Bergen Signs 5-Year, $285-Million Pact With Defense Department

Giant drug wholesaler Bergen Brunswig Corp. said Wednesday that it has signed a $285-million deal with the U.S. Department of Defense to supply the federal government with drugs for 20 military hospitals in the Southwest.

The five-year contract, finalized this week, is the largest pact the Orange-based firm has signed with the government to date and represents a growing trend by Bergen Brunswig and other drug wholesalers to secure large distribution agreements.

“These guys are out there and they are efficient enough to be competitive,” said Kevin E. Silverman, a health care analyst with Kemper Securities in Chicago. “What’s important about this deal is the pattern of signing up the big deals.”

Silverman said the industry can expect more of the same from Bergen Brunswig, a $7-billion-a-year firm that is second only to McKesson Corp. of San Francisco.

As Bergen Brunswig completes its painful reorganization, which includes layoffs of about 500 workers and closure or reductions at some facilities, it should be even more competitive, said Silverman, adding that it could operate extremely well on margins of about 6%.

“Efficiency is the key in this new (health care) environment,” Silverman said. “And they have it. Not too many businesses can operate on those kind of margins.”

The new contract covers 20 military hospitals in Texas, New Mexico and Oklahoma, the company said, and is the company’s second government contract to be signed in recent months.

In November, Bergen Brunswig signed a one-year contract worth $19 million to supply pharmaceuticals to 18 military hospitals in Philadelphia and Tidewater, Va., company spokeswoman Karen Wiley said. That contract also has four one-year renewal clauses, each worth about $19 million.

But Bergen Brunswig has also been aggressive recently in securing large commercial contracts, Wiley said.

Last month, the company signed a five-year contract with drug retail chain ShopKo Stores Inc., based in Green Bay, Wis. That contract to supply pharmaceuticals to ShopKo’s 118 stores is expected to generate more than $1 billion in sales and would give it a significant penetration in the upper Midwest, where one of Bergen Brunswig’s strongest competitors, Cardinal Distribution Inc. of Ohio, is based.

And in December, Bergen Brunswig renewed a contract with American Medical International, which is expected to generate about $200 million in sales over the next three years.

Bergen Brunswig stock rose 25 cents a share Wednesday on the New York Stock Exchange to close at $19.875.