FTC OPPOSES MAJOR DRUG WHOLESALER MERGERS

CHAPIN CLARK

WASHINGTON -- The Federal Trade Commission here has voted to block two proposed mergers involving the United States' top four pharmaceutical wholesalers because the deals would violate antitrust law.

Supermarket pharmacy directors contacted by SN were positive, if cautiously so, about the potential results of the mergers and expected the wholesalers to dispute the FTC's finding.

Dublin, Ohio-based Cardinal Health's plan to acquire Bergen Brunswig Corp., Orange, Calif., last August, and San Francisco-based McKesson Corp.'s intended purchase of AmeriSource, Malvern, Pa., announced a month later, would create two companies with a combined market share of at least 70%.

The four companies' stockholders approved the deals last month.

Company executives have asserted that because the mergers would bring operating efficiencies and increased purchasing power, customers, including retail chains, independent pharmacies, managed-care pharmacies and hospitals, would realize savings as well.

John Kane, Cardinal's chief operating officer, said in September that retail chains the company had polled were strongly in favor of the merger with Bergen Brunswig. "We have heard no negatives."

But in a statement last Tuesday, the FTC said, "The effect of the mergers would be higher prices and reductions in services to the companies' customers and eventually to consumers."

"I would imagine that the parties involved will file lawsuits or do whatever they have to do to fight [the FTC ruling]," said Joe Prigaro, pharmacy director at Star Market, Cambridge, Mass., which last month switched its pharmaceutical distributor from McKesson to Cardinal. "I don't think it's ended at this point."

Prigaro, though uncertain, said the economies of scale resulting from the mergers could be a boon to retail pharmacies.

"It could be a positive thing if the companies really try to do the best for their customers," he said. "I would hope their intention is to provide the best services to their customers at the best prices, but who knows what these companies are thinking.

"It's getting real tough out here."

McKesson and Bergen Brunswig are the only pharmaceutical suppliers servicing Hawaii, said Jeffrey Kong, pharmacy supervisor at 13-store Times Supermarket, Honolulu. (Times uses McKesson.) While acknowledging that the pharmacy landscape has become inhospitable to independents, both wholesale and retail, Kong said he thought the mergers would have beneficial effects in his region.

"Some of these companies are attempting to penetrate the Pacific Rim. The Hawaii distribution centers could benefit from the greater volume," he said.

A bigger, stronger McKesson competing against a similarly enhanced Bergen Brunswig -- both having more clout with manufacturers -- wouldn't hurt either, he added.

"I'm kind of ambivalent, quite frankly," Kong said. "We might come out really well on this, but I do realize that on the mainland there are some areas where, for example, McKesson and AmeriSource might be the only players, so there would be some anticompetitive issues.

"I would have a problem with a merger between Bergen and McKesson."