In the face of a tough pricing market that has weighed on generic drugmakers and their distributors, wholesaling giant AmerisourceBergen has decided to go out and snarf up a bigger share. It will pay $815 million in cash for H. D. Smith, the largest independent drug distributor left in the U.S.
AmerisourceBergen said the acquisition, which it expects to close in early 2018, could add slightly to the current fiscal year, which closes Sept. 30, 2018. It is now projecting revenue growth to be in the range of 8% to 11%, compared with its an earlier forecast of 7% to 8%.
“This acquisition also builds upon our foundation and meaningfully expands our support for independent community pharmacies,” Steven Collis, CEO of Valley Forge, Pa.-based AmerisourceBergen, said in a statement.
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Drug distributors, like the drug manufacturers whose products they sell, have found the last several years challenging as margins have been squeezed on many of the drugs they sell, both generic drugs as well as some categories of branded medications such as diabetes treatments.
In the fourth quarter, the company reported an operating loss of $85 million, compared with a $225 million operating gain in the same quarter a year ago.
After reporting its Q4 earnings earlier this month, Collis put the best spin he could on the situation. He said that while the company expects generics prices to sink between 7% and 9% in its current fiscal year, price erosion is “not getting worse, which we think is a positive.”
Eroding drug prices are not the only issues the company has been facing, however. The company blamed its need to set aside $575 million to cover potential legal settlements for the loss of $1.35 per share for the quarter.
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The company has already agreed to pay $260 million after pleading guilty to a misdemeanor charge that for more than a decade it produced and sold millions of prefilled drug syringes from an Alabama facility that was never registered with the FDA. The additional set-aside is for civil litigation stemming from the same matter. It has said it is negotiating with federal authorities to settle that portion of the case as well.
AmerisourceBergen along with competitors McKesson and Cardinal Health are being scrutinized after being accused of having weak controls that might have prevented some illicit sales of highly-addictive opioids.