New entity will collaborate with generic manufacturers to develop innovative supply chain and purchasing strategies
Dublin, Ohio, and Woonsocket, R.I.—CVS Caremark and Cardinal Health has signed an agreement to form the largest generic sourcing entity in the U.S. Both companies are contributing their sourcing and supply chain expertise to this venture and are committing to source generic drugs through it, the companies said. The companies separately announced a three-year extension through June 2019 of Cardinal Health’s existing pharmaceutical distribution agreements with CVS Caremark.
The U.S.-based joint venture is expected to begin operation July 1, 2014, and will have an initial term of 10 years. The venture will source and negotiate generic supply contracts for both Cardinal Health and CVS Caremark. To reflect an equitable 50/50 joint venture, the companies said that the agreement includes a quarterly payment of $25 million over 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 are being contributed by either company and minimal funding is being provided to capitalize the entity. The venture is subject to the completion of final documentation and customary closing conditions.
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.