McKesson Corp. has renewed its distribution contract with Rite Aid Corp., its second-largest customer, in a pact that stretches into 2016.


McKesson, Rite Aid, distribution contract, drug distribution, contract renewal, Robert W. Baird analyst, Eric Coldwell, JPMorgan analyst, Lisa Gill, Cardinal Health














































































































































































































































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Rite Aid, McKesson renew distribution deal

October 22nd, 2012

SAN FRANCISCO – McKesson Corp. has renewed its distribution contract with Rite Aid Corp., its second-largest customer, in a pact that stretches into 2016.

The renewal, which was disclosed in a regulatory filing by Rite Aid, came earlier than was anticipated.

The new pact extends the companies’ relationship by three years to March 31, 2016. Terms were not revealed, but the new agreement does amend “certain pricing and related terms,” Rite Aid said in its filing.

JPMorgan analyst Lisa Gill said in a research note that “contract renewals at lower margins are the norm in the drug distribution industry and as such we do not find this surprising nor do we believe it will be particularly impactful to McKesson’s earnings.”

Rite Aid is the distributor’s second-largest customer after CVS Caremark Corp.

According to Robert W. Baird analyst Eric Coldwell, Rite Aid accounted for about 12% of McKesson’s sales in fiscal 2012 fiscal year, or about $12.3 billion.

That figure has dropped in recent years, due in part to the increased prevalence of generic drugs at Rite Aid, Coldwell said in a note to investors.

The renewal raises hopes that other big pharmacy contracts will be maintained.

“[The announcement] reinforces our view that Cardinal and McKesson will likely retain their respective pieces of the CVS business and Cardinal [Health] will likely retain all of the Walgreens business,” JPMorgan analyst Lisa Gill said. “The level of systems integration, balance sheet support and secondary generic supply source are all key factors that promote long-term relationships between large retail chains and drug distributors.”

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