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October 27, 2013 1:59 pm
The US company, which revealed a deal last week to acquire the controlling Haniel family’s majority stake for €23 a share in Celesio and is tendering to buy the remaining shares, will seek economies of scale and use of its data management expertise to help boost margins.
John Hammergren, head of McKesson, said that some savings would come through procurement and global sourcing of products, but also through enhanced efforts to use information on medicine supplies to help retailers, healthcare systems and manufacturers.
“We move both drugs and information,” he said, adding that clients were very interested in “where and how drugs are used . . . proper reimbursement and the opportunity to improve adherence.”
His comments came despite the fragmentation of Europe’s market for medicines, and tight regulatory controls and competition that have been squeezing profits in recent years.
Unlike the US, most countries including France and Germany tightly control the ownership of pharmacy outlets to limit chains, and each government regulates drug pricing closely. Pharmaceuticals companies have also imposed tougher terms with distributors in an effort to control arbitrage between different prices across the EU.
Marion Helmes, chief financial officer at Celesio, said last week that “we do see some heavy competition in Germany” during a “fierce rebate war”, while arguing there was growth in many other European countries.
Scott Bardo, an analyst with Berenberg, argues that such conditions could drive further consolidation in Europe, as US distributors seek to diversify abroad and European ones come under growing regulatory and commercial pressure.
“There have been a lot of challenges in pharmaceutical distribution in European over the last five years, and I fail to see how they are going to abate,” he says. “One can’t but help see it as a good defensive move to be part of a larger global organisation.”
Ahead of the Celesio transaction, Alliance Boots forged a partnership with Walgreens in the US and has more recently linked up with AmerisourceBergen . Phoenix of Germany is the other large European medicines distributor yet to cut a transatlantic deal. Other smaller distributors have been bought up in recent years.
Girp, the European trade body for wholesalers providing the full range of medicines to pharmacies, has warned that current profit margins are below 1 per cent and falling. “There is a clear danger that with rapidly lowering profitability levels the distribution chain will be pushed beyond its natural breaking point,” it says.
A study for the European Commission concluded that average margins for drug distributors were 1.5-3.5 per cent across the EU, with pressure coming from the rise in internet supplies and government initiatives to bring down the cost of medicines.
While there has been strong pricing pressure among off-patent, generic drugs, their high and growing volumes across Europe also provide a source of significant business to distributors.
Mr Hammergren argued there was also considerable scope to exploit Celesio’s pharmacy chains – such as Lloyds in the UK – to provide more healthcare services to patients such as vaccination and diagnostic blood tests.
Leerink rated McKesson “outperform” in a research note, calling the multiple bid of 10.5 times Celesio’s 2012 earnings before interest, tax, depreciation and amortisation “reasonable”.
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