AmerisourceBergen Keeps a Focus on Independent Pharmacy

Publication
Article
Pharmaceutical CommercePharmaceutical Commerce - May 2009

Coming off a record-setting year, ABC stresses growth in generics, and services revolving around specialty pharmaceuticals

While each of the Big Three wholesalers make a bid for independent pharmacy business, AmerisourceBergen is still generally regarded as the company most closely aligned with that channel. About half of its retail pharmacy customers belong to its Good Neighbor Pharmacy program (some 3,600 store locations) and 450 of those are eligible to be part of a GNP Premier level that features expanded business-coaching services to the independents.

And while both McKesson and Cardinal Health are significantly larger in annual revenues, ABC is turning in superior financial performance, with 2008 being up 7% over the year before (roughly double that of its competitors) on revenue of $70.2 billion for FY2008. Since the financial crisis hit last year, sales growth for the corporation as a whole has flattened, but in its latest financial-analysts presentation, the company was sticking to continued earnings growth for this year, so much so that it has gone through with its two-for-one stock split.

This summer, ABC begins a series of regional conventions with its independent pharmacy customers (breaking away from the one national retail meeting of past years). R. David Yost, president and CEO, gathered his senior retail executives for a press briefing in early June to discuss their upcoming programs for pharmacy.

Specialties, generics and cost-cutting

ABC’s strategy for the coming months rests on three legs: broader deployment of generics, especially through the PRxO Generics program for pharmacies; growth in its specialty-pharmaceutical services business; and continued cost control.

He’s been called “Scrimp & Save Dave” (by Business Week) in recognition of his penny-pinching ways, but Yost is undeterred in maintaining tight cost controls over company operations—and not just to ride out the current downturn in the US economy. In the company’s latest 10Q statement, Yost noted that “We ran ABC in total with fewer dollars than we did in the same quarter last year excluding special items,” while overall revenues hardly moved from Q2 2008 to Q2 2009. The company increased its operating margin by 11 basis points over the period.

To enhance generics sales, ABC has a program called PRxO Generics, which promises to deliver fast-moving generics to pharmacies at good prices, in return for preferential ordering from the company. Traditionally, generics sell at a better margin than branded pharmaceuticals, so any volume growth in generics benefits both ABC and its pharmacy customers.

ABC also touts its Good Neighbor Pharmacy program, to which some 3,600 pharmacies belong. The company brings business-coaching services, front-of-store product management and national branding to the members. An even larger grouping, the GNP Provider Network, links up GNPs with third-party payers (managed care plans). Over 5,000 pharmacies belong to this network, according to Dave Neu, SVP, retail sales & marketing.

“I’ve been in this business for over 35 years, and the death of the independent pharmacy has been predicted to be just around the corner the whole time,” says Yost. “We’re deeply committed to independent pharmacy.”

AmerisourceBergen Specialty Group (ABSG) unites specialty distribution, consulting services to biopharma manufacturers, and tailored services for distributing oncology products, plasma and other specialty pharmaceuticals. The division—now passing $15 billion in annual revenues—is outperforming the bigger nonspecialty distribution business. ABC has been tucking in numerous acquisitions in recent years into this group, the most recent being Xcenda, which provides reimbursement strategy and consulting.

IT infrastructure

Yost has been guiding ABC through a corporate program, Business Transformation, for the past couple years. Its main component is the implementation of an SAP enterprise-resource planning (ERP) system; according to company execs, the initial specing out has been completed, and the company will be going live with some parts of the system this year.

This technology will power the detailed business analysis of retail stores, as well as manage overall financial management. Yost says that the project has been costed out at $100 million; together with other IT investments, IT has exceeded capital expenditures for hard assets like new warehouses for several years. “This implementation will modernize our ability to provide real-time information to our customers and suppliers,” says Yost. “As much as we’re in the business of delivering products, we are also in the business of delivering information.”

A big part of that information-delivery process is managing the fee-for-service agreements with manufacturers, under which ABC reports inventory levels and other data back to them, while earning fees for its distribution activities. As these agreements come up for renewal, says Tony Pera, SVP for supply chain management. “I think there’s a growing appreciation of the value that we provide. The yo-yoing of inventories has diminished, and manufacturers have a better picture of what’s going on in the marketplace.”

Dave Neu says that for retail pharmacies, those independents that have signed up for GNP Premier, a more comprehensives set of business coaching services, a “week-at-a-glance” report is now being generated that not only gives a picture of the past week’s activities, but benchmarks those data against past performance and against industry peer data. “The store manager can see at a glance where their stock levels are, what products are moving fastest, and even which customers bring the most revenue to the store. It’s a tool that enables the independents to compete at the same level of technology as the retail chains.” About 450 GNP stores have entered the program, which was kicked off at last year’s retail conference. PC

Recent Videos
© 2024 MJH Life Sciences

All rights reserved.