Cardinal facility suspended under DEA settlement

Tue May 15, 2012 11:46am EDT

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(Reuters) - Drug wholesaler Cardinal Health Inc will suspend shipments of controlled substances from a Florida warehouse for two years under a settlement of federal litigation stemming from a major crackdown on prescription painkiller abuse.

Under the agreement with the U.S. Drug Enforcement Administration, Cardinal said on Tuesday that it would also work to improve security procedures at the Lakeland, Florida, distribution center to ensure that potentially addictive painkillers known as opioids, including oxycodone, wind up in the right hands.

The facility will remain open, and other operations will continue, Cardinal said.

The DEA suspended Cardinal's Florida license on February 3 because of concerns that the company was not adequately monitoring its customers for inappropriate dispensing of prescription drugs. Cardinal had sought to block the action.

Cardinal spokeswoman Debbie Mitchell said the agreement provided "certainty and resolution" and would enable the company, one of the largest U.S. wholesalers of pharmaceuticals, to avoid a protracted dispute with federal officials.

The DEA had no immediate comment.

Shares of Cardinal were down 1.5 percent at $42.12 after the announcement, with Wall Street analysts predicting little or no fallout from the settlement.

The federal crackdown on illicit painkiller sales has also led to litigation against two CVS Caremark Corp pharmacies in Sanford, Florida.

An estimated 7 million Americans abuse pharmaceutical drugs. Prescription drugs account for about 75 percent of all drug-related U.S. overdose deaths, surpassing heroin and cocaine, according to the U.S. Centers for Disease Control and Prevention.

Three of every four deaths from pills involve opioid pain relievers.

The DEA has sought to make drug wholesalers play a bigger role in fighting the problem of prescription drug abuse, which has surged in the United States over the past decade.

But distributors such as Cardinal have said they are unfairly targeted because it is easier for the DEA to attack a distributor than the thousands of doctors who write the prescriptions.

Cardinal's Jackson, Mississippi, distribution center will serve the 2,500 pharmacy customers in Florida, Georgia and South Carolina that the Lakeland facility had serviced.

JPMorgan analysts said that despite the case, Cardinal had continued to ship controlled substances from Jackson, with little disruption for customers.

The investment firm said in a note to clients that Cardinal's earnings could benefit from ending potentially lengthy litigation halfway through this quarter and forecast earnings of 70 cents per share for the period, near the high end of the company's expectation of 67 cents to 72 cents.

On a conference call with analysts earlier this month, Cardinal Chief Financial Officer Jeff Henderson said the company had incurred costs of $4 million in the March quarter for legal fees, compliance and the extra transportation costs of transferring controlled substances to the Jackson facility.

Henderson declined at the time to give an estimate of what DEA-related costs would be in this quarter, but said he "would not expect dramatically different costs."

(Reporting By Lewis Krauskopf; additional reporting by David Morgan in Washington; Editing by Gerald E. McCormick, Maureen Bavdek and Lisa Von Ahn)

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