UPDATE 1-CVS, Cardinal Health form U.S. generic drug venture

Tuesday, 10 Dec 2013 | 12:18 PM ET

Dec 10 (Reuters) - Pharmacy chain CVS Caremark Corp and pharmaceutical distributor Cardinal Health Inc on Tuesday announced a 10-year agreement to form the largest generic drug sourcing operation in the United States, the world's biggest generic drug market.

The 50-50 joint venture will be operational as soon as July 1, 2014. Under the agreement, Cardinal will pay CVS $25 million on a quarterly basis for the duration of the contract, with an estimated after-tax value to CVS of $435 million.

The companies also announced a three-year extension of their existing distribution agreements, taking them through June 2019.

The U.S. market for medicines has seen a major shift toward cheaper generic drugs following a wave of patent expiries in recent years for major brand-name treatments and a growing effort to lower costs throughout the healthcare system.

CVS shares rose 62 cents, just shy of 1 percent, to $67.35 and Cardinal was up $2.68, or 4 percent, at $66.95 in morning trading.

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