CVS Caremark and Cardinal Health Announce Creation of Largest Generic Sourcing Entity in US

CVS Caremark and Cardinal Health have signed an agreement to form the largest generic sourcing entity in the US, which is the world's largest generic drug market. 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 3-year extension through June 2019 of Cardinal Health's existing pharmaceutical distribution agreements with CVS Caremark. 

The US-based joint venture is expected to be operational as soon as 1 July 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. To reflect an equitable 50/50 joint venture, the agreement includes a quarterly payment of $25 million during the life of the agreement 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 capitalise the entity. The venture is subject to the completion of final documentation and customary closing conditions.

CVS Caremark is the largest pharmacy health care provider in the US. Last year, the company filled more than a billion prescriptions through its retail and mail order pharmacies. Cardinal Health is a leading health care services company and an essential link in the health care supply chain, providing pharmaceuticals and medical products to more than 100,000 provider and pharmacy locations each day. The joint venture will maintain CVS Caremark and Cardinal Health's leadership positions as they drive value for their customers, clients and shareholders in a capital-efficient manner.

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

"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 chief executive officer 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."