CVS Caremark, Cardinal Health form largest generic sourcing entity in U.S.

DUBLIN, Ohio and WOONSOCKET, R.I. — CVS Caremark and Cardinal Health announced on Tuesday the signing of an agreement to form the largest generic sourcing entity in the United States.

Both companies are contributing their sourcing and supply chain expertise to this 50/50 joint venture and are committing to source generic drugs through it. The companies separately announced a three-year extension through June 2019 of Cardinal Health's existing pharmaceutical distribution agreements with CVS Caremark.

"Cardinal Health has been an outstanding strategic partner over many years, and we are excited to form this new venture with them," stated Larry Merlo, president and CEO of CVS Caremark. "This partnership will enable us to maintain our leadership role in navigating the dynamic U.S. generics market. With its combined volume and capabilities, the joint venture will develop innovative purchasing strategies with generic manufacturers and enhance supply chain efficiencies."

The U.S.-based joint venture, which is subject to customary closing conditions, is expected to be operational as soon as July 1, 2014, and will have an initial term of 10 years. Under the arrangement, the joint venture will source and negotiate generic supply contracts for both Cardinal Health and CVS Caremark. In order to reflect an equitable 50/50 joint venture, the agreement includes a quarterly payment of $25 million over the life of the agreement from Cardinal Health to CVS Caremark, the companies stated. The payments have an estimated after-tax present value of $435 million.

Last year, CVS Caremark filled more than a billion prescriptions through its retail and mail order pharmacies. Cardinal Health provides pharmaceuticals and medical products to more than 100,000 provider and pharmacy locations each day.

"We are excited to see our long-standing relationship with CVS Caremark expand to include this joint venture, which further enables both companies to focus on improving the cost-effectiveness of health care," said George Barrett, chairman and CEO of Cardinal Health. "This venture is an extremely compelling combination where volume and efficiency matter. All customers will benefit from the enhanced volume and sourcing capabilities created by this partnership."