Cardinal Health battling top competitors for huge VA contract

Cardinal Health (NYSE:CAH) is staring down its top two competitors for a U.S. Department of Veterans Affairs (VA) drug distribution contract that could be worth up to $32 billion.

In January, Dublin, Ohio-based Cardinal should know whether it or AmerisourceBergen (NYSE:ABC) or McKesson (NYSE:MCK) has won the giant VA contract, Bloomberg News reported.

Since 2004, McKesson has held a contract to supply pharmaceuticals to not only the VA’s hospitals, but also the department’s mail-order operations. Amerisource held the contract prior to that. It’s possible that the VA could split up the work.

Terms of the existing contract called for McKesson to give the VA a 5 percent discount on wholesale prices in the first year of the deal.

The VA is generally happy with McKesson’s performance, but the San Francisco company still could be vulnerable, Lisa Gill, an analyst with JP Morgan Securities, told Bloomberg.

“If someone bids substantially below them, they may lose the contract,” Gill said. “Price is by far the biggest determining factor.”

A Cardinal spokeswoman confirmed that the Ohio company is competing for the contract.

The contract could boost its winner’s revenue by about $4 billion annually.