Last week, Cardinal Health's (CAH) CEO George Barrett strongly hinted that the company's brand drug wholesale supply contract with CVS Caremark (CVS) is almost done. As far as I know, this is the first public statement by any wholesaler about the status of this mega-contract.
As expected, Cardinal will face some "margin erosion" (their words) from the renewal as CVS flexes its buying power. See the "Pricing/Customer Renewals" section of Profit Headwinds for Cardinal Health for background or my 2007 post CVS' Channel Power for an example.
Mr. Barrett heavily qualified his comments, but the message seems pretty clear. Here's what he said:
There is actually a lot that I cannot say. And the reason I cannot say too much is that we are actually not done with this process. CVS has to run this not just with Cardinal but with other players in the mix.
Having said that, we are at very late stages. I have made some assumptions as we look at our early thinking about 2010 about that going forward. And I feel fairly comfortable that those conversations are going in the right direction, and that before long, we will say this deal is done. (emphasis added)
Still no word from McKesson (MCK), which has the mail supply business of Caremark and Pharmacare. Note that these agreements only focus on brand drugs because CVS Caremark buys generics directly from manufacturers, bypassing wholesalers. Again, see CVS' Channel Power.
You can read the full transcript for yourself at "Cardinal Health, Inc. at Goldman Sachs Global Healthcare Conference" on the Investor Relations page of their website. (Sorry, no direct link.)
BTW, I want to publicly thank Cardinal's investor relations team for providing so much useful stuff on their website. None of the other wholesalers provide meeting transcripts and some do not even post presentation slides in PDF format.
And in case you were wondering, neither George Barrett nor Tom Ryan are pictured in the photo above.
