Yesterday, a judge dissolved the temporary restraining order against the DEA, thereby permitting the agency to suspend Cardinal Health’s license to distribute controlled substances from its Lakeland distribution center. See Judge allows DEA to suspend Cardinal license. (Note that Cardinal can still distribute other drugs from Lakeland.)
While I lack access to behind-the-scenes facts, I still contend that the DEA is off base here. In the meantime, the shutdown could provide a slight benefit to AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK). However, Cardinal seems much better prepared vs. 2008, so market share losses should be minimal...unless the DEA decides to go medieval on their assets.
Read on for key background documents, including Cardinal's intriguing challenge to the DEA's basic logic. We are on a slippery slope, folks. Pay attention because you could be next.
Here are a few of the legal items:
- Cardinal Health Motion for Preliminary Injunction (February 6, 2012)
- Order on Motion for Preliminary Injunction (February 29, 2012)
- Cardinal Health Statement in Response to Preliminary Injunction Hearing (February 29, 2012)
"I think DEA is correct that companies have an obligation to police themselves...and to be proactive in assessing whether diversion (of controlled substances) is taking place.”I disagree. As I wrote in Cardinal Fights a Misdirected DEA, the DEA is going after the wrong actors in the U.S. drug distribution system. Manufacturers and wholesalers are too far removed from the prescribing physician or the much vaunted patient-pharmacist relationship.
Last week, Cardinal published an intriguing two-page defense in Cardinal Health Discussion Regarding Pharmaceutical Drug Volumes. By arguing that volume is neither necessary nor sufficient to “prove” diversion, it challenges the "obvious" nature of the DEA's actions. And don’t forget that Cardinal was relying on assurances from CVS Caremark, which represents about 25% of its total drug distribution revenues. (See Exhibit 47 on page 91 of my most recent wholesaler report.)
Here’s another way to think about this whole episode.
Out there in the wide world, there are folks who abuse alcohol. To stop alcoholism, should we shut down a beer wholesaler that delivers a case of Thunderbird to a liquor store? Should the government impose a production quota on vodka manufacturers, a la the DEA’s shortage-inducing quota of ADHD meds?
And why stop with alcohol? Should Sysco, the country’s largest foodservice distributor, be liable for delivering products to a restaurant that serves food loaded with trans fats?
The DEA's war on manufacturers and wholesalers will continue to ramp up. Get ready to start breaking rocks in the hot sun...