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Company Brief
McKesson

by Faulkner Staff

Copyright 2020, Faulkner Information Services. All
Rights Reserved.

Docid: 00018767

Publication Date: 2008

Report Type: VENDOR

Preview

McKesson, based in Texas, is a leading global provider of health care
technology and pharmaceutical supplies with over 78,000 employees. As of
2020, it is ranked 7th on the FORTUNE 500. McKesson operates a lucrative
pharmaceutical distribution chain across the US and Canada and maintains a
strong strategy of acquisitions and R&D. The company also provides
support to health providers and insurers, particularly in the US as the
healthcare industry continues to fluctuate and meet demand for increased
services while reducing the cost of care. McKesson also partners with
competing providers of electronic health records to encourage
interoperability and sharing of patient records. The company had been the
focus of scrutiny over the past year for its role in the opioid epidemic.
In August 2020, McKesson reported that it will be distributing a vaccine
for the novel coronavirus.

Report Contents:

• Fast Facts
• History
• Key Executives
• Major Products
• Major Competitors
• Recent Activity

Fast Facts

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Name: McKesson
Headquarters
One Post Street
San Francisco, CA 94104
Phone: (415) 983-8300
Toll-Free: (800) 482-3784
Fax: (415) 983-7160
Web: http://www.mckesson.com/
Type of Vendor: Supply management and healthcare IT
provider
Founded: 1833
Service Areas: Global
Stock Symbol: MCK (NYSE)

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History

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McKesson, a Fortune 500 health product conglomerate based in San
Francisco, traces its roots back to 1833. Now the oldest and largest North
American pharmaceutical distributor, McKesson also runs business units in
the Asia-Pacific region, France, the Netherlands, and the UK. The company
provides the fourth largest pharmaceutical supply chain, and 24 of the top
25 health plans are McKesson customers.

In 1833, John McKesson and Charles Olcott opened a drug import and
wholesale shop in New York City’s financial district. Following Olcott’s
death in 1853, Daniel Robbins joined the business and the company was
rebranded as McKesson & Robbins. Over the next 100 years, McKesson
& Robins formed a network of national wholesale drug distributors.
McKesson Chemical Company, which represented over 100 businesses,
had transitioned into a diversified national distribution leader by the
end of the 1950s. In 1967, the company merged with nationwide dairy
distributor Foremost to become Foremost-McKesson.

During the 1980s, Foremost-McKesson divested the majority of its
peripheral operations, refocused on its core healthcare supply management
businesses, and began investing in R&D. By 1984, the company took on
the name McKesson. Also that same year, HBOC began increasing its product
lines through R&D expansion and acquisitions. In 1986, McKesson
sold its liquor and chemical distributors. Acquisitions fueled growth as
McKesson acquired half of Canadian drug distributor Medis in 1990, the
remaining half of Medis in 1991, and a 23 percent stake in Mexican drug
distributor Nadro in 1993. As it continued to hone its offerings, in 1994
McKesson sold PCS, the leading US prescription claims processor, to Eli
Lilly. In 1996, it sold its stake in Armor All (auto and home cleaning
products) to Clorox.

After extensive growth, McKesson emerged as the leader in many of its
fields, drawing the attention of investors and regulators alike. In 1997,
McKesson purchased medical surgical supply distributor General Medical for
approximately $775 million USD. The following year, McKesson agreed to
purchase one of its largest competitors – AmeriSource Health (now
AmerisourceBergen) – but withdrew the offer facing FTC opposition.
Instead, the company paid $14 billion for health care information systems
firm HBO & Company, forming McKesson HBOC. The deal for HBO took a
toll on the company: McKesson was forced to restate fourth-quarter results
for fiscal 1999 due to accounting inconsistencies from the acquisition.
McKesson fired five former ex-HBO executives for using improper accounting
methods, including McKesson HBOC chairman Charlie McCall (who was later
indicted for securities fraud). McKesson’s CEO Mark Pulido and CFO Richard
Hawkins were forced to resign over the fraud.

In 2001, the company changed its name to simply “McKesson” and named John
H. Hammergren as CEO, who also became the chairman in 2002. In 2004,
McKesson acquired Moore Medical. The same year, McKesson finalized $2.9
billion-per-year contract with the Veterans Administration. In 2005, the
company finally settled a class action shareholder suit over HBOC’s
financial fraud for $960 million, the third largest settlement of its kind
to that date. The company also acquired K & D Healthcare Resources and
Medcon. A string of acquisitions followed including Coloplast’s Sterling
Medical Services subsidiary in 2006; Per-Se, a provider of financial and
administrative systems for hospitals, physicians, and pharmacies in
2007; Oncology Therapeutics Network (OTN), a distributor of specialty
pharmaceuticals, McQueary Brothers Drug Company, Rosebud, and EN-Chart
Scanning Program in 2008; LMS Medical Systems’ intellectual property for
obstetrics surveillance and archiving in 2009; US Oncology for
approximately $2.16 billion USD in 2010; Portico Systems, a provider of
integrated provider management systems in 2011; and PSS World Medical in
2013. Separately in 2013, McKesson ended its IT and Hospital Automation
operations by divesting McKesson UK and subsidiaries; McKesson France;
McKesson Netherlands; and a 49 percent share of Nadro, a pharmaceutical
distributor in Mexico.

With its massive industry footprint, McKesson puts itself on the
front-lines of legal and regulatory responsibility. The company has faced,
and is vulnerable to, repercussions from actions such as selling drugs
that violate product codes, giving improper care recommendations, and
violating HIPAA, insurance, e-prescribing, and other healthcare
regulations. McKesson’s international sourcing for products also places it
under US government scrutiny. In addition, McKesson faces patent
challenges for its portfolio of generic drugs. Over the past 10
years, the company has continued to settle more than $1 billion in
lawsuits and regulatory fees. It has been a focus in the opioid epidemic.
Cases include:

• In a scandal revisited, in 2009, “a federal jury found the former
  chairman of McKesson, [Charles McCall], guilty of fraud …, nearly 10
  years after he played a central role in a costly corporate accounting
  scandal. The jury convicted … McCall … on four counts of securities
  fraud, and a charge of evading corporate accounting controls.”¹
• In 2011, a lawsuit from Kentucky Attorney General Jack Conway asserted
  that McKesson and First DataBank worked together to inflate the average
  wholesale price for about 1,800 prescription drug products. The lawsuit
  claims that, as a result of this misconduct, Kentucky Medicaid overpaid
  for the drugs by tens of millions of dollars.²
• In August 2014, McKesson agreed to pay $18 million USD to settle a US
  Department of Justice claim that it improperly set temperature monitors
  used in the shipping of vaccines that it received from the government
  and distributed to health care providers.³ It also acquired
  Celesio, moving its ranking to 11th on the FORTUNE 500 with more than
  $179 billion in annual revenue.
• In 2017, numerous states and municipalities – including West
  Virginia, Kentucky, and more – sued McKesson for its lack of oversight
  into its drug distribution channels to pharmacies amid the deadly opioid
  crisis.
• In 2018, it announced initiatives to fight the opioid epidemic,
  including starting a foundation dedicated to combating the crisis. Other
  initiatives include expediting the development of a national
  prescription safety-alert system, the facilitation of e-prescribing,
  support for limited-dose packaging, fast-tracking the distribution of
  new non-opioid pain medications, and complimentary pharmacist training
  on opioid overdose reversal medications.
• In July 2019, the company was named in an Ohio lawsuit that
  consolidates lawsuits from across the United States alongside such
  pharmaceutical industry giants as Cardinal Health, Walgreens, CVS,
  Walmart, and Purdue Pharma. The legal filing accuses organizations of
  focusing solely on profits amid the current opioid epidemic.

Municipalities and community leaders across the country – in states from
West Virginia4 to Kentucky5 and more6 – have accused McKesson of not
providing adequate oversight of its drug distribution channels amid the
deadly national opioid crisis, including lack of monitoring of pharmacies
that order large quantities of opiod drugs. In March 2018, the company
announced initiatives to help fight the epidemic, including starting a
foundation dedicated to combating the crisis. This foundation, to which
McKesson has committed $100 million, focuses on education, key policy
issues, and increasing access to life-saving treatments. Other initiatives
include expediting the development of a national prescription safety-alert
system, the facilitation of e-prescribing, support for limited-dose
packaging, fast-tracking the distribution of new non-opioid pain
medications, and complimentary pharmacist training on opioid overdose
reversal medications.

In August 2020, McKesson reported that it will be distributing a vaccine
for the novel coronavirus. McKesson’s vaccine distribution contract with
the government began in 2017 and has the potential to amount to $300
million.

Key Executives

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McKesson’s key executives include:

• Brian Tyler – Chief Executive Officer
• Britt Vitalone – Executive Vice President and Chief Financial Officer
• Tracy Faber – Executive Vice President and Chief Human Resources
  Officer
• Lori Schechter – Executive Vice President, General Counsel, Chief
  Legal Officer
• Nancy Flores – Executive Vice President, Chief Information Officer,
  Chief Technology Officer
• Tom Rodgers – Executive Vice President, Chief Strategy and Business
  Development Officer

Major Products

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McKesson delivers pharmaceuticals, medical supplies, and health IT. In
2020, the company reorganized its reportable segments into four divisions.

• U.S. Pharmaceutical (USP)–Focuses on wholesale drug
  distribution and technologies for retail pharmacies, health systems,
  payers and community providers.
• Prescription Technology Solutions (RxTS)–Combines
  RelayHealth, CoverMyMeds, and RxCrossroads to serve biopharma and life
  sciences partners and patients.
• International–Combines McKesson Canada and McKesson
  Europe.
• Medical-Surgical Solutions–Distributes
  medical-surgical supplies and provides logistics and other services to
  healthcare providers in the United States.

McKesson’s distribution operations include production and distribution of
drugs, medical-surgical supplies and equipment, and health and beauty care
products throughout North America. The company supplies more than 40,000 US
pharmacy locations, from Wal-Mart to the Department of Veterans Affairs, to
community pharmacies and hospitals. The company’s healthcare technology
delivers enterprise-wide clinical, patient care, financial, supply chain,
and strategic management software, pharmacy automation for hospitals, as
well as support services for healthcare organizations. The company’s
software and hardware are used in more than 70 percent of the nation’s
hospitals with more than 200 beds.

Table 1 outlines McKesson’s Distribution and Healthcare Technology
offerings.

Major Competitors

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McKesson’s primary competitors in health products and pharmaceuticals
include:

• AmerisourceBergen: http://www.amerisourcebergen.com/
• Cardinal Health: http://www.cardinal.com/
• GE Healthcare: http://www.gehealthcare.com/
• Siemens Healthcare: http://www.healthcare.siemens.com/

Recent Activity

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In January 2020, McKesson reached a $175 million settlement with
investors who claimed that directors failed to maintain adequate internal
systems for spotting suspicious opioid shipments. McKesson executives
agreed to enhance the company’s corporate-governance protections by
separating the role of the chief executive officer and board chairman. It
also agreed to tighten bonus claw-back policies for officials who don’t
perform properly.⁷ Also in August, McKesson appointed Rebecca
McKillican as CEO of McKesson Canada, succeeding Domenic Pilla, who has
retired.

In August 2020, McKesson Corp. reported that it will be distributing a
vaccine for the novel coronavirus. McKesson’s vaccine distribution
contract with the government began in 2017. It has the potential to amount
to $300 million.

References

• ¹ “Ex-McKesson Chairman Is Found Guilty of Fraud.”
  Associated Press. November 20, 2009.
• ² “Conway Sues Over Drug Prices.” LegalNewsline.com. July
  26, 2011.
• ³ “McKesson Corp. to Pay $18 Million to Resolve False
  Claims Allegations to Shipping Services Provided Under Centers for
  Disease Control Vaccine Distribution Contract.” US Department of
  Justice. August 8, 2014.
• ⁴ Erika Fry. “As America’s Opioid Crisis Spirals, Giant
  Drug Distributor McKesson Is Feeling the Pain.” Fortune. June
  13, 2017.
• ⁵ “Louisville Metro Sues Drug Distributors for Role in
  Opioid Crisis.” American City Business Journal. August 22,
  2017.
• ⁶ Scott Higham, Lenny Bernstein. “Drugmakers and
  Distributors Face Barrage of Lawsuits over Opioid Epidemic.”
  Washington Post. July 4, 2017.
• ⁷ Feeley, Jeff. “McKesson Board Settles with Investors for
  $175M Over Distributor’s Role in Opioid Crisis.” Insurance Journal.
  January 26, 2020.

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