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CAREMARK’s MANAGED CARE SERVICES SALES GREW 45% TO $263 MIL. IN 1992 FIRST HALF; Rx DRUG BENEFIT PROGRAMS COVER 27 MIL. BENEFICIARIES -- PROSPECTUS

Executive Summary

Caremark's managed care services business increased 45% through the first six months of 1992 to $263 mil. in sales, according to a preliminary registration statement for the spin-off of Caremark filed with the Securities and Exchange Commission by parent company Baxter on Aug. 17. Operating income from the segment was $9 mil., up 29% from $7 mil. the year earlier. Managed care accounted for almost 40% of Caremark's total revenues of $713 mil. for the period and is growing much more rapidly than Caremark's other business, patient care. Revenues for that segment increased 13% during the first six months to $397 mil. The centerpiece of Caremark's managed care segment is its prescription drug benefit programs, which the company says provided drug benefit plan management services "to more than 650 plan sponsors and more than 27 mil. plan beneficiaries nationwide" in 1991. Corporate sponsors include Empire Blue Cross and Southland Corp. Prescription services include Caremark's Mail Plan, a mail- order pharmacy program consisting of a central claims administration center, a repackaging facility and three pharmacies, located in Lincolnshire, Ill., San Antonio, and Ashland, Va. A fourth pharmacy is scheduled to open in January 1993 in Fort Lauderdale. Caremark also operates a prescription claims processing services network allowing patients in participating drug plans to fill prescriptions at local member retail pharmacies. The company currently has enrolled approximately "40,000 of the nation's 65,000 retail pharmacies" in its claims processing network. Caremark also offers cost and clinical management services through its Managed Plan Rx drug service, and drug utilization review through its Integrated Plan service. In addition to prescription services, Caremark's managed care services include a health maintenance organization (Island Healthcare) and a preferred provider organization (Medical Card Systems) in Puerto Rico. Last year, combined managed care operations generated $391 mil. in revenues, up 56%. Operating income in 1991 was $18 mil., up 38%. On the patient care side, Caremark noted that revenues may be affected when orphan drug status for Genentech's Protropin biosynthetic human growth hormone expires in October 1992. Caremark markets Protropin under an agreement with Genentech. In another alliance with a drug company, Caremark continues to distribute Sandoz' Clozaril (clozapine) anti-schizophrenic drug under an agreement restructured in 1991 following federal and private lawsuits filed against both companies that eliminated the exclusive distribution agreement previously in place. "Pursuant to the restructuring agreement, Sandoz has agreed to make periodic payments to Caremark through 1994," the prospectus states, offsetting reductions in revenues and profits following the revision of the original agreement. "Sandoz has informed Caremark that it believes that Caremark is obligated to contribute one half of any settlements concluded between Sandoz and the plaintiffs or damages or penalties assessed against Sandoz in this litigation," the filing adds. "Caremark believes that Sandoz' position is without merit." Caremark's total operating income for the first six months was $51 mil., down 18%, on sales of $713 mil., up 23%. Net income for the period decreased 27% to $24 mil. due to an $11 mil. after-tax charge covering the estimated cost of the stock distribution. "Without this special charge, net income would have increased 6% to a level of $35 mil.," the statement says. Baxter plans to spin off 100% of Caremark via a stock dividend distribution to Baxter shareholders ("The Pink Sheet" June 15, In Brief). Baxter Exec VP Lance Piccolo will head the spin-off. Caremark bought $74 mil. in goods from Baxter last year and sold $21 mil. in services. The companies' relationship will be on an "arms length" basis after the spin-off. Shareholders of record will receive one share of Caremark for every four shares of Baxter, which closed Aug. 17 flat at 38, giving the proposed new issue an approximate value of $9.50 a share. Baxter expects Caremark to be listed on the New York Stock Exchange. First Boston is managing the deal.
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