McKesson Corp. announced two deals with big-box chain Wal-Mart Stores that are expected to boost the healthcare giant after recent struggles.
The San Francisco-based drug distributor reported Monday that the two had signed a new sourcing agreement for generic drugs and an expanded long-term distribution agreement. Wal-Mart health and wellness chief George Riedl said the partnerships will drive efficiencies for the company's more than 4,500 in-store pharmacies.
The deal follows news by drugstore chain Walgreens Boots Alliance that it would extend its distribution contract with McKesson rival AmerisourceBergen for an additional three years to 2026. AmerisourceBergen handles all of Walgreens' prescription drug distribution needs, including generics and brand-name pharmaceuticals.
Baird analyst Eric Coldwell wrote in a note Monday morning that the Wal-Mart deal is welcome news following a string of recent losses related to industry consolidation. McKesson has recently gone into a restructuring phase, slashing its workforce by 4%. The company could lose a major customer in Camp Hill, Pa.-based Rite Aid Corp. if its previously announced acquisition by Walgreens is approved.
“Fundamentally, (McKesson) bolsters generic scale by bringing the fourth-largest pharmacy into its generics purchasing strategy,” Coldwell wrote, calling the move a “definite positive” for the company's long-term competitive position.
A McKesson spokeswoman said the company doesn't disclose the terms of customer contracts, but confirmed that it distributes all of Wal-Mart's branded pharmaceuticals and specialty products in the U.S. and is a primary distributor for generics. She said the new generics agreement will come into effect later this year. Baird said previous agreements ranged from five to 10 years. It's not immediately known how it will affect the company's balance sheet.
Though public attention has been centered on price spikes in generic drugs, distribution executives have said that accounts for a small subset of drugs that are likely to have a nominal effect on finances. Rather, leaders at both McKesson and AmerisourceBergen have reported serious concerns with widespread generic-drug price deflation and the impact it could have on their businesses.