CVS Caremark Corporation (NYSE:CVS)’s 10-year Agreement Boosted Stock Price Life High
CVS Caremark Corporation (NYSE:CVS) is a Woonsocket, Rhode Island based integrated pharmacy health care service provider that operates in Pharmacy Services segment and Retail Pharmacy segment through more than 7,450 retail drugstores and 700 specialty locations. Yesterday the company announced a 10 year agreement with Cardinal Health Inc. (NYSE:CAH) towards forming the largest generic drug sourcing operation in the U.S. through a 50-50 joint venture.
The Generic Drug Market
IMS Health which tracks prescription drug data recently revealed that generic drugs now account for more than 80% of all prescription drugs. This major shift toward cheaper generic drugs is largely evident as many patents for major brand-name treatments are expiring in recent time. Moreover such shift in the world’s biggest generic drug market would also help its recent efforts to lower costs throughout the healthcare system.
The 50-50 joint venture between CVS Caremark Corporation (NYSE:CVS) and Cardinal Health Inc. (NYSE:CAH) is expected to be operational latest by July 2014. This agreement would aid the generic drug purchasing power of both of these companies. As per the terms of the agreement, Cardinal Health will be paying $25 million to CVS Caremark Corporation (NYSE:CVS) on a quarterly basis, for the life of the contract.
The analysts expect this joint venture to keep check on generic drug makers from substantially increasing prices. Ross Muken, an analyst with ISI Group also anticipated in a research note that the deal would annually add earnings of $0.18-$0.20 per share to CVS Caremark Corporation (NYSE:CVS) and approximately $0.25-$0.30 to Cardinal Health Inc. (NYSE:CAH).
Following the announcement the stock of both these companies surged to mark fresh 52 week highs. CVS Caremark Corporation (NYSE:CVS)’s stock soared to $68.60 during yesterday’s session before closing at $67.99 and that of Cardinal Health Inc. (NYSE:CAH) surged to $67.75 before closing at $66.22.