Cardinal Atones for Its Sins

For companies in the drug industry, there's one agency that they'd rather not deal with: the Drug Enforcement Administration. Those guys have guns, you know.

Cardinal Health (NYSE: CAH) thinks it's finally done dealing with the agency, now that it has agreed to pay a $34 million fine. The DEA has agreed to reinstate the company's licenses to distribute controlled substances at three distribution centers.

The licenses were revoked because Cardinal didn't report suspicious purchases of hydrocodone that it distributed to pharmacies that filled fake prescriptions from Internet pharmacies. The company has since spent $20 million to upgrade its system, in hopes of avoiding trouble with the DEA again.

Cardinal isn't the only drug distributor that's had problems with the DEA recently. Both of its main competitors, McKesson (NYSE: MCK) and AmerisourceBergen, (NYSE: ABC) have also resolved issues with the agency over the distribution of controlled substances. It seems rather ridiculous to me that the DEA requires the companies to play the role of a police officer, but if they want a license to deal drugs, I guess they have to play by the rules.

These DEA crackdowns on the abuse of prescription drugs could help the likes of Pain Therapeutics (Nasdaq: PTIE), King Pharmaceuticals (NYSE: KG) and Alpharma (NYSE: ALO) -- drugmakers that are developing abuse-deterrent drugs. The Food and Drug Administration isn't likely to approve these drugs just because the DEA says they're needed, but once the harder-to-abuse drugs are approved, everyone in the supply chain is likely to encourage their use, if it means lowering the chances of getting in trouble with the DEA -- and its guns.

It's certainly good news for Cardinal and its investors that the DEA issue is behind it. Now it can focus on that spinoff it announced a short time ago.

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