ALCO RESTYLES: IT'S AMERISOURCE NOW

JANICE ZOELLER

MALVERN, Pa. -- Alco Health Services Corp. here, the nation's fifth-largest drug wholesaler, is changing its name to AmeriSource Corp., effective July 15.

"Our new name declares our strategic intent to be the premier national pharmaceutical wholesaler and major source of products and programs for America's pharmacies," said John F. McNamara, chairman and chief executive officer.

McNamara said the elements of AmeriSource's growth strategy are to "continue to focus on operating efficiencies, emphasize high-growth, high-margin services to customers, build value-added service and product offerings, and expand to new geographical areas."

McNamara said AmeriSource, which is strong in the East and Midwest, will have a national presence by "sometime in 1995." The drug wholesaler, which first expanded into Texas in October with the opening of a distribution center in Dallas, is now looking to move westward and also into New England.

McNamara left open the possibility that AmeriSource may make acquisitions in its quest to become a national drug wholesaler. However, he added that it's also possible that the company will have a sufficient customer base to expand without making an acquisition, the strategy it followed in Texas. "Our customers in purchasing groups may take us in there," he said.

AmeriSource has 16,000 customers in 34 states, and stocks 80,000 items, said McNamara. Sales to hospitals made up the largest share of Alco's 1993 revenues of $4 billion, accounting for 44% of sales. The next largest segment is independent pharmacies at 35%, followed by chains with 21%.

Although still a small percentage of sales and grouped under chain sales, pharmacies in supermarkets are "one of the fastest growing segments we have in our overall business," McNamara said. Among AmeriSource's customers are Pathmark, Woodbridge, N.J., and Meijer Inc., Grand Rapids, Mich.

AmeriSource is also the largest supplier of prescription drugs to the U.S. government, said McNamara.

Since 1988, when Alco management took the company private in a leveraged buyout, sales have nearly doubled, from $2.1 billion. At that time, independents accounted for 49% of sales, hospital business was 31% and chains were 20%.

Part of AmeriSource's strategy in cultivating business with hospitals and independent pharmacies has been to avoid overreliance on any one customer. Indeed, no single customer accounts for more than 5% of the drug wholesaler's business.

Still, McNamara indicated that AmeriSource is looking to increase its chain business. He noted that more chains are making drug purchases through wholesalers, and he said he expects the trend to continue. As evidence of the trend, McNamara said Procter & Gamble is raising its minimum order. "Chain stores will not be able to afford drop-shipment," he said.

At the same time, AmeriSource is forging closer

ties with pharmaceutical manufacturers. Merck & Co., Rahway, N.J., and Wyeth-Ayerst, Philadelphia, are among those drug manufacturers that are funneling more of their business through AmeriSource, and reducing the number of customers to whom they sell direct, he said.

Although manufacturers currently pay nothing to have their drugs shipped through AmeriSource, the drug wholesaler is considering offering additional services for which it would charge manufacturers, said Kurt Hilzinger, AmeriSource's vice president of finance and treasurer. Such services could include information about market share and distribution of product literature and samples.

For drug wholesalers operating in a traditionally low-margin business, McNamara predicted that margins will go lower. To offset the reduced margins, the company will try to reduce operating expenses. "Operating expenses as a percentage of revenues will go to 3% soon, and may have to go to 2%," he said.

When asked if AmeriSource might enter the drug benefits-management business, as did McKesson Drug Co., San Francisco, when it bought PCS Inc., McNamara said AmeriSource has been in the managed-care business since '82 when it formed its Family Pharmacy program for independent pharmacies.

The program is marketed as a pharmacy provider-network to third-party plans. The impetus, said McNamara, was "to make sure that our customer base is not eliminated from any third-party network."

Even as business has grown since the buyout, the wholesaler has reduced its number of distribution facilities from 33 to 14. McNamara noted AmeriSource's headquarters employs only 35 people, with much responsibility and authority delegated to field offices.

Other reasons cited by AmeriSource for the name change were the limited use of the Alco name since the leveraged buyout, and confusion with Alco Standard, Valley Forge, Pa., the former parent company, and with Alcoa, the aluminum manufacturer.