FTC blocks distributor mergers

The Federal Trade Commission blocked two mergers proposed by the nation's four largest drug wholesalers on antitrust grounds.

The FTC argued that Cardinal Health Inc.'s $2.6 billion acquisition of Bergen Brunswig Corp. and McKesson Corp.'s $1.8 billion acquisition of AmeriSource Health Corp. would effectively reduce competition in the prescription drug market through higher prices and decreased services to hospitals, nursing homes and retail drug stores.

"If [these four were] allowed to merge into two firms, the two surviving companies would control over 80% of the prescription drugs sold through wholesalers in the country," said William 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 drug stores, which could affect patient care."

The FTC noted that many manufacturers will not deal directly with smaller customers and will not sell drugs in small quantities.

Within 24 hours, Dublin, OH-based Cardinal Health and Orange, CA-based Bergen Brunswig announced that they were exploring their options, including challenging the FTC decision in court.

Donald Roden, Bergen Brunswig's president and CEO, voiced his disappointment with the FTC's decision and held firm to the belief that the merger would result in "significant cost savings and improved service levels" for customers.

Executives at San Francisco-based McKesson and Malvern, PA-based AmeriSource declined to comment directly on the FTC's decision, but announced in a joint statement that the two companies were "evaluating litigation." McKesson and AmeriSource called the FTC's analysis of the wholesale drug industry "simply not accurate."

McKesson is the nation's largest distributor of pharmaceuticals, and through its General Medical Corp. subsidiary, the third-largest distributor of medical and surgical supplies.

Bergen Brunswig directly follows McKesson both in the wholesale drug and medical and surgical distribution markets.

Cardinal is the third-largest drug wholesaler and maintains a small medical and surgical presence, primarily in the Northeast. AmeriSource is the fourth largest drug wholesaler. PR