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DIAGNOSTEK ACQUIRING RITE AID’s PRESCRIPTION MAIL ORDER BUSINESS

Executive Summary

DIAGNOSTEK ACQUIRING RITE AID's PRESCRIPTION MAIL ORDER BUSINESS in exchange for $5 mil. in common stock in a deal announced Sept. 10. Diagnostek's mail service subsidiary, Health Care Services Inc., will take over Rite Aid's mail order contract business, which has generated revenues of $13.5 mil. in the last 12 months. Diagnostek will also be able to purchase pharmaceuticals from Rite Aid, allowing the Albuquerque-based company to use "the leverage of Rite Aid's $1 bil. in annual pharmaceutical purchases." Rite Aid's mail order contracts include Westinghouse, the United Mine Workers, Blue Cross and Lukens Steel. Health Care Services will be the sole prescription mail service provider to Rite Aid under the agreement with the drug chain. In addition, the Diagnostek subsidiary will continue the relationship Rite Aid has with Cost Containment Co., a privately held firm that recruits organizations to participate in mail service programs. The Rite Aid agreement, expected to close later this month, continues Diagnostek's rapid-fire expansion activities. In July, the company added 2 mil. customers (150 union and business clients) to its mail-order business in a $13.5 mil. acquisition of the EPIC Health Care Group ("The Pink Sheet" July 2, T&G-14). Diagnostek Chairman Nunzio DeSantis said that the merger agreement with the Elmsford, N.Y.-based company made Diagnostek "the second largest mail-service pharmacy in the country" in terms of both clients and sales. Diagnostek has moved into the number two spot in the mail order pharmacy business in just two-and-a-half years; the company announced its acquisition of Health Care Services in February 1988. Diagnostek, founded in 1983 by Chairman DeSantis, claims to be the market leader in providing hospital pharmacy management services. The company also runs diagnostic imaging centers. FY 1990 (ended March 30) revenues were $147.3 mil., with earnings of $7.2 mil. Revenues for the quarter ended June 30 were $45 mil., with earnings of $2.1 mil.

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