Bergen Brunswig Shipping 25,000 Direct-To-Consumer Orders Per Week

Bergen Brunswig's new Internet fulfillment center is shipping 25,000 direct-to-consumer orders per week for its online pharmacy partners.

During the first quarter, Bergen consolidated its Louisville, Ky. drug distribution business into existing distribution centers in Nashville, Tenn. and South Bend, Ind. The 130,000 sq. ft. Louisville facility "will be solely utilized for Internet fulfillment," Bergen said in its second quarter earnings announcement.

The company is working with "six major Internet retailers," including healthcentral.com and more.com, which also powers Bergen's myGNP.com for the wholesaler's network of independent pharmacies.

Bergen Brunswig Drug Company President Brent Martini commented that "while a lot of the market's focus has moved away from [direct-to-consumer websites] and on to [business-to-business websites], our investment in direct-to-consumer fulfillment has been positive." About 200 pharmacies use the MyGNP.com site for e-commerce, and an additional 600 are using myGNP.com web page development.

Bergen expects myGNP.com to be "a big opportunity" to access the dollars manufacturers spend on direct-to-consumer marketing on the Internet, Martini said.

"A good new example is the disease state information channels that are now on myGNP.com," the exec claimed. "These channels focus on reaching consumers for the manufacturers based on management of allergies, arthritis, smoking cessation [and] pain management."

The disease management information was introduced on myGNP.com "within the last several months, and already we've accumulated almost $1 mil. in contribution to Bergen," Martini said.

Bergen also plans to expand its pharmabid.com pharmaceutical auction site to offer more services for manufacturers. Pharmabid.com has $100,000 a month in transaction volume, with about 500-600 unique visits per day.

Pharmabid.com is "under development to be a manufacturer-centric service organization," Martini said. "We have had over 10 key brand manufacturers...indicate their interest."

Services will include "facilitating personal and targeted contracts, product data mining, customer compliance information, real-time market share for sales representatives, rebate and charge back reconciliation, and sales and territory management data."

Bergen is developing a separate "ebergenbrunswig.com" initiative "to transition our proprietary drug company customer systems to an Internet-based system," Martini added. The effort involves "migrating the features and benefits our customers already enjoy but also adding to that other capabilities and features that we know are not available from other wholesalers and dot coms at this point."

The website will offer "a non-pharma catalog and ordering process for all products and all vendors, customized customer formularies and catalogs, guaranteed product reservation and allocation, real time inventory management, dynamic on hand information, online market share reporting and invoice pricing," Martini explained. Bergen is "in the process of web enabling" the features.

Some of the online features Martini highlighted are similar to those being developed by the New Health Exchange joint venture between five distributors, including Bergen competitors AmeriSource, Cardinal and McKessonHBOC, to develop a single online market for multiple vendors (¹ ). Bergen is not part of the joint venture.

Bergen expects to launch a central prescription fill program in the second half of fiscal 2000 (April 1 - Sept. 30) to deliver individual prescriptions to drug stores ready for dispensing. During the National Association of Chain Drug Stores 1999 annual meeting, the association highlighted central prescription filling as a way to free time for pharmacists to counsel patients (² (Also see "Chain Drug Stores Testing Centralized Prescription Dispensing Facilities" - Pink Sheet, 10 May, 1999.)).

"Multiple chains have indicated their interest in this model," Martini said. The company has had the central fill process validated by the San Francisco-based supply chain management firm Non-Stop Logistics and by Deloitte & Touche. "We expect our first signed agreement to be completed within the next quarter."

Bergen's second quarter revenues excluding bulk shipments to customers' warehouses totaled $4.89 bil., an increase of 14% from the $4.3 bil. in sales in the year-ago quarter. Net income was down to $17.3 mil. from $38.4 mil. a year ago.

Earnings were down "due to lower than expected results at Stadtlander, long-term care industry trends that have impacted PharMerica, lower drug company gross margins occasioned by competitive pressures, and lower than previously experienced buy-side benefits," the company said. Bergen previously indicated that it would have to curtail forward buying in the second quarter due to limited funds (³ (Also see "Bergen Curtails Forward Buying Until April; Stadtlander To Restructure" - Pink Sheet, 31 Jan, 2000.)).

Bergen said its second quarter gross profit margin was 7.7% because of the acquisition of the higher-margin PharMerica business. Excluding PharMerica, gross margin dropped 57 basis points from a year ago, from 5.9% to 5.3%.

The financial difficulties in the long-term care industry served by PharMerica have resulted in that division accumulating over $200 mil. in receivables. Stadtlander has an additional $100 mil. in receivables.

The loss of Bergen's agreement with the hospital buying group Novation could hurt future revenues, Martini acknowledged. However, the company believes "we'll comfortably retain a minimum of 25% of our Novation business," he said. Novation represents slightly less than 10% of Bergen's distribution sales, Martini added, but "is a lesser contributor to the earnings based on the aggressive pricing of the business."

Novation announced April 24 that it had signed new pharmaceutical distribution agreements with AmeriSource, Cardinal, McKesson, F. Dohmen and Morris & Dickson following a public competitive bid process that generated 17 responses. Novation told Bergen that the five wholesalers it chose "were lower priced than Bergen and that was the primary consideration given in the RFP results," Martini said.

"We've met with the Novation management team and they've indicated that they will...recognize existing formal contracts and agreements that we have with Novation members, independent of the Novation agreement," Martini said.