COMPANY PROFILE -McKesson Corporation
Business Sector :Insurance nad Healthcare, Healthcare
Operating Geography :North America, United States, Global
About McKesson Corporation :McKesson Corporation is a global pharmaceutical distribution services and information technology company, currently ranked 11th on the Fortune 500. They deliver a comprehensive offering of pharmaceuticals and medical supplies and provide services to help customers improve the efficiency and effectiveness of their healthcare operations. They operate the business through two segments- McKesson Distribution solutions and McKesson Technology solutions. It is headquartered in New York, USA. It has a total of 68,000 (2016) employees working.
McKesson Corporation Revenue :$190.9 billion – FY ending March 2016
Competitive Analysis of McKesson Corporation
|1. Strong presence in the USA and Canada pharmaceutical distribution business|
2. Various offerings to diverse customer segments
|1. Large dependency on United States for revenue
2. Large dependence on revenue only from top 10 customers
3. Less number of suppliers provide substantial supplies
|1. Acquisition of CoverMyMeds would help gain entry into new vertical of business |
2. Favorable demographics in terms of age in USA
3. More focus on health analytics software space
|1. Changes in regulatory policies in the healthcare industry would have material impact on revenues (USA and Canada)
2. Slowdown in Europe would affect the sales from the region
3. High competition in distribution business
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Detailed SWOT Analysis of McKesson Corporation
1) Strong presence in the USA and Canada pharmaceutical distribution business: The company is one of the largest pharmaceutical distributors in the USA. It supplies branded, specialty and generic pharmaceuticals and other healthcare-related products to customers throughout the United States in three primary customer channels- retail national accounts, independent retail pharmacies; and institutional healthcare providers. It also provides solutions and services to pharmaceutical manufacturers. McKesson Canada is one of the largest pharmaceutical distributors in Canada having a network of 14 distribution centres. The acquisition of Rexall Health, which operates approximately 470 retail pharmacies in Canada, particularly in Ontario and Western Canada, enhanced the Canadian pharmaceutical supply chain.
2) Various offerings to diverse customer segments: The offerings for various customer segments are as follows: • Retail National Accounts: Business solutions that help national account customers increase revenues and profitability. Solutions include Central Fill SM, Redistribution Centres etc.
• Independent Retail Pharmacies: Solutions for managed care contracting, branding and advertising, operational efficiency, purchasing, automation and merchandising that help independent pharmacists focus on patient care while improving profitability. Solutions include Health Mart, AccessHealth, McKesson Reimbursement Advantage, etc.
• Institutional Healthcare Providers: Electronic ordering/purchasing and supply chain management systems that help customers improve operational efficiencies and deliver better patient care along with financial performance. Solutions include Fulfill-Rx, Asset Management, etc.
Thus, the various offerings for addresses the different needs within the value chain of the business.
1) Large dependency on United States for revenue: We can see from the financial reports that the company has revenues of approximately 83% from North American business. This provides a huge risk in terms of dependency of one market for majority of revenue and imposes a huge uncertainty in terms of political, regulatory, and legal changes associated with operation in that country.
2) Large dependence on revenue only from top 10 customers: During 2016, sales to ten largest customers accounted for approximately 52.4% of the total consolidated revenues. Sales to the largest customer, CVS Health, accounted for 20.3% of the total consolidated revenues. At March 31,2016, trade accounts receivable from ten largest customers were 32% of the total trade accounts receivable. Accounts receivable from CVS were 18% of total trade accounts receivable. This provides. So, there is significant amount of risk in terms of liquidity and revenue involved due to default in payments, reduction in orders, and loss of large customer to competitor.
3) Less number of suppliers provide substantial supplies: The ten largest suppliers in 2016 accounted for approximately 44% of the purchases. The company obtains pharmaceutical and other products from manufacturers, none of which accounted for more than 6% of the purchases in 2016. The loss of a supplier could adversely affect the business if alternate sources of supply are unavailable.
1) Acquisition of CoverMyMeds would help gain entry into new vertical of business: The recent acquisition of CoverMyMeds for $1.1 billion helps McKesson expand into new vertical of business. CoverMyMeds automates the process of obtaining prior authorization from insurers for certain prescriptions by eliminating faxes, long waits and multiple attempts that often-caused slower customer response. The acquisition would create synergies between the offerings provided by McKesson and CoverMyMeds resulting in more savings for the customers.
2) Favorable demographics in terms of age in USA: USA population is aging rapidly. According to ACL statistics, the older population—persons 65 years or older—numbered 46.2 million in 2014 which was 14.5% of the U.S. population. By 2060, there will be about 98 million older persons, more than twice their number in 2014. And is expected to grow to be 21.7% of the population by 2040. So, the healthcare expenditure is bound to increase in the future and this provides a huge opportunity to McKesson as the demand for medical products are bound to increase resulting in increased distribution requirement.
3) More focus on Health Analytics software space: To remain competitive and for future growth opportunities McKesson should invest in the analytics space where explosion of data is bound to happen and create an integrated experience not only to the chains which they service but to their clients as well i.e. patients. Using this they can leverage end-to-end solution to various customer segments and command premium in the space.
1) Changes in regulatory policies in the healthcare industry would have material impact on revenues (USA and Canada): In recent years, the healthcare industry in the United States has changed significantly in an effort to enhance efficiencies and improve the patient outcomes along with reduction in costs. Both the profit margins of McKesson and the profit margins of their customers may be adversely affected by laws and regulations reducing reimbursement rates for pharmaceuticals, medical treatments and related services, or changing the methodology by which reimbursement levels are determined. Also, the increase in the generic medicine sales which have lower margins have dented the profitability for the company and continues to be a risk factor in the future.
2) Slowdown in Europe would affect the sales from the region: The Company’s acquisition of Celesio significantly increases the exposure to the European market for revenues. The recent slowdown in Europe along with the uncertain environment of Brexit is having negative impact on the IT spending in the healthcare segment for the company. The key challenge in Europe for the pharmaceutical and healthcare markets and especially for the pharmaceutical distribution markets continues to lie in the continued government price regulation along the entire pharmaceutical supply chain and the effects as increasing numbers of patents expire on blockbuster medicines and as comparatively less expensive generic products grow as a result affecting the margin for McKesson.
3) High competition in distribution business: McKesson faces tough competition in all the segments of operation. The Distribution Solutions segment faces strong competition from international, national and regional specialty distributors like AmerisourceBergen Corporation, Owens & Minor, Inc., etc. In addition, this segment faces competition from pharmaceutical and other healthcare manufacturers as well as other potential customers of the segment, which may develop supply management capabilities for their own internal needs, that would otherwise be provided by the segment. In Technology Solutions segment substantial competition from many companies, including software services firms, hardware vendors and internet-based companies with technology applicable to the healthcare industry.McKesson SWOT analysis has been conducted by Vipul Varkar and reviewed by senior analysts from Barakaat Consulting.
1. McKesson Annual Report 2016: http://investor.mckesson.com/sites/mckesson.investorhq.businesswire.com/files/report/file/2016_Annual_Report_and_Letter_to_Stockholders.pdf
2. Statistics for Age distribution in USA: https://aoa.acl.gov/Aging_Statistics/Index.aspx
3. Acquisition of CoverMyMeds: http://investor.mckesson.com/press-release/mckesson-reports-fiscal-2017-third-quarter-results
4. Product information: http://www.mckesson.com/
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