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McKesson, Celesio deal brings the number of generic titans to three

BY Michael Johnsen

If you don’t succeed the first time, try, try again. That’s exactly what McKesson did when it announced that it reached an agreement with Franz Haniel & Cie. GmbH to acquire its entire holding of Celesio shares. And in a separate and subsequent agreement, McKesson also picked up the Celesio convertible bonds from Elliott.

Nothing good is ever easy. "While the path to securing this acquisition was certainly not what we had originally expected, it would seem that the interested parties to this transaction continued to see the compelling strategic benefit of McKesson and Celesio uniting to form a global leader in health care services," John Hammergren, McKesson chairman, CEO and president, said of the deal. "I never lost sight of the value this transaction will bring to our customers, our supply chain partners, the employees of both organizations and our shareholders."

The deal catapults McKesson’s generic sourcing ability to the levels recently achieved by the CVS Caremark and Cardinal Health joint venture, and before that the Walgreens/Alliance Boots/AmerisourceBergen strategic partnerships.

Buying big in generics continues to be a big deal as these three juggernauts now have similar purchasing prowess. The McKesson-Celesio deal is expected to generate a combined generic purchasing power of between $9.5 billion and $11.5 billion, according to an analysis by FBR Capital Markets. A similar analysis of the respective purchasing power of CVS Caremark and Cardinal Health means their deal will create a combined purchasing power of between $9.5 billion and $11.5 billion. According to FBR, the Walgreens-Amerisource-Bergen-ABC Consortium has about $12 billion in combined generic purchasing power. 

But buying big won’t necessarily benefit everyone. According to a recent DSN analysis of the three deals (you can check it out in the February issue of DSN), margin compression might be one consequence of three generic sourcing powerhouses. "The better these wholesalers are able to buy, the more they will drive the average manufacturer price down. This makes it harder for independent pharmacy members to compete with the Big Three, and could have perverse market effects."

 

 

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Study: Holiday gift card sales increase

BY Dan Berthiaume

PORTLAND, Ore. — Fifty-seven percent of consumers purchased digital gift cards in December 2013, and 43% purchased physical cards. Data from prepaid product and transaction services company InComm also shows that 80% of consumers purchased digital cards in the six days leading up to Christmas, and 20% of consumers purchased physical cards in the six days leading up to Christmas.

Sales of physical cards peaked on Dec. 17, with sales decreasing every day after that, while sales of digital cards began a marked upward trend beginning on Dec. 17, with sales increasing after that and peaking on Dec. 24.

In addition, Shopkick leverages the InComm Digital Solutions platform to instantly connect Shopkick users with their digital gift card of choice to be scanned at the retailer’s point of sale. During Black Friday alone, Shopkick employed the InComm platform to deliver nearly seven times its usual daily volume of digital gift cards.

"We’re thrilled to be Shopkick’s partner and to have helped them successfully address such high demands on Black Friday," said Mike Fletcher, senior VP of sales and marketing for InComm Digital Solutions. "In a recent consumer survey conducted by InComm, nearly 70% of consumers stated they are more interested in purchasing digital gift cards now than they were two to three years ago. Further, our own internal holiday data reveals the increased sales opportunities created by offering digital in addition to physical cards. These numbers demonstrate how brands benefit when they open up gift card sales through all channels."

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McKesson Q3 revenues up 10% to $34.3 billion

BY Michael Johnsen

SAN FRANCISCO — Days following the acquisition of a majority stake in Celesio, McKesson Corp. on Thursday reported that revenues for the third quarter ended Dec. 31 totaled $34.3 billion, up 10% compared with a year ago.  

Third-quarter adjusted earnings per diluted share from continuing operations was $1.45 compared to $1.44 a year ago.  

“We are extremely pleased by the third-quarter performance of our Distribution Solutions segment where adjusted operating profit grew by 37% and our full-year view of the performance in Distribution Solutions is better than our previous expectations,” John Hammergren, chairman and CEO, said. “This operating strength is offset by an increase in our tax reserves due to a dispute with the Canadian tax authorities and a charge in our Technology Solutions segment as we continue to align our Horizon Clinicals software platform development efforts and size the organization appropriately given regulatory delays. As a result, we are updating our previous outlook and now expect Adjusted Earnings per diluted share of $8.05 to $8.20 for the fiscal year ending March 31, 2014.”

Distribution Solutions revenues were up 10% in the third quarter, driven mainly by strong growth in U.S. pharmaceutical direct distribution and services revenues due to market growth and the wholesaler’s mix of business. This area represents a significant growth driver for the wholesaler following its deals to acquire a majority stake in Celesio. "The combination of McKesson and Celesio is expected to have revenues in excess of $150 billion, approximately 81,000 employees worldwide and operations in more than 20 countries," Hammergren told analysts Thursday evening. "We will deliver to approximately 120,000 pharmacy and hospital locations on a daily basis in the U.S., Canada, Europe and Brazil, including more than 11,000 pharmacies that are either owned or part of a strategic banner or franchise network of community pharmacies."

Canadian revenues, on a constant currency basis, increased 12% for the third quarter primarily due to market growth and new customer wins. Including an unfavorable currency impact of 6%, Canadian revenues increased 6% for the third quarter. 

Medical-Surgical distribution and services revenues were up 67% for the third quarter driven primarily by the acquisition of PSS World Medical and market growth. 

Technology Solutions revenues were up 6% in the third quarter compared to the prior year driven primarily by acquisitions completed in the prior year.

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