Rite Aid Corp. has signed an expanded distribution agreement with McKesson Corp. that will include both brand-name drugs and generic drugs.

Rite Aid, McKesson, expanded distribution agreement, brand-name drugs, generic drugs, pharmaceutical sourcing, McKesson One Stop Generics program, drug chain, John Standley, John Hammergren, generic pharmaceuticals, drug distribution, Celesio, Walgreens, Alliance Boots, AmerisourceBergen, distribution deal, CVS Caremark, Cardinal Health, generic drug sourcing, U.S. prescription drug sales

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Rite Aid, McKesson expand distribution pact

March 17th, 2014

CAMP HILL, Pa. – Rite Aid Corp. has signed an expanded distribution agreement with McKesson Corp. that will include both brand-name drugs and generic drugs.

The alliance builds on the strength of Rite Aid as the country’s third-largest drug chain and the experience of McKesson as a leader in pharmaceutical sourcing and supply chain management.

The agreement, which extends through March 2019, appears to be a major boost for the efficiencies of both companies.

Under the expanded agreement, McKesson will take responsibility for the sourcing and distribution of generic pharmaceuticals for Rite Aid as part of the proprietary McKesson One Stop Generics program. Rite Aid has nearly 4,600 outlets in the United States, and its stores should benefit from the full value of McKesson’s daily direct-to-store delivery service model for brand and generic products, providing a higher level of service to customers.

“We are excited to expand our partnership with McKesson,” said John Standley, Rite Aid’s chairman and chief executive officer. “The combination of Rite Aid’s and McKesson’s generic purchasing scale and sourcing expertise, in conjunction with McKesson’s industry-leading drug distribution capabilities, will enable us to achieve supply chain efficiencies, provide even better service to Rite Aid customers and generate additional cash flow to fuel our company’s growth.”

John Hammergren, chairman and chief executive officer of McKesson, added: “We are extremely proud of McKesson’s industry-leading service levels and the strength of our global sourcing and supply chain capabilities, which means that we deliver the right products at the right time with exceptional efficiency for our customers.

“Rite Aid has been a valued customer to McKesson for more than 16 years, and we are honored at the trust they have placed in us as we expand our ­partnership.”

For McKesson, which is currently ranked 14th on the Fortune 500, the deal comes just days after it announced it had secured the acquisition of the Stuttgart, Germany-based pharmaceutical distribution firm Celesio Group.

McKesson reached an agreement with the majority shareholder Franz Haniel & Cie, while buying Celesio convertible bonds from the New York City-based hedge fund Elliott Management Corp. The two deals give McKesson ownership of more than 75% of Celesio’s shares.

For Rite Aid, the expanded partnership with McKesson puts it in a better position to challenge its major rivals. Walgreen Co. and the European giant Alliance Boots GmbH announced in 2012 that it was forming a strategic partnership to create the first global pharmacy-led health and well-being enterprise. Boots has a presence in more than 25 countries and employs over 108,000 people.

Last year it was announced that Walgreens and Boots were also joining forces with AmerisourceBergen Corp. to sign a 10-year distribution deal. The international alliance helped create a clearer path for more U.S. drugs to launch more quickly in foreign markets. It also gave Walgreens a significant boost over rivals, as generic drugs comprise an ever-increasing percentage of U.S. prescription drug sales.

The deal has helped Walgreens and Boots expand aggressively in Europe, where generic drugs are not so widely used, and in developing Asian and African markets, where pharmacy growth is strong.

Not to be outdone, CVS Caremark Corp. and Cardinal Health Inc. signed an agreement at the turn of this year to form the largest generic drug sourcing entity in the U.S. The joint venture is expected to be operational as early as July 1 and will have an initial term of 10 years. To reflect the 50/50 agreement, the deal includes a quarterly payment of $25 million over the life of the partnership from Cardinal to CVS.