Drug wholesalers await Longs deal outcomeWALNUT CREEK, Calif.
(Sept.
29)
When the dust settles and either Walgreens or CVS Caremark end up with Longs Drug as the ultimate prize in their escalating takeover battle, the impact on retail pharmacy in the western United States will be profound, no matter which chain emerges as the winner. But its impact on the drug wholesaling industry will also reverberate for years. All three of the nation’s top drug wholesalers, McKesson Corp., AmerisourceBergen and Cardinal Health, have a stake in the outcome of this battle. ABC serves as Longs’ primary supplier, while McKesson is closely aligned with CVS Caremark. What’s more, both Walgreens and CVS Caremark have close ties with Cardinal, and together account for an estimated 35 percent of that wholesaler’s total distribution revenues. Thus, any change in Longs’ ownership could shift a huge chunk of business to one supplier or another. “No matter how you slice it, the sale of Longs Drug Stores will be one more step in the ongoing consolidation of the pharmacy supply chain,” asserted Adam Fein, founder and president of Pembroke Consulting and an acknowledged expert on the pharmaceutical supply chain. The stakes for wholesalers are huge. McKesson has a longstanding supply relationship with CVS Caremark, and last year was named that company’s Pharmacy Supplier of the Year. Nevertheless, both CVS and Walgreens also rely heavily on Cardinal Health for their pharmaceutical supplies. Indeed, both Cardinal and McKesson rank CVS Caremark as their largest single customer, and Walgreens is Cardinal’s second-largest customer. Walgreens signed a three-year contract with Cardinal in January that shifted some $2 billion in supply business from ABC to Cardinal. At stake amid the jostling for market share is the longstanding supply relationship between Longs and AmerisourceBergen. ABC has enjoyed a strong relationship with Longs going back to the days when Bergen Brunswig served as the chain’s primary wholesaler. “We purchase over 90 percent of our pharmaceuticals from a single supplier, AmerisourceBergen, with whom we have a long-term supply contract,” Longs noted in its most recent 10k filing. Despite that long-term relationship, noted Fein, “the post-contract outcome for ABC will probably be negative regardless of whether the buyer is CVS Caremark or Walgreens.” The reason? “The eventual buyer will presumably want to consolidate purchasing volumes for brand drugs with its primary wholesaler while shifting generic purchases to direct relationships with manufacturers,” Fein noted. |