AmeriSource continues to carry out McNamara's vision

Drug Store News, Nov 17, 1997

MALVERN, Pa. -- This past year was a period of gains and one major loss for AmeriSource Health, the nation's No. 4 drug wholesaler with annualized revenues of more than $7 billion.

Major gains included the March acquisition of Walker Drug, with annualized revenues of $800 million from a customer base that includes 1,500 pharmacies. Calling it AmeriSource's largest takeover ever, Robert E. McHugh, vice president of industry affairs and investor relations for McKesson, said, "We retained all Walker customers. It's a perfect match because they're 80 percent retail and 20 percent hospital, while we were more entrenched in hospitals in the Southeast. This balances the business quite nicely."

AmeriSource

The 1997 Drug Store News REX Wholesaler of the Year also innovated a pharmacy outsource program with Pathmark, which McHugh thinks "will be a model for things to come in the future." AmeriSource entered into an exclusive three-year outsourcing pact with the 130-store combo retailer in which it assumed the responsibility of vendor-managed inventory and direct daily replenishment of all the chain's pharmacies. "We took Pathmark out of the warehouse business. Why should they sit on pharmaceuticals in their warehouse, distribute weekly or biweekly to their stores and, in the process, over-inventory stores on an asset basis?" asked McHugh. "We deliver every day and reduce their inventory expenses. As an LBO, Pathmark has a lot of debt costs. This helps them to manage costs down and apply their cash to marketing, opening new stores and doing what they do best."

With all divisions showing revenue gains in excess of 25 percent, AmeriSource developed a state-of-the-art 180,000-square-foot distribution center in Thorofare, N.J.--it replaced a facility one-third the size. The new high-cube storage warehouse uses the wholesaler's first A-frame machine to speed order processing, increase accuracy and reduce expenses. It is one of the rare industry warehouses that generates $1 billion in annual revenues.

AmeriSource has also expanded warehouses in Dallas and Toledo, Ohio, and will open a 60,000-square-foot distribution center in Los Angeles during the first quarter of 1998.

The major loss felt by the wholesaler was the May retirement of president and chief executive officer John McNamara. McHugh recounts that McNamara had joined the company in 1981, led the management buyout in 1988, rebuilt the wholesaler from the bottom up between 1988 and 1994 and took it public again in 1995. "Give credit where it's due. He was the visionary and strategic leader who saw the AmeriSource of today," and McHugh.

McNamara, who remains a board member, was succeeded in the president and chief executive officer post by R. David Yost, a 23-year company veteran. "He is carrying on our company's tradition of controlled decentralization and bottoms-up management," observed McHugh.

Since acquiring The Diabetes Shoppe disease-state management program, the roster of pharmacies using it has grown to more than 500. In addition, the wholesaler's Family Pharmacy network has grown to exceed 2,200 stores.

Besides winning the REX award, AmeriSource was also named supplier of the year by both Revco and Rite Aid in 1997.

For now, AmeriSource continues with business as usual. The company will face a lot of integration, however, if the Federal Trade Commission approves its merger with McKesson Corp. Should the deal go through, the merged organization's sales will exceed $26 billion, equal to a 28 percent share of the nation's drug distribution market.