AmerisourceBergen 2005 Annual Report Download - page 5

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$7 billion in revenue. Approximately two-thirds of our specialty
business is in oncology distribution and services. With more
new oncology drugs in the pipeline than any other disease
state, the oncology market’s growth is expected to continue
to exceed overall market growth.
In October 2005, we ventured
outside the U.S. market for the first time,
entering the Canadian drug distribution
market with the acquisition of Trent Drugs
(Wholesale) Ltd., which is changing its
name to AmerisourceBergen Canada.
The US $13 billion Canadian market
provides growth opportunities and our
entry into Canada, with its large number
of independent community retail
pharmacies, has been well received.
In AmerisourceBergen Drug Corporation (ABDC),
the Optimiz® program, through which we expect to create the
lowest-cost pharmaceutical distribution network in the industry,
continues on schedule and on budget. In fiscal 2005, we
consolidated six distribution centers and opened two new 300,000
sq. ft. facilities. In October 2005, we opened an additional new
distribution center in Kansas City, MO and expect to complete
the sixth and final one in Bethlehem, PA in late spring of 2006.
Installation of our new warehouse management system is already
driving productivity improvements ahead of our expectations.
Our packaging business, AmerisourceBergen Packaging
Group (ABPG), continued to grow both revenues and earnings.
Today ABPG provides packaging services for 14 of the 15 largest
pharmaceutical manufacturers. We expect large manufacturers
to increase their outsourcing of packaging services, and ABPG
is in an excellent position to benefit.
Our PharMerica long-term care business faces difficult
market conditions. In fiscal 2005, margins were negatively
impacted by aggressive market pricing and Medicaid
reimbursement cuts. The business responded by lowering costs
and introducing new technology to improve efficiencies and
differentiate itself. While we believe PharMerica can improve
Pharmaceutical distributors historically relied upon
the buy-and-hold model of managing inventory and generating
gross profit. Typically, a distributor bought extra inventory
ahead of an expected manufacturer price increase and then
sold the inventory at the higher price. In the last year,
we have nearly completed our transition away from the
buy-and-hold model to a fee-for-service model where we are
compensated more directly by branded drug manufacturers
for the distribution services we provide and are relying less
on manufacturer price increases to drive gross profit. In fiscal
2006, we expect that 75 percent or more of our branded
pharmaceutical manufacturer gross margin will not be contingent
on manufacturer price increases.
We have already benefitted from the fee-for-service
transition by dramatically reducing the amount of inventory
we need to carry. The model transition has positively impacted
our balance sheet as inventories have dropped from nearly
$7 billion during fiscal 2003 to about $4 billion at the close of
fiscal 2005, helping deliver cash from operations of $2.4 billion
in the past two fiscal years. Today, we are net debt free with
over $1.3 billion in cash, and debt of about $950 million.
Over the last two years we have invested nearly
$400 million in improving our distribution network, repaid
over $650 million in debt, repurchased about $930 million
worth of our stock, made modest acquisitions totaling about
$70 million and paid out $22 million in dividends. During fiscal
year 2005, we refinanced all our remaining debt, achieving
lower interest rates, extended maturities, and better terms.
In December 2005, we doubled our dividend and split the stock
two for one. Both Standard & Poor’s and Fitch Ratings now
rate the Company’s debt as “investment grade.” We continue
to look at potential acquisitions in the pharmaceutical supply
channel and, while we focus on opportunities in the $100
to $200 million range, our financial flexibility enables us to
consider larger prospects if opportunities arise.
Our AmerisourceBergen Specialty Group (ABSG) continues
to be a strength. ABSG once again outperformed the overall
pharmaceutical market in fiscal 2005, growing to more than
’01*’02 ’03 ’04 ’05
Operating Revenue
(in Millions)
FY Ended September 30
*AmeriSource merged with
Bergen Brunswig in August 2001.
$15,769
$40,163
$45,463
$48,812
$50,013
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