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Mckesson Merger Puts Drug Sales In Very Few Hands

Recent deals among the nation’s top four drug wholesalers, including Tuesday’s plan by the biggest distributor to buy a top rival, would leave two companies handling more than half of the nation’s prescription drug sales.

McKesson Corp., the No. 1 drug distributor, said Tuesday it agreed to buy No. 4 AmeriSource Health Corp. for $1.75 billion worth of stock. No. 2 Cardinal Health Inc. is in the process of buying No. 3 Bergen Brunswig Corp. for $2.62 billion.

Both deals could face close scrutiny from the Federal Trade Commission because the four companies dominate the $80 billion-a-year wholesale drug industry with a 60 percent share of the market.

McKesson said the deal would swell its profits and could lead to lower prices for consumers. Wholesalers have used the deals to eliminate duplications by closing some of their high-tech pharmaceutical distribution plants and lower overall costs as competition has become more intense.

“Twenty years or so ago, in the mid ‘70s there were 300 distributors. Today there are approximately 50,” said John Ford, a securities analyst at Bear Stearns in New York.

Mark A. Pulido, president and chief executive of McKesson, said the company’s recent merger with distributor FoxMeyer Drugnow shows it can cut costs and pass on the savings. By squeezing out its own savings, McKesson figures it can lower expenses for drug companies and retailers.

McKesson closed 19 facilities in the last 10 months after acquiring FoxMeyer, which had $3.4 billion in annual sales. The company now operates 40 pharmaceutical distribution centers. AmeriSource operates 21.

McKesson said it has identified future cuts of more than $120 million through the AmeriSource merger and expects to cut the companies’ combined 61 distribution centers to 33 after two years, Pulido said. He estimated the cost savings would add more than $1 per share to profits.

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