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McKesson to supply Rite Aid with generic drugs


By Andis Robeznieks
Posted: February 18, 2014 - 7:15 pm ET
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McKesson Corp. will be supplying the 4,600 Rite Aid drugstores with generic drugs as a part of a five-year distribution agreement that expands on its previous relationship with the chain.

San Francisco-based McKesson also supplies brand names to Rite Aid as part of the agreement which runs through March 2019, but is adding the generic supplier role. That addition is significant, said Ross Muken, senior managing director and partner with consultants International Strategy & Investment in New York.

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Camp Hill, Pa.-based Rite Aid purchases about $1.5 billion to $2 billion worth of generic drugs annually, Muken estimated. With the economies of scale and other factors, the deal could save the two companies a total of $50 million to $100 million and possibly lead to “further ancillary service opportunities,” he projected.

Given the two companies' established distribution history and the general trend toward consolidated generics purchasing, the new agreement wasn't a surprise, Muken said. Other pharmacy chains also are entering into strategic alliances and, as a result, “the industry's key contracts are unlikely to change hands for many years,” he said.

McKesson recently reported that its third-quarter revenue was up 10% from the previous year, rising to $34.3 billion from $31.1 billion the previous year, but its earnings were down 79%, falling to $64 million from $298 million. The company explained that the decrease was due to inventory adjustments, restructuring and an ongoing dispute with the Canada Revenue Agency, that country's tax agency.

McKesson closed on its acquisition of its Germany-based rival, Celesio, on Feb. 6.

Rite Aid reported revenue of $25.4 billion in fiscal 2013.

Follow Andis Robeznieks on Twitter: @MHARobeznieks


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