agreement by six years to December 31, 2011.
What's next?
It's anyone's guess. McKesson has declined to comment on the litigation, and CCE has not yet responded to telephone and e-mail inquiries from AuntMinnie.com.
CCE won an initial round on December 21, when the New York State Supreme Court issued an interim court order to halt the US Oncology sale until January 10, 2011, the date of an evidentiary hearing. McKesson has stated that it intends to appeal the order and complete the acquisition of US Oncology as soon as possible.
If the evidentiary hearing goes McKesson's way, it will enable the company to realize an ambitious strategy in oncology IT, as evidenced by a video posted on the McKesson website in which Paul Julian, executive vice president and group president of McKesson and president of McKesson Specialty Care Solutions, comments about future plans.
"We have tremendous technology expertise with the combined companies," he states. "We have the Lynx platform, a charge capture inventory management system. US Oncology has the leading electronic medical record for community oncology. Our intent is to enhance both and deliver a more quality robust product for community oncology going forward."
By Cynthia E. Keen
AuntMinnie.com staff writer
December 30, 2010
Related Reading
McKesson makes $2.2B bid for US Oncology, November 1, 2010
McKesson inks Va. contract, September 7, 2010
US Oncology posts Q2 results, August 5, 2010
McKesson wins Pa. PACS contract, July 22, 2010
US Oncology adds to revenue in Q1, May 6, 2010
Nucletron outfits US Oncology, July 24, 2009
Copyright © 2010 AuntMinnie.com
