Cardinal Health Renews Supply Agreement with CVS Caremark

Pharmaceutical CommercePharmaceutical Commerce - July/August 2009

Closely-watched negotiation removes some uncertainty for Cardinal as it spins out its CareFusion subsidiary

Renewing an agreement that has existed for more than a decade, according to Cardinal, the Dublin, OH distributor announced today that it had come to terms with CVS Caremark (Woonsocket, RI), one of the biggest purchasers of pharmaceuticals in the country. “We have a long-standing partnership with CVS Caremark, and we are proud to continue this important relationship,” said George Barrett, vice chairman of Cardinal Health and CEO of the Healthcare Supply Chain Services segment. “The footprint of the agreement is expected to be fundamentally the same as our existing relationship.” Aside from confirming that the agreement will last until 2013, no other specific terms were disclosed.

While still strongly holding the No. 2 position among the Big Three wholesalers, Cardinal Health’s financial outlook troubles many Wall Street analysts. It underwent a corporate management reordering last year, and announced the spin-out of CareFusion, a medical technologies subsidiary in which it will retain 20% ownership, last fall (an action that is expected to conclude soon). It has announced a staff reduction and a less profitable 2010 outlook in analyst presentations last month. In talking about ongoing contract renewals, corporate officers spoke about “negative headwinds” in ‘DSA transaction timing” (“DSAs” being “distribution service agreements,” Cardinal’s term for the fee-for-service contract between it and pharma manufacturers). All these euphemisms leave the feeling that Cardinal is still grappling with some underlying problems.

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