AmerisourceBergen is the largest company by revenue with headquarters in Pennsylvania.
Don’t worry, if you didn’t know. You’re not alone.
Valley Forge-based drug wholesaler AmerisourceBergen Corp. is unknown to most consumers, but is smack in the middle of the pharmaceutical supply chain, which is why it had $80.2 billion in revenue in its fiscal year ending Sept. 30 and is 29th on the Fortune 500 list.
AmerisourceBergen has 1,100 employees in three Philadelphia-area locations - Chesterbrook, Bethlehem and Thorofare, N.J. - and about 13,000 total. It packages, distributes and delivers drugs and over-the-counter products, provides logistical services, and reimbursement and consulting services. AmerisourceBergen’s national competitors — McKesson and Cardinal Health — are both larger by revenue. AmerisourceBergen coordinates Good Neighbor Pharmacy, an association of 3,700 independently owned drug stores.
Steven H. Collis moved up from chief operating officer last July to replace retiring chief executive officer David Yost. Collis answered questions from The Inquirer in May, shortly after the company completed its $520 million acquisition of World Courier Group, a specialty drug logistics firm which gives AmerisourceBergen a presence in more than 50 countries. The company is schedule to report quarterly earnings on July 26.
A shorter version of this edited Q&A appears in Sunday's Inquirer.
Question: For those unfamiliar with AmerisourceBergen, explain what the company does?
Answer: We are a behind-the-scenes company, so consumers will not be aware of us, nor should they if we are doing our job right. When I was buying a house, the people I was buying it from asked if I was sure I could afford the house. I said, “Yes, I’m the chief operating officer for AmerisourceBergen.” They said, “Well, who are they?” I said, “We are the largest revenue company in Pennsylvania.” They said, “No, you’re not.” In the financial community we’re well known but to the average consumer, we’re not. I met [Eagles owner] Jeffrey Lurie the other day and he had never heard of us.
I'll tell you what I told him. We ship about 25 percent of the top line drugs in the U.S. We ship to over 20,000 customers per day. Our customers are hospitals, retail pharmacies, physician offices, institutional pharmacies and they rely on us to get their products to them safely. Our strategy is to focus on providing more and more services up and down the channel on the pharmaceutical supply value chain.
Q: What do you think of the Affordable Care Act?
A: My personal view is that Americans have a lot more in common than they realize and there shouldn’t be such a rancorous debate. I grew up in South Africa where the question was, “Are we going to stick with apartheid? Are we going with a communist government?” These were really significant and fractious discussions, but sometimes it seems like the conversation was more civilized than whether you are a Democrat or Republican here. It is bizarre to me.
But we at AmerisourceBergen are in favor of greater [insurance] coverage. We think pharmaceutical care is very affordable, more affordable than it’s ever been, with 80 percent of the scripts being generic. We think that is an efficient form of health care. We’re in favor of greater patient access, so we support the Affordable Care Act.
Q: Most Americans, including businesses, generally say health care costs must decrease for the sake of the overall economy, but no one wants a smaller piece of the pie. How will that play out?
A: You mean, when food is scarce, do the table manners disappear? You have to look at the most valuable forms of care delivery and we think pharmaceuticals are one of them.
Q: What do you see as your biggest risk?
A: We've got a trend in the industry toward consolidation. At some point the government has to comp up with an austerity budget because Medicare and Medicaid are very significant payers for our customers. We worry a lot about what the reimbursements are going to be for our customers and that's what we talk a lot about in D.C You worry about the rural pharmacy in Kansas or the small pharmacy around the corner. How are they going to compete in this environment? We do a lot of politicking around those issues, such as pedigree.
Q: Explain pedigree and your view of the developing issue?
A: We buy [a drug] direct from the manufacturer and we get what is called a pedigree. People want to be able to track those products so if there is a recall, they can have access to those pedigrees. How do we store them? How do we recognize them? How do we communicate them back to authorities? What AmerisourceBergen and our trade association focuses on is having a single pedigree standard. We don't want one for each state. We were going down a road where at least a dozen states were having their own pedigree standards and data standards. We're a national business and our customers are national businesses.
Q: A pharmacy benefits manager and supplier of 19 percent of your revenue, Medco Health Systems was bought out by Express Scripts. What does it mean for your company?
A: It certainly is a new day. They definitely are a huge force. They will manage the prescriptions for four out of the 10 largest employers in the U.S. We think of this not only for the supply chain distribution opportunities, but we think about what it means for our customers. We’ve had multiple discussions, including what it means for community oncology and specialty drugs, of which we have a large practice. We think we bring a lot of benefits to Express Scripts in these areas and we hope they will choose AmerisourceBergen to be their long term partner.
Q: How does the Good Neighbor Pharmacy program work?
A: It is a soft franchise company. We try to get individual pharmacies to sign up for that, give them certain rights and responsibilities. We help them understand their patients. About a third of them use a software program, which helps them say why this patient is coming here, what other prescriptions they are getting. The biggest service we provide is the Good Neighbor Pharmacy provider network, which helps them with their insurance contracts. We give them the aggregation benefits of contracting, like a CVS or Walgreen or Rite Aid has. We do some advertising for them. Not as prolific as the other chains do, but if you go to our lobby, you can see the J.D. Powers recognition that we've gotten two years in a row. We won the highest service award level in the customer satisfaction. We try to help the smaller customers get the benefits our scale affords us. We're very focused on helping community pharmacies survive and prosper. We also have similar services in community oncology, where we have a very large practice as well."
Q: So AmerisourceBergen will negotiate with insurers on behalf of a Good Neighbor Pharmacy?
A: Exactly. Many pharmacies would have to negotiate with 40, 50, 60, or 70 payers - pick a number - so this helps give them connectivity. We give them data feeds so they can do all of the electronic adjudication. We also come across problems. If we come across a drug that they are buying for a price higher than they will be reimbursed at, we'll let the insurance companies know and we can see trends across the country. We work with all the insurance companies and I think we have a reputation as an honest broker."
Q: Local pharmacists dislike mail-order and to most people, Express Scripts is mail-order pharmacy. Aren't they in conflict and how do you manage both, the Good Neighbor Pharmacy and a hoped-for arrangement with Express Scripts?
A: Mail order is definitely part of the landscape. It's been growing, though the growth rate has slowed a bit because community pharmacies say they can do 90-day prescriptions. You've got a hybrid with CVS Caremark. There is definitely a role for both ways to service the prescription. You have to look at the type of prescription. If you've got a sore throat or your kid has strep throat, you're going to want to go to your local pharmacy. That is not the sort of prescription that lends itself to mail order. But if you're taking a cholesterol-lowering medication, that is a chronic prescription that lends itself to mail order. Mail order acknowledges they need retail. I don't know if retail acknowledges they need mail order, but it is a fair point. You've got consumer choice and preference. Many people like to go their pharmacies. Community pharmacies are particularly sticky with patients. Many times they've known their pharmacist for a generation or more. We think there is a role for both.
Our two big points with Express Scripts, the new very large company, is maintaining our supply chain agreement and relationship with them and winning that contract, but also representing any of our customers that have to do reimbursement interfaces and adjudications, getting their voices understood and getting fair reimbursement for the services they provide. At AmerisourceBergen, our 11,000 U.S.-based employees will be carrying Express Scripts cards, going to their pharmacy, and doing a swipe with the card and getting it adjudicated through Express Scripts, in large amounts. We used Medco in the past [as the company's employee health plan pharmacy benefits manager]. We're encouraging the networks to be open. Our employees can get a 90-day script at their community pharmacy or through mail order. We support all customers. We're in the $300 billion pharmaceutical industry in the U.S. and we try to keep our portfolio abreast of the market. Mail order is part of the market, so we want to service it. In specialty drugs, we have a disproportionate share and we want to keep that. In community pharmacies, we have a disproportionate share. We work with hospitals. We try to work with all segments, all the manufacturers who bring new drugs to market and going through the mature market cycles, but also with generic manufacturers."
Q: World Courier Group does not own its planes, but handles ground transportation and other logistics. Can you discuss the World Courier acquisition?
A: World Courier is helping manage trials and they are in 54 different countries, often with owned facilities. The concept is whether you are in Brussels or Singapore or Tel Aviv or Johannesburg or Sydney, we will give you the same experience throughout the World Courier network, wherever you want to do your trial. We'll track the product. We'll monitor the samples and bring the samples back to the laboratory you select and get the results back to you your headquarters. CROs [Contract research organizations] would be the customers, as would pharmaceutical companies or packaging companies that are managing the clinical trial.
World Courier is handling samples for the Tour de France. Every morning, we take samples from the cyclists and get them to the laboratory and get the results back in the same day. Our World Courier van follows the cyclists around to a lot of fancy places like Nice and Monte Carlo. But that is a small part of the business. The biggest part is the clinical trials.
Q: Pharmaceutical companies have said they increasingly will develop drugs in emerging markets for emerging markets. Does World Courier help you get involved in that process?
A: World Courier said, 'What are the emerging needs of our customers?' One of the things was that travel security is more complex and trials are taking longer, so what's the next thing we can do to help the sponsors? World Courier invested in what they call depots so they can store the products for the duration of the test in that local market. The best example is a 200,000 square-foot center that was just opened prior to the acquisition in Singapore. They are strategically located and we think there is a good opportunity to get in to the commercial distribution of products. They are in China, Singapore and India. South Africa, Brazil, Argentina are among the countries they are focused on. There has been a trend where you do these trials outside the U.S. and Europe, but after the product is approved, you pull out of those markets. But what we're hearing from pharma companies is that governments don't want us to just come in and use their patients as a laboratory. If the patients are doing well on the product, they want to continue. So we feel that as part of the pharmaceutical life continuum, once the products are approved, we want to help the patients stay on the therapy.
We don't know if there is a market for us in general wholesale. Those markets tend to be very different than in the U.S., but we think we can help establish the specialty business. We've worked with specialty physicians, specialty biotech manufacturers. We're used to working with complex reimbursement therapies. We think we can shape that role. We don't think existing wholesalers always understand the specialty business and the unique requirements of the biotech manufacturers the way AmerisourceBergen does.
Q: Do you think of this as entering a targeted slice of BRIC and other emerging markets?
A: Yes, but we don't know if it will be Brazil or China or elsewhere. But one example came a few weeks ago, with one of the products in our specialty group. The general manager was asked by the manufacturer to accompany them on a trip to Brazil. But with the country manager for World Courier, we already had somebody who understands local health care, local tax jurisdictions. We had expertise. Part of what we do is consult with manufacturers on their commercialization strategies. We were able to give a much more comprehensive solution to the manufacturer's request and see if there was a way to work with them. We believe a lot of health care is local and we like that we have local intelligence. If we want to evaluate a partnership opportunity with somebody in Chile, now at least we have the Chile country manager who understands the good players and bad players, what pharmacies and physicians and facilities that we should be working with. What is the leading health facility? It has really enhanced our knowledge.
We have a different way of approaching international markets. As we got out and met with investors, some had a hard time with it, but I think they understand that we know how to contract with manufacturers. This is a sophisticated customer we're going in with and we're going in with a manufacturer-sponsored services program for distribution. That's a better way to go right now, rather than just saying, 'Hello, we're AmerisourceBergen. We're opening a distribution center in Frankfurt. Will you support us?'
Q: What are some of things you've learned about managing people?
A: Some things I think are key and fundamental are respecting customers' communication and respecting employee communication. Listening to everyone. I like to listen rather than talk. I know what I know. I don't know what the person sitting across from me knows. I'm a big believer in collaboration, giving people the benefit of the doubt and empowerment.
Q: What do you do look for when you're hiring?
A: I look for some of our core values - passion and integrity. We want people who have confidence, but are modest and not arrogant. Arrogance is a very dangerous thing when you have very important customers on both sides. When you sit down with a customer, you can get humbled pretty quickly when you understand their issues, the expectations and high standards, and knowing how cost conscious they are.
Q: When you’re interviewing someone for a job, what questions do you ask?
A: One thing I ask for is a management experience that has really helped shape who you are. If somebody in the company was your biggest supporter, what would they tell us about you? If somebody was your biggest detractor, what would they say about you. I look at people’s track record and how often they changed jobs. If they changed jobs a lot, there should be a good reason.
Q: Do you get back to South Africa much?
A: Not much at all. I left South Africa in 1998. I did my college there. The last time I went was 2002 and it was the only time I took my family. I don't have much family there now. Most of my family moved to Canada. My in-laws are in California.
Q: How do you decompress when you leave the job?
A: I have three kids. My oldest is going to college in the fall. That will be a happy day and a sad day. I have a 15 year-old daughter and a third grader. The third grader still loves to spend time with me, so we try to do an activity every week.
I'm teaching my son to play golf. He's slowly learning to like it, but he's clearly doing it to stay in touch with me. I do enjoy golf. I used to be a lot better than I am. I'm about a 16 or 17 handicapper. It is so complicated, it gives you a good holiday.
We travel a lot. We try to do interesting things with the kids, my wife and I. I used to be a beach person, but my family is not into that. They like excursions. They liked going to Thailand and riding elephants. That's one way I try to give back to my family, interesting trips. We've been on safari in Africa. We're planning a trip to India. We've been to Israel, Peru and the Galapagos Islands. We try to do one of those every two years.