McKesson Avoids Major DEA Impact

Implications: McKesson (MCK) announced a settlement with the DEA that temporarily suspends distribution of two controlled substances from two of its distribution centers. I presume that McKesson has learned some lessons from Cardinal Health’s (CAH) troubles so the marketplace impact should be less severe.  

Analysis:

McKesson (MCK) resolved its claim with the DEA for $13.25 million, an expected outcome given the company’s previous disclosures described in Distributors Face Rising Compliance Costs (Council site).  For the record, I will remind you that “the settlement agreement is neither an admission of liability by McKesson nor a concession by the United States that its claims are not well founded.”

Florida got $7.5 million of the $13.25 million in civil penalties, ensuring that the state retains its infamous reputation.

A DEA press release describes McKesson’s alleged actions:

“Three McKesson distribution centers received and filled hundreds of suspicious orders placed by pharmacies participating in illicit Internet schemes, but failed to report the orders to DEA. They did so even after a Sept.1, 2005, meeting at which DEA officials met with and warned McKesson officials about excessive sales of their products to pharmacies filling illegal online prescriptions…As a result, millions of dosage units of controlled substances were diverted from legitimate channels of distribution.”

The Reuters story also notes that McKesson must also temporarily suspend distribution of two drugs from two of its distribution centers. Competitor Cardinal Health (CAH) has struggled with the customer service issues associated with similar suspensions, but the impact should be smaller for McKesson. (See Cardinal Health's Customer Problems Deepen -- Council site).