AmerisourceBergen says quality will be PharMEDium's distinguisher, but acknowledges 'quick diligence' ahead of deal

Just weeks ahead of AmerisourceBergen ($ABC) announcing its $2.6 billion deal to buy PharMEDium Healthcare Holdings, FDA inspectors had laid out problems at one of the drug compounding company's manufacturing facilities that it said had been ongoing. AmerisourceBergen execs recently told investors that they were aware of the issues ahead of the deal, but CEO Steven Collis also acknowledged that the due diligence on the deal was "quick." Still, he said the wholesaler will work with the FDA to resolve any concerns and intends to make quality PharMEDium's distinguishing feature.

The deal closed last week, with the drug wholesaler adding the compounder and its four manufacturing facilities to its Drug Distribution unit, where it believes it can leverage its relationship with hospitals to market the drug compounder's services.

In the company's Q2 conference call, just two weeks ahead of closing the deal, Collis, responding to an analyst's question on the FDA issues, said "we had a quick diligence … with four very large compounding pharmacies of which we managed to visit all of them during our diligence. … But we're excited and we think that there will be a very iterative dialogue always with the FDA and other regulators, but we expect that we will continue to set the bar for quality in this area."

CFO Tim Guttman assured investors that AmerisourceBergen "did a fair amount of diligence" and was aware of all the outstanding items. He said the wholesaler is committed to investing and resolving the issues and expects its attention to quality will be a "competitive moat" that will "protect our market share."

The issues that AmerisourceBergen will have to see resolved now that it owns the company are FDA findings in July that the compounder's Cleveland, OH, facility had yet to resolve issues over insufficient environmental monitoring of the aseptic processing area and the company's failure to do lab analysis to identify the strength of the active ingredient in drugs before they were sent to hospitals. Inspectors also found that the lab was still not doing endotoxin testing or sterility testing on all products, even though some of those are "sterile injectable drug products including epidural and intrathecal injections and components labeled for IV use only."

But Collis said he can't believe that any hospital could "create the center of excellence that a company like PharMEDium can" for sterile preparations. "PharMEDium's, it's not a commodity service at all, this a high-quality service, it's complex."

- read the Seeking Alpha transcript

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