Friday, March 05, 2010

Drug Channels News Roundup: March 2010

It’s National Procrastination Week! (Yes, really.) Here’s the news roundup that I never got around to posting last week.

In this edition, we look at acquisition rumors for a European drug wholesaler, details on how much Duane Reade’s private equity owners made on the deal, and the surprising tax hit for manufacturers when their brands go generic.

Celesio Shares Surge as DZ Says Company May Be Target
Two of the big 3 pan-European wholesalers may be acquisition targets. Phoenix Pharmahandel GmbH was up for sale, but is now reportedly off the market because the Merckle family will get a load of cash from the sale of RatioPharm. So, Celesio is the next likely acquisition target. Perhaps one of the big 3 U.S. wholesalers plans to spend its mountain of cash overseas?

Duane Reade and Its Road to Health
You may have heard that Walgreens purchased Duane Reade from private equity firm Oak Hill Capital. Here’s an interesting nugget from this New York Times profile of Duane Reade: “Despite the $1.1 billion price tag for Duane Reade, the deal didn’t turn out to be a home run for Oak Hill, which is another theme of the changing landscape of private equity. Oak Hill made 1.5 times its money over six years, or about 11 percent on an annualized basis. On a relative basis to the market, that’s not a bad outcome.

Big Pharma's Secret Tax Problem
I was surprised to learn about this pitfall to upcoming brand-to-generic switches—higher corporate tax rates for pharmaceutical manufacturers. “Companies often register their drugs with foreign corporations in countries with low taxes. Merck’s Zocor, for instance, was registered in Bermuda, which has a corporate tax rate of zero. As the exclusive rights to make a drug expire, the revenues from that drug decline. With that decline, the tax advantage of those foreign locations disappears also.” Fascinating article.


  1. Dr. Fein,

    You wite above: "Perhaps one of the big 3 U.S. wholesalers plans to spend its mountain of cash overseas?"

    I'd like to know which wholesaler you think will be the first to enter the EU market. One of the articles mentions McKesson.

    Thank you.

  2. Did not know about the drugs getting registered in Low Tax/Tax Free foreign countries. Pretty disgusting and I'm really not sure why it's legal and no one does anything to stop it. I don't even know how much corporate tax dollars are getting erased this way, but it must be at least in the tens of Billions of dollars!!

  3. With respect to the comment by Anonymous about about the corporate tax dollars being "erased", I'd just like to add that anyone who feels that "corporate tax" is a reality is fooling themself. Tax is an expense that is taken into account when writing budgets. The only risk is the time it takes to adjust pricing in response to a mid-budget tax code change. Consumers pay "corporate tax." I always find it funny that big business is willing to do their share with tax hikes.