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Cardinal Health (NYSE: CAH), Dublin, OH, and CVS Caremark (NYSE: CVS), Woonsocket, RI, have agreed to form the largest generic drug sourcing entity in the U.S. Both companies are contributing their sourcing and supply chain expertise to the 50/50 joint venture and are committing to source generic drugs through it.
The U.S.-based venture is expected to be operational as soon as July 1, 2014, and will have an initial term of 10 years. Under this arrangement, the joint venture will source and negotiate generic supply contracts for both Cardinal Health and CVS Caremark.
The agreement includes a quarterly payment of $25 million over its life from Cardinal Health to CVS Caremark. The payments have an estimated after-tax present value of $435 million. No physical assets (e.g., property, plant or equipment) are being contributed by either company to the joint venture, and minimal funding is being provided to capitalize the entity.
CVS Caremark is the largest pharmacy health care provider in the U.S. Last year, the company 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.
Larry Merlo, president and CEO of CVS Caremark, said the partnership will help develop innovative purchasing strategies with generic manufacturers and enhance supply chain efficiencies.
The companies also announced a three-year extension through June 2019 of Cardinal Health's existing pharmaceutical distribution agreements with CVS Caremark.