Pharmaceutical distribution agreements critical for Cardinal, McKesson

Cardinal Health announced the renewal of its pharmaceutical distribution agreement with CVS Caremark to supply pharmaceuticals to the company’s retail pharmacies and distribution centers, as McKesson, which generally serves the PBM side of the business, also announced the renewal of its current distribution agreement with the pharmacy retailer.

The renewal of the agreements was not only critical for both companies but, as Adam Fein, president of Pembroke Consulting and CEO of Drug Channels Institute, wrote in his blog post, “CVS Caremark Renews with Cardinal and McKesson,” it also “demonstrates wholesalers' value in the brand-name pharmacy supply chain.”

“In theory, the largest self-warehousing chain drug stores and mail pharmacies have the size and scale to perform the functions of drug wholesale distribution. Yet in 2012-13, these larger companies all elected to buy brand-name drugs via a drug wholesaler rather than directly from a manufacturer,” Fein wrote.

It is also important to note that Walgreens and Alliance Boots recently entered into a 10-year contract with AmerisourceBergen on sourcing pharmaceuticals and also has the option on a potential 23% equity stake in ABC in three years.

This deal takes the pharmaceutical buying leverage to a new level and creates a generic acquisition juggernaut, as Drug Store News senior editor Michael Johnsen pointed out in “Walgreens, Alliance Boots and AmerisourceBergen help redefine economies of scale.” There’s also another benefit — the potential collective bargaining power of close to 12,000 retail pharmacy outlets, between Walgreens and ABC's Good Neighbor Pharmacy Provider Network, that can be leveraged against PBM contracts.

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