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PCS DRUG BENEFIT PLAN ENROLLMENT TO TOP 50 MIL. THIS YEAR, McKESSON PREDICTS

Executive Summary

PCS Health Systems expects enrollment in its prescription drug benefit management programs to exceed 50 mil. by the end of the year, PCS parent McKesson said Oct. 19. PCS covered lives have more than doubled in the past year: the firm currently covers 42 mil. people, up from 20 mil. a year ago. "For the year, we expect PCS to manage about 200 mil. prescriptions totaling about $5 bil. at retail, and for enrollment to approach 50 mil. at year-end," McKesson said. PCS revenues jumped 56% for the quarter ended Sept. 30 to $39.5 mil. For the first half of McKesson's fiscal year, PCS revenues were ahead 49% to $77.2 mil. PCS manages drug benefits for "20% or more of the insured population in 82 of the 100 largest U.S. health care markets," McKesson added. PCS "has recently signed 12 contracts for new and expanded services with large health plan sponsors totaling about 3.2 mil. people." Noting that PCS is managing the distribution of Berlex/Chiron's Betaseron, McKesson said it "has in place the technology, distribution capabilities and provider networks to deliver end-to-end management of the channel -- from the manufacturer, through the physician to the patient." UPS is handling the actual 48-hour delivery of drug to pharmacies. McKesson has been highlighting its PCS business in recent presentations to the financial community, reflecting both the heightened interest in pharmacy benefit management firms in light of the Merck/Medco merger proposal and the increasing contribution of PCS to McKesson's bottom line. McKesson's health care segment operating income was $111.3 mil. for the six months a 7% increase "due in large measure to the rapid expansion of PCS's managed prescription benefit programs offsetting pressure on the earnings of McKesson Drug Co." Wholesaling revenues were $2.37 bil. (up 8%) in the quarter and $4.65 bil. (up 7%) in the half. While McKesson Drug has been hurt "in the short run" by the increasing influence of managed care, McKesson maintained, "in the longer run the linkage established by PCS's information technology, pharmacy providers and McKesson Drug's distribution infrastructure will create significant opportunities to provide superior service offerings for the managed care marketplace." However, "during the current transition to managed care," McKesson Drug's operating margins have been squeezed. In response, the wholesaler has reduced its work-force by 5% and is concentrating on its house-brand generic drug line and its Valu-Rite voluntary pharmacy chain ("The Pink Sheet" Aug. 16, p. 13). The latest sign of a ripple effect from the changes in the pharmaceutical market on wholesalers is the announcement by Rhone- Poulenc Rorer Oct. 21 that it is eliminating its traditional end- of-the-year trade incentives "except on those few products where it makes good business sense." RPR said, "it is hard to estimate how the trade will react to this, but it could have a one-time impact of 1% to 2% on full year 1993 annual sales."
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