Novation Awards Radiopharmaceutical Contract to Nycomed/Amersham

Business Wire, Dec 24, 1998

WOODLAND HILLS, Calif.--(BW HealthWire)--Dec. 24, 1998--Syncor International Corp. (Nasdaq:SCOR) Thursday announced that Novation, a recently created group purchasing organization (GPO), which represents both VHA Inc. (VHA) and University Health Consortium (UHC), has awarded a radiopharmaceutical contract to Nycomed/Amersham.

Syncor currently has a GPO agreement with VHA and has individual relationships, both contractual and non-contractual, with individual VHA and UHC members and estimates annual revenues associated with all of these relationships to be $112 million. Syncor's management expects to retain the vast majority of the revenues and an even higher percentage of the margins from this business for both contractual and market reasons as described below.

Out of Syncor's $112 million in recent sales to VHA and UHC members, $42 million of the total sales are outside of the existing VHA GPO agreement and are not expected to be impacted by the Novation decision. Of the approximately $70 million in purchase under the GPO agreement, Syncor management believes that less than $15 million of this amount may be at risk for the following reasons:

First, Syncor has long-term contracts with many of the individual hospitals associated with VHA and UHC. These contracts license the company's proprietary departmental management software system and require a long-term volume agreement separate from the company's current agreement. These contracts approximate $27 million of the annual VHA/UHC revenue stream.

Second, Syncor is the only true nationwide distributor of radiopharmaceuticals. Syncor's management believes this new supplier to the GPO will be unable to effectively service this group without substantially expanding their current service network. Their ability to effectively expand and control the network may or may not be possible.

Syncor believes that more than 25 percent of the $70 million committed base will be outside of Nycomed/Amersham's service network and will not be affected.

Third, Syncor has the exclusive distribution rights to Cardiolite(R), which represents approximately 40 percent of the current sales to Syncor customers of VHA and UHC. Cardiolite(R) is the most widely accepted and broadly indicated FDA-approved cardiac-imaging agent currently available.

Fourth, Syncor's experience with a similar GPO award in 1996 demonstrated that when Syncor lost the contract to another service provider, Syncor was able to retain approximately 80 percent of the revenue, without benefit of the GPO contract.

To summarize, of the $70 million potentially impacted by Novation's decision, considering Syncor's distribution advantages, Syncor's exclusive on Cardiolite, Syncor's individual contractual relationships with VHA and UHC members, and Syncor's past experiences servicing GPO customers, the estimated impact of the Novation decision is less than $10-15 million in annual revenue.

In addition to retaining revenues, Syncor's profitability may improve by saving more than $2 million annually from not paying administrative fees to the GPO.

Brad Nutter, Syncor's executive vice president and chief operating officer, said: "The fact that many customers have remained loyal to Syncor, despite changes in contractual relationships, demonstrates the value our customers place in our commitment to the highest service standards in the radiopharmacy industry. I am confident that our customers will continue to reward Syncor for the innovation we provide, the quality products we dispense, and the high level of service we deliver."

This news release contains forward-looking statements, including, but not limited to those regarding an expected impact on Syncor's financial results. While these statements reflect Syncor's best current judgment, they are subject to risks and uncertainties that could cause actual results to vary. In addition to factors noted, other risk factors are listed from time to time in the company's reports filed with the SEC, including but not limited to Management's Discussion and Analysis in Syncor's 1997 Annual Report incorporated by reference in Syncor's Form 10-K for the year ended Dec. 31, 1997.

Syncor International is the leading provider of radiopharmaceuticals, comprehensive value-added specialized pharmacy services and medical imaging services.

In its core specialized pharmacy services business, Syncor compounds and dispenses radiopharmaceuticals -- in patient specific unit dose and multi dose form -- for diagnostic and therapeutic use by nuclear medicine departments in hospitals and out-patient clinics.

Syncor distributes these time-critical pharmaceuticals through an integrated network of 120 domestic strategically located nuclear pharmacies. This network also provides information management services and currently serves more than 7,000 customers. Internationally, Syncor operates 13 radiopharmacies and three hospital nuclear medicine departments. The company is actively pursuing international growth opportunities in nuclear medicine and medical imaging.