After losing a similar contract last month, Cardinal Health announced yesterday that CVS Caremark Corp. renewed its deal with the Dublin-based pharmaceuticals distributor. Cardinal and CVS did not provide details, but it is expected that the three-year contract, which runs through mid-2016, will be worth about $23 billion annually.
After losing a similar contract last month, Cardinal Health announced yesterday that CVS Caremark Corp. renewed its deal with the Dublin-based pharmaceuticals distributor.
Cardinal and CVS did not provide details, but it is expected that the three-year contract, which runs through mid-2016, will be worth about $23 billion annually.
“We’re obviously very pleased, ... but there’s almost nothing I can say about the details,” said Cardinal CEO George Barrett. “We have an understanding with CVS Caremark not to share much about customer contracts.”
He did say the new agreement is “essentially for the same footprint as in prior arrangements."
Cardinal is Ohio’s largest company by revenue, with income of $107.6 billion for the fiscal year that ended June 30. According to Cardinal’s SEC filings, the CVS contract accounted for 22 percent of its total revenue.
“Clearly, CVS is a key partner and, given the loss of Walgreen, getting this behind them was important,” said Ross Muken, an analyst with ISI Group. “We view this as quite a good outcome for Cardinal.”
In March, Cardinal lost its $22 billion annual contract with Walgreen to rival pharmaceutical supplier AmerisourceBergen Corp. Last year, Cardinal lost a contract with Express Scripts that had been valued at $9 billion annually, also to AmerisourceBergen.
When asked about the importance of renewing the CVS contract after the loss of the Walgreen relationship, Barrett said he didn’t “think of this relationship (with CVS) in the context of Walgreen.” “I didn’t link the two,” he said. “Others can say what they like. The takeaway here is that this is a unique and complex relationship.”
Under the agreement, Cardinal will continue to supply the CVS network of retail pharmacies and distribution centers.
The national chain has more than 7,400 stores, and “The renewed agreement will have Cardinal continue providing product for most of our chain,” said CVS spokesman Michael DeAngelis.
“I think, ultimately, they came to what was a fair deal for both sides,” Muken said. “While financial details of the renewals are unclear, the simple renewal will be viewed as a relief for investors.”
The stock market had little reaction to Cardinal’s news, with company shares closing at $44.22, down 17 cents or 0.4 percent. Under Barrett’s leadership, Cardinal has worked to diversify. Examples, he said, include the company’s enhanced efforts in the specialty- and ambulatory-care markets; the recent acquisition of the home health-care provider AssuraMed for $2.1 billion; and increased activity in China through the acquisition of several drug-distribution companies.
“We continue to feel good about the value the CVS relationship creates for us,” Barrett said. “ And, strategically, it aligns us with our ability to serve the health-care industry.”