FTC Will Seek To Block Mergers of Nation's Four Largest Drug Wholesalers into Two Companies

The Federal Trade Commission said today it will seek federal district court orders to prevent the proposed mergers of the nation's four largest drug wholesalers into two firms. According to the agency, McKesson Corp.'s acquisition of AmeriSource Health Corp., and Cardinal Health, Inc.'s acquisition of Bergen Brunswig Corp., would violate antitrust laws by significantly reducing competition in the market for prescription drug wholesaling. The effect of the mergers would be higher prices charged by prescription drugs wholesalers and reductions in services to the companies' customers -- hospitals, nursing homes and drugstores -- and eventually to consumers.

"These four companies are the nation's largest drug wholesalers. They provide critical overnight delivery of pharmaceuticals. If allowed to merge into two firms, the two surviving companies would control over 80 percent of the prescription drugs sold through wholesalers in the country," said William J. Baer, Director of the FTC's Bureau of Competition. "The result would be a significant reduction in competition in the market for drug wholesaling. That means higher prices for prescription drugs and a reduction in the timely delivery of these drugs to hospitals, nursing homes and drugstores, which could affect patient care."

According to the FTC, drug wholesaling consists of the purchase of both branded and generic prescription drugs from hundreds of manufacturers, the inventorying of a full line of those drugs, and the sale and overnight delivery of those drugs to the place where they are sold (drugstores and hospitals) to consumers. By using a wholesaler, the FTC said, a retail pharmacist can efficiently place one daily order for all its drug needs with one wholesaler and receive those drugs the next morning or sooner, rather than ordering one drug from one manufacturer and another from a different manufacturer on a less timely basis. Many manufacturers will not deal directly with smaller customers, and will not sell drugs in small quantities.

The need for a full line of drugs is even more important for hospitals, which might need a particular, rarely-used drug on very short notice. Drug wholesalers who serve hospitals typically provide 24-hour emergency delivery services. Drug wholesalers also provide important supplemental services to their customers, such as electronic ordering, inventory management systems, reports and analyses of pharmaceutical purchases, and co-op advertising programs, the agency said.

McKesson, headquartered in San Francisco, California, is the largest full-service wholesale distributor of prescription drugs in the United States and Canada. Headquartered in Malvern, Pennsylvania, AmeriSource is the fourth largest wholesale distributor of pharmaceutical products and related health care services in the country. The McKesson/ AmeriSource merger is valued at $2.25 billion.

Cardinal Health, headquartered in Dublin, Ohio, is the nation's third largest wholesale distributor of prescription drugs, over-the-counter pharmaceutical products and health and beauty aids. Bergen, based in Orange, California, is the country's largest supplier of pharmaceuticals to the managed care market and the second largest wholesale distributor of pharmaceuticals. The Cardinal/Bergen-Brunswick transaction is valued at $2.5 billion.

The FTC will argue in court for preliminary injunctions to halt both mergers on grounds that they would violate federal antitrust laws by substantially reducing competition in the provision of drug wholesaling services. The preliminary injunctions would prevent the mergers from going forward until the conclusion of administrative trials or any appeals on the legality of the mergers. If the court grants the FTC's motions, the Commission will have 20 days within which to determine whether to issue administrative complaints. That administrative complaints would mark the beginning of the administrative trial process.

The Commission votes to authorize the preliminary injunction actions were 3-1, with Commissioner Orson Swindle dissenting and Commissioner Mary L. Azcuenaga not participating.

The cases will be filed in U.S. District Court for the District of Columbia.

Supporting graphics are available. [Note: Public version of the trial brief is available from the link below.]

Copies of the FTC complaints seeking a preliminary injunction will be available upon filing in court from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov (no period).

(FTC File No. 971 0120)
(FTC File No. 981 0025)