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OWENS & MINOR PACKAGING SUBSIDIARY VANGARD MOVING PRODUCTION TO LARGER FACILITY TO HANDLE INCREASING DEMAND; WHSLR. EXPECTS 1986 SALES TO REACH $8 MIL.

Executive Summary

Owens & Minor is moving production of its Vangard Labs specialty packaging business to a larger facility in Kentucky to accommodate the growth in demand for its unit-of-use and blister packaging. The whslr. noted in its just released annual report that sales by the Vangard subsidiary almost doubled in 1985 compared to 1984, increasing to just under $4.5 mil. Richmond-based Owens & Minor is projecting Vangard to generate approximately $8 mil. worth of business in 1986. The growth is expected to come from increasing demand by indigent care facilities for unit-of-use packaging and by nursing homes for blister compliance packaged generic drugs, the whslr. indicated in the report. While Vangard's contribution to the whslr.'s total 1985 volume of $367.3 mil. was less than 2%, the packaging business offers significantly higher margins than conventional drug and medical/surgical distribution. At a health care seminar last fall, Owens & Minor indicated that the pretax margins on its packaging operation were twice that of its distribution business ("The Pink Sheet" Oct. 14, p. 10). Vangard is currently under contract to the Volunteer Hospitals of America (VHA) to package generic pharmaceutical products for VHA hospitals under the VHA Plus trademark. Product shipments began last September, the annual report noted. Owens & Minor reported that sales by its drug division increased 23.6% in 1985, from $136 mil. to $168 mil. The company noted, however, that excluding the sales impact of Florida Whsle. Drug, acquired in mid-1984, the division's sales increased 18% over 1984 levels. Florida Whsle. Drug operated at a loss during all four quarters of 1985 and negatively affected the whsle. drug division's operating profits, which fell 7% to $5.4 mil. Calling the performance "a disappointment," Owens & Minor said it hoped the business would begin to turn around in the first half of 1986. The Florida acquisition was the first whsle. drug purchase by the company in 20 years and its first drug distribution venture outside the Virginia, North Carolina and District of Columbia areas. The whsle. drug division continues to emphasize the hospital market. Roughly $65 mil., or 38%, of the division's 1985 sales were to hospitals, the company indicated, noting that the industry average is 18%. "Our hospital penetration and market share is growing at an above average rate," the annual report stated. During the year, the company entered into contracts with two hospital chains, National Medical Enterprises and American Medical International. Owens & Minor reported that net earnings rose 22% in 1982 to $4.4 mil. Gross margin, expressed as a percentage of sales, declined less than a percentage point, from 12.4% to 11.9%. "The decline occurred in both divisions, primarily due to increased price competition," the whslr. explained. Sales per average employee increased 11% during the year to $445,000. In the medical/surgical area, the whslr. reported that sales increased 16.7% in 1985 to $199 mil., while operating profits increased 44% to $6.5 mil. The growth was internally generated as the company made no acquisitions during the year. "This was a year of enhancing our position as a major distribution force in the Sunbelt market area," the annual report stated.
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