Pink Sheet is part of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC’s registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

This copy is for your personal, non-commercial use. For high-quality copies or electronic reprints for distribution to colleagues or customers, please call +44 (0) 20 3377 3183

Printed By

UsernamePublicRestriction
UsernamePublicRestriction

FOXMEYER PLANS TO BE $700 MIL. WHSLR. BY END OF MARCH 1985, MORE THAN DOUBLE ITS SIZE A YEAR AGO: AFTER THREE PURCHASES, FIRM IS STILL LOOKING FOR MORE

Executive Summary

FoxMeyer is predicting $700 mil. in sales in the year ending March 31, 1985, the company told New York security analysts in a March 7 presentation. That $700 mil. figure, based on completion of the I.L. Lyons purchase, would represent an increase of over 55% above the estimated $450 mil. in sales that the whslr. should do in the current fiscal year, which ends later this month. If the company can reach the $700 mil. mark next year, it will have doubled its sales volume in only two years. In fiscal 1983 (ended March 31, 1983), FoxMeyer did $351 mil. in sales. FoxMeyer is creating dramatic growth with equal parts of internal expansion and acquisitions. The firm reported that its internal growth (exclusing acquisitions) has been running about 25-27%. "We have a business plan that calls for about 20-25% internal growth," the company told the analysts. "We think the consolidation of the industry and some of the acquisition opportunities it presents will add another 10 or 15% to our growth over the next two or three years." FoxMeyer's continued reference to the acquisition opportunities in the whsle. industry indicates that the three large acquisitions in fiscal 1984 (Cincinnati, Lincoln and Lyons) are not enough to satisfy the Denver whslr. At one point in the company's prepared remarks for the analysts, FoxMeyer referred to "a couple of acquisitions" in fiscal 1985. The Lyons purchase will technically be an acquisition in 1985; it appears the whsle. is planning yet another after that. While FoxMeyer's acquisition growth is astounding, that was not the major focus of the company's prepared presentation to the analysts. The management, instead, tried to explain some of the underlying changes in drug wholesaling that are fueling the overall 15-16% growth of the industry. For example, FoxMeyer explained in terms for laymen the importance of chargeback procedures to the opening up of the hospital market for whslrs. Pointing to its own growth in that business to over $100 mil. annually, FoxMeyer said: "With all the cost pressures on hospitals and with a couple of fundamental changes, which ww engineered with some computer interfaces with mfrs., we've been able to move a significant amount of that volume through our warehouse" instead of directly from the mfr. to hospital. "The mfr. was selling the hospital cheaper than he was selling us, and he justified doing it to develop doctors' use," FoxMeyer told the analysts. "What we simply did was develop a tracking and computerized rebate system so that he could rebate us the difference on the sales we made to the hospitals under the contracts he had made with the hospitals. We then proved to the hospitals they could actually lower their costs of doing business by using a whslr." Hospitals contributed an additional $500 mil. new sales to total whsle. drug sales in the U.S. in 1983, FoxMeyer reported. The hospital drug business is expected to add $700 mil. to 1984 whslr. sales. FoxMeyer estimated that the switch to whslr. distribution to hospitals is about "35-40% complete." FoxMeyer Developing Video Tapoe Tie-In To Pharmacy Computer Systems To Present Deals And Marketing Programs Putting the computerization advances of wholesaling in perspective for the analysts, FoxMeyer noted: "Our warehouses are really highly mechanized and computerized pipelines with an inventory turn that's approaching once a month and with a volume of production that approaches 1 mil./picks/month/warehouse." FoxMeyer claims that its inventory turn compared to the industry average "is about 15% better; this has a lot to do with our computerization." In its effort to computerize independent retailers, FoxMeyer reported that it is delivering "approximately 30-40" stand-alone pharmacy computer systems per month. "We have 25 salesmen and field engineers in the field and we maintain all our equipment at a profit," the firm said. At the end of September last year, the company said, it had 420 stand-alones in place. FoxMeyer plans to develop "a video tape capability tied into this same system, where we will present all of our deals and marketing programs," the firm told analysts. "We actually have in test a point-of-sale program, that will tie the cash register into this system, tied into the inventory replenishment from our warehouses for the entire store." The pharmacy terminals have been an important tool in FoxMeyer's campaign to sign more pharmacy customers. "One of the more interesting things is that about 20% of the original systems we've sold were to people we did not do drug business with. Today, of these 420 systems, there isn't anyone who doesn't do drug business with us." The TBL pharmacy computer purchase in November could bring in over 250 new supply customers, FoxMeyer indicated. TBL has "almost 500 people on a pharmacy computer system," the company observes, adding, "we do business today with less than 50% of TBL's customers." FoxMeyer predicted that the pharmacy computer business will be a $20 mil. business for the whslr. in fiscal 1985. It could add about $1.2 mil. to the fiscal 1984 net profits of the company, on $10 mil. in sales. The company pointed out the importance of the pharmacy computer operations to its overall profit picture. "This is a business that you should be able to earn, as a pure distribution business, about 2-1/2 to 3% operating margins pre-tax. We are just beginning to get to that number," the firm said. "We think we ought to be able to beat that number with some of our added value services -- particularly the computer area." In the Health Mart franchise area, FoxMeyer is looking to its private label line to improve its profit margins. "Today, it's a very small contributor to our net," the whslr. said. "We think long-term, it's the big pay-off, if you will, in the [franchise] program." FoxMeyer told the analysts that a retailer makes "anywhere from 50-100% additional gross margin" on private labels, and the whslr. can make "from 100-200% additional gross margin." To indicate the profit potential of private labels, FoxMeyer estimated that that segment has been contributing about half the net profits of chain drug retailers in recent years. The Health Mart private label line was introduced about five months ago, FoxMeyer reported. "We've been adding about a dozen of these products a month." The Health Mart franchise operation itself has grown to about 200 independent pharmacies, with new members joining at a rate of 10 per month, the firm says.

You may also be interested in...



Part D Discount Liability Coming Into Focus: CMS Releases Drug Cost Data

Newly released Medicare Part D data sheds light on the sales hit that branded pharmaceutical manufacturers will face when the coverage gap discount program gets under way in 2011

FDA Skin Infections Guidance Spurs Debate On Endpoint Relevance

FDA appears headed for a showdown with clinicians and the pharmaceutical industry over the proposed new clinical trial endpoints for acute bacterial skin and skin structure infections, the guidance's approach for justifying a non-inferiority margin and proposed changes in the types of patients that should be enrolled in trials

Shire Hopes To Sow Future Deals With $50M Venture Fund

Specialty drug maker Shire has quietly begun scouting deals with a brand-new $50 million venture fund, the latest of several in-house investment arms to launch with their parent company's pipelines, not profits, as the measure of their worth

UsernamePublicRestriction

Register

OM017315

Ask The Analyst

Ask the Analyst is free for subscribers.  Submit your question and one of our analysts will be in touch.

Your question has been successfully sent to the email address below and we will get back as soon as possible. my@email.address.

All fields are required.

Please make sure all fields are completed.

Please make sure you have filled out all fields

Please make sure you have filled out all fields

Please enter a valid e-mail address

Please enter a valid Phone Number

Ask your question to our analysts

Cancel