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MCKESSON ACQUISITION OF CLINICAL PHARMACEUTICALS INC., DRUG BENEFIT

Executive Summary

MCKESSON ACQUISITION OF CLINICAL PHARMACEUTICALS INC., DRUG BENEFIT management firm, will position McKesson in "the growing managed care market," the wholesaler declared March 29. The combined skills of Clinical Pharmaceuticals, Inc. (CPI) and McKesson's own PCS Health Systems unit "will provide a full range of managed prescription benefit programs for health plan sponsors in all market segments," McKesson Chairman Alan Seelenfreund said. CPI had an estimated $19.3 mil. in sales in 1992 with 75 employees. Headquartered in Nashville, main operations are in Minneapolis through Clinical Pharmacy Advantage (CPA). CPI was founded in 1986. Allscrips acquired CPI's point of care dispensing business in December 1991. CPA, founded in 1990, focuses on the clinical end of managed prescription drug benefit programs, providing services aimed at affecting doctors' prescribing practices and encouraging their compliance with benefit programs and formularies. Founded in 1990, CPA's client base includes a number of major insurers, HMOs, PPOs, and Blue Cross/Blue Shield organizations. CPA Chairman Steven Geringer, President Norrie Thomas and Chief Marketing Officer David Teckman "will remain with the organization," McKesson said. McKesson's acquisition of CPI (for undisclosed cash) is expected to be nondilutive to the wholesaler's earnings in the 1994 fiscal year which began April 1. The agreement, which is subject to regulatory approval, fits into McKesson's overall strategy of expanding PCS's role in managed care. McKesson's third quarter interim report, released in March, describes the new programs being implemented at PCS -- including concurrent and retrospective drug utilization review programs and formulary administration services -- as tools to "help PCS complete the transition from a claims processor to a true managed care provider." PCS is now linked electronically to about 55,000 retail pharmacies and provides prescription benefit programs to 24 mil. people enrolled in private major medical programs, up from 20 mil. enrollees at the end of the second quarter of FY 1993. PCS revenues for the quarter ended December 31 were $28 mil., up 6% from the previous quarter. PCS's role in managed care is expanding to physician and hospital claims processing through an electronic Health Care Information Network developed for the National Electronic Information Corporation, McKesson's quarterly report notes. Hospital and institutional customers account for about one fifth of McKesson Drug's pharmaceutical distribution revenues. In fiscal 1993, chain drug stores are expected to provide one third of McKesson Drug's revenues, compared to one half from independent pharmacies. For the nine months ending Dec. 31, revenues from the Health Care Services segment of McKesson's business were $8.42 bil., up 16.1% from the same period the previous year. The segment, which includes McKesson Drug, PCS, Service Merchandising and Medis, the company's Canadian pharmaceutical distribution business, accounts for about 97% of McKesson's revenues and 80% of operating profit. While McKesson Drug's direct store delivery sales were up only 4% in the third quarter of FY 1993, operating profit "registered double-digit gains" as a result of continuing cost reduction programs, improved inventory management and programs to increase customer and product profitability, the report notes. The consolidation of five distribution centers is expected to show a positive effect on the company's fourth quarter results, and additional consolidations of McKesson Drug's 40 remaining facilities will take place in FY 1994. On March 30, the wholesaler announced the opening of a $13 mil., 235,000 sq. ft. Atlanta distribution center. The new facility has nearly double the capacity of the current Atlanta center, which it will replace. The center will serve McKesson's retail pharmacy and hospital customers throughout Alabama, Tennessee and Georgia.
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