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FOXMEYER SHIFTING PRODUCT MIX TO EMPHASIZE OTCs AND H&BAs

This article was originally published in The Tan Sheet

Executive Summary

FOXMEYER SHIFTING PRODUCT MIX TO EMPHASIZE OTCs AND H&BAs in order to "counteract the decline in margins on prescription drugs," the Dallas-based wholesaler said in a July 14 statement. Over-the-counter drugs and H&BAs currently comprise approximately 11% of FoxMeyer's sales volume, according to the company, or approximately $ 500 mil. based on the wholesaler's fiscal 1993 sales of $ 4.5 bil. The company is citing the costs related to its redirected product mix, as well to its development of new computer information systems, non-traditional drug wholesale programs and the opening of a new distribution facility in Richmond, Va., for an anticipated decline in FY 1994 first quarter earnings. FoxMeyer is predicting that earnings for the three month period ended June 30 will come in at "just under one-half" of first quarter 1993 earnings of $ 6.4 mil. FoxMeyer is "focused intently on improving margins and return on investment," President and Chief Operating Officer Thomas Anderson stated. "These costs involve the critical programs that we expect to drive earnings growth this year and beyond." Sales for the first quarter of FY 1994 are expected to increase nearly 30% compared with the same period last year, however. Net earnings for the full fiscal year are also projected to grow from $ 0.86 per share (prior to an unusual charge) in FY 1993 to between $ 0.90 and $ 1.05. In FY 1993, FoxMeyer recorded an unusual charge of $ 42.8 mil. related to the bankruptcy of Phar-Mor, its largest customer, reducing its earnings per share to $ 0.01. FoxMeyer predicted that fiscal 1994 sales would increase 15-20% over last year's sales of $ 4.5 bil. "We expect this year's results as a whole will be stronger than those for fiscal 1993, excluding the Phar-Mor write off," Anderson said. "The early quarters won't compare favorably with last year due to expenditures on programs that we believe will be critical to strengthening future earnings," he noted. But "by the fourth quarter, we expect results to be strengthened significantly." FoxMeyer's OTC and H&BA strategy will obviously focus on its chain drug store accounts, which represented 34% of the wholesaler's FY 1993 sales, and its business with independent drug stores, which accounted for about 35% of sales in the last fiscal year. FoxMeyer said it also is "upgrading its group-buying programs and launching marketing campaigns that promote higher margin sales of generic pharmaceutical, private label and over- the-counter [drug] product lines." On June 18-20, FoxMeyer sponsored its annual trade show for independent pharmacists in Dallas that pulled in 3,100 attendees. More than 500 exhibitors sponsored booths at the show, including a number of consumer product and H&BA marketers. The show also featured promotion of FoxMeyer's HealthMart program for independent pharmacies, which currently has more than 800 outlets. Anderson also noted that "intense competition is causing some combined retail/distributor companies to leave the distribution business." He noted that recently "several large drug store chains shut down their distribution systems and [turned] that function over to FoxMeyer." He pointed out that FoxMeyer has taken on exclusive distribution for May's Drug and Snyder's Drug and has signed multi-year supply agreements with Medicine Shoppe, Perry Drug, and Omnicare in the past year. Like other pharmaceutical wholesalers, FoxMeyer has been adversely affected by the increasing price competition in the prescription drug business and a political environment that has made it tough for drug manufacturers to raise prices. FoxMeyer also has been hurt by the bankruptcy of Phar-Mor. FoxMeyer's strategic shift comes in the midst of a management shake-up at the wholesaler. In May, then-President and CEO Robert King announced his resignation to "pursue other business opportunities." Anderson, who held the title of executive VP, was promoted to president. Co-chairman Abbey Butler and Melvyn Estrin assumed the additional titles of co-CEO. Recently, Chief Financial Officer Dennis Letham announced he was leaving the company to take a position with an unnamed firm.
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