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Executive Summary

MEDCO CONTAINMENT WILL FILL 430,000 Rx/WEEK WITH $ 1.1 BIL. SALES on an annualized basis once its newest mail-order prescription pharmacy is fully operational, Medco Containment Services Senior Exec VP James Manning forecast Nov. 28 at a Robertson Stephens investor conference. With nine pharmacy facilities, "We're doing approximately 330,000 Rx/week, which has an annualized sales volume of approximately $ 858 mil." With the new facility, the fill capacity will "move up to 430,000 Rx/week," giving Medco "annualized sales volume of $ 1.118 bil." The company's newest mail-order pharmacy is in Tampa, Florida, the second Medco Containment facility in that city. "Tampa II," opened in October, will be dedicated to the Blue Cross/Blue Shield federal employee plan which covers 1.5 mil. families who work for the federal government. The program is currently handled at "Tampa I." The Tampa II pharmacy will be fully operational by Jan. 1. Medco Containment Service, headquartered in Fairlawn, New Jersey, expects to be able to boost the per shift capacity for filling prescription drug orders further by implementing split shift and part time schedules at all nine of its facilities. The program now is being studied at the firm's Columbus, Ohio pharmacy. "As we adopt this technique in our other facilities, we will be able to increase our overall capacity by 25% without adding any new pharmacy capacity until this is fully absorbed. This will give us the capacity of 540,000 prescriptions per week, or annualized sales volume of $ 1.4 bil. in today's dollars," Manning projected. Discussing the impact of the generic industry investigations on Medco Containment's generic substitution program for its mail-order clients, Manning said: "During the past 90 days, we have seen for the first time in a number of years that our generic substitution rate has declined" as a result of adverse publicity surrounding the generics scandal. "However," Manning noted, "we would suspect that our generic substitution rate will stabilize and then go back up." He added that the recent decrease in requests for generics to fill prescriptions "has hurt us a little bit" because of negotiated contracts giving Medco a portion of the savings from generic substitutions. Those programs "are pretty much on hold right now until the air sort of clears in the generic drug industry," Manning commented. Corporations recently signing on as new Medco Containment clients include American Cyanamid, Avon, TWA, a new group from the LTV active employees, Certainteed, Kendall, United Technologies, Wang and Rockwell. The American Cyanamid contract is noteworthy because of its drug subsidiary Lederle and because the corporation is a member of the Pharmaceutical Manufacturers Association. Manning noted Medco just signed five-year agreements with the South Carolina Blues to be their exclusive mail-service provider, and has similar, recently-signed agreements with the National Capitol Area, Capitol of Pennsylvania and King's County, Oregon Blues programs. Manning told the Robertson Stephens audience that Medco Containment will probably open its tenth facility in the first quarter of fiscal 1991 (begins July 1) in Washington state. Medco's Northwestern clients include Boeing, Weyerhauser, the state of Washington and regional Blues. Additionally, the firm's Nevada facility, which handles all the California business, "is rapidly reaching capacity," Manning noted, "so we will move some business to the Washington facility."

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