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The U.S. Department of Veterans Affairs has awarded drug wholesaler McKesson Corp. (MCK) a contract worth about $4 billion a year to supply medication to VA facilities, despite a push from competitors to take the business.
McKesson has served as the VA's prime pharmaceutical vendor for the last eight years, but the contract expires in one month. Competitors AmerisourceBergen Corp. (ABC) and Cardinal Health Inc. (CAH) were both competing to win the business.
Shares of McKesson rose 4.1% to $91.50 in after-hours trading, fueled by relief the company didn't lose the business. Shares of the competing companies were higher as well.
The big three wholesalers are expected to post combined sales above $300 billion in their current fiscal years, so the VA business isn't a game changer for any of the companies. Nevertheless, Wall Street was watching the process closely because contracts of this size don't change hands often.
Analysts surveyed by Thomson Reuters anticipate McKesson alone pulled in revenue of $121.41 billion in its most recent fiscal year, which ended in March.
The VA announced the contract award -- which came later than expected due to protests from two small drug suppliers -- late Wednesday. According to a post on the Federal Business Opportunities website, the government expects savings of about $3.26 billion through the life of the contract, which could run another eight years.
Officially, the contract is for a base period of two years with three optional two-year extensions. The new contract goes into effect May 10. The VA said the total contract award dollar amount is $31.62 billion.
The contract award was posted here: https://www.fbo.gov/index?s=opportunity&mode=form&id=1628e823c380dfc0de5c62fc20250b21&tab=core&tabmode=list&=
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; email@example.com