<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
May 15, 1998
PHARMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-20606 11-2310352
-------- ------- ----------
(State or other (Commission File (Employer
jurisdiction of Number) Identification
incorporation) Number)
3611 Queen Palm Drive, Tampa, Florida 33619
-------------------------------------------
(Address of principal executive offices)
(800) 237-7676
--------------------------------------------------
(Registrant's telephone number, including area code)
N/A
-----------------------------
(Former name or former address,
if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
PharMerica, Inc. (the "Registrant") reports the following
information, which the Registrant deems of importance to its
security holders:
The letter attached hereto as Exhibit 99 is being sent to shareholders
of the Company along with its 1997 Annual Report.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMERICA, INC.
By: /s/ Curtis B. Johnson
------------------------------
Curtis B. Johnson
Senior Vice President, General
Counsel
Date: May 15, 1998
3
<PAGE> 4
Exhibit Index
Exhibit No.
- -----------
99 Letter to Shareholders
<PAGE> 1
EXHIBIT 99
1998 FIRST QUARTER UPDATE
May 15, 1998
Dear Shareholder:
To stay ahead of the competition, PharMerica continues to move quickly. Our
first annual report outlines our success in combining the resources of two
outstanding institutional pharmacy groups, Capstone Pharmacy Services, Inc. and
Pharmacy Corporation of America (PCA). This effective integration is a key to
PharMerica's leadership position in the new competitive marketplace. Because of
the progress we have made since our merger, we thought we would give you an
update on these accomplishments and where we are headed.
PharMerica now serves the largest patient population of any pharmacy management
company in the country. In addition, our successful acquisition strategy has
positioned us to serve the widest geographic area in the industry; reaching 82
percent of all the long-term care patients in the United States. We continue to
look for acquisitions to further expand our service reach.
Developing larger scale and more effective operations, while at the same time
improving services, means better value for our customers and shareholders. These
efforts include an ongoing commitment to innovative clinical programs and
products, a continuing investment in powerful information systems and patient
care management tools that are essential to our customers - and to our success.
Moreover, with Medicare's prospective payment system (PPS) and consolidated
billing on the horizon, the tools we offer our customers to help them better
manage patient care and contain costs will be in increasing demand.
In short, our strategic focus has resulted in a strong business platform,
produced outstanding operating performance in 1997, and positioned us well for
the future.
FIRST QUARTER 1998 HIGHLIGHTS
This year's first quarter operating results represented record levels of
revenue, operating income, and net income for our company. Earnings per share
were 13 cents for the quarter as compared to eight cents on a pro forma basis
for the comparable 1997 period. These earnings, which represented a 63 percent
increase in earnings per share, met or exceeded the estimates of most analysts.
Net revenues increased $31.8 million, or 13 percent, over the pro forma net
revenues of first quarter 1997.
<PAGE> 2
In the first quarter of 1998, we added 5,000 net long-term care beds. This is in
addition to the 15,000 beds added during the nine months ending December 31,
1997. Our mail-order workers' compensation and catastrophic care business also
experienced revenue growth rates of 10 and 20 percent respectively in first
quarter 1998, as compared to the comparable pro forma 1997 period.
THE BENEFITS OF INTEGRATION AND SCALE
The recent first quarter also saw a great emphasis placed on taking advantage of
the benefits of integration. This included the consolidation of 11 pharmacies
targeted for closure, with eight consolidations to be completed by the third
quarter. We have done this quickly, yet with no material net loss of customers -
in spite of a reduction of 118 full-time staff members.
Following these consolidations we have six sites that serve over 10,000
residents and four sites that serve more than 8,000 residents. This is the
greatest number of such large scale pharmacies in the industry. These larger
pharmacies operate at higher margins and allow us to expand our service
offerings.
STRATEGIC GROWTH AND ITS BENEFITS
To enhance customer and shareholder value, we are pursuing an aggressive, yet
thoughtful strategic growth plan designed to increase our market share. This
strategy is based on further increasing our scale and outreach via the
continuing development of large, regional mega-pharmacies.
We have also continued an active program of strategic acquisitions that
complement and strengthen our services. In first quarter '98, we announced eight
new acquisitions. These transactions:
bring us more than 26,000 new long-term care residents
expand our mail service business by 34,000 new clients
expand our market reach in six states (California, Kentucky, Minnesota,
North Carolina, Pennsylvania, Virginia)
mark our entry into two other important states (Arizona and Michigan)
will contribute annualized revenues of approximately $67 million
Additionally, in the first quarter we added 1,900 beds through preferred
provider agreements (PPA). Thus far in the second quarter, we signed a PPA with
EdenCare Senior Living Services, a progressive leader in assisted living. We
will continue to focus on entering into additional agreements during the coming
quarters.
NEW AND LARGER MARKETS OPPORTUNITIES
Although our industry has traditionally focused on serving institutions that
deliver care, we have instead targeted the patients' "continuum of care." This
enables PharMerica services to follow patients wherever their care is delivered
- - whether it be in skilled nursing facilities, assisted living centers, subacute
care units, chronic and catastrophic care, specialty hospitals, or via workers'
<PAGE> 3
compensation. Diversification of our payor sources creates new revenue streams
and allows us to become less reliant on one business line or any government
regulatory agency.
The effect of this broader emphasis has been to more than triple the size of our
potential market. We have moved from serving only traditional long-term care
institutions (currently, a $5 billion arena), to a marketplace that encompasses
over $16 billion in annual sales.
This shift brings tremendous potential. Our full service program for
catastrophically injured workers, for example, has grown by 50 percent in a
single year. In fact, the program has been so effective that we are using it as
a model for programs designed for home-bound, chronically disabled elders.
The Company's development of advanced products including our leading-edge data
warehouse products and clinical disease management programs are broadening our
appeal to a wider array of health care fields. Couple these product advancements
with our recent acquisitions, and PharMerica becomes a leading player in the
industry with a meaningful presence in each area of care we serve. This furthers
our "continuum of care" strategy. We intend to move effectively to develop and
capitalize on these advantages.
CLINICAL PROGRAMS, PPS, AND GROWTH POTENTIAL
To improve care while managing costs, we continue to make productive investments
in our clinical programs.
Early in second quarter 1998, we acquired The Chamberlain Group, a leading
geriatric pharmaceutical care management organization. Integration of this
group's core competencies in disease management, research, education, drug
information and formulary support will further enhance our top-notch clinical
operations. The acquisition reinforces PharMerica's competitive advantages in
the area of wellness programs, comprehensive drug information, and best
practices in disease management.
This is a particular advantage to us as we make final preparations for assisting
our clients as they begin to implement Medicare's prospective payment system
(PPS). PPS and consolidated billing are major concerns for nursing facilities
which are looking for sophisticated partners to help them effectively use the
new electronic billing and reporting mechanisms. PPS is therefore a great
opportunity for PharMerica. Here is where our economies of scale, and our array
of tools to help customers better manage patient care and contain costs, will
truly pay off.
PPS begins on July 1 of this year, and will be phased in over a period of three
years. Even though the changes coming will be in phases, PharMerica is already
well positioned to provide our customers with a new range of services and
products designed to meet the need for fee-for-service, risk sharing, and
consolidated ancillary services.
<PAGE> 4
OUR COMPETITIVE ADVANTAGES
Having moved quickly to achieve significant scale, PharMerica enjoys the
following advantages in the increasingly competitive healthcare marketplace.
Our ever-growing databases on drug utilization trends - across a wide segment of
the industry make us an attractive partner with manufacturers. These large,
historical databases - with information on geriatric pharmaceutical management
and outcomes research - are also invaluable assets in the critical areas of drug
selection and pricing. Our 330 consultant pharmacists located nationwide - now
armed with our state-of-the art ConsultWare software (the industry's first
customized, proprietary clinical software tool) - can help drive best practices,
create efficiencies in administrative procedures and support industry-leading
outcomes studies that enhance patient care while maximizing resources.Our
regional mega-pharmacies not only allow us to reduce costs, but position us for
additional operating savings. Our PPAs and similar contract arrangements give us
needed potential for greater scale in future negotiations. Our PPS pilot program
roll-out with our two largest customers is a first step in the distribution of
the Company's family of products created to address the needs of the prospective
payment system.
Our success is furthered by excellent progress in bringing our merged operations
under unified information systems. Since the beginning of this year, PharMerica
has operated under common financial and human resource systems. By the end of
second quarter 1998, 80 percent of our current long-term care client base is
expected to be linked to our national data warehouse and our corporate financial
systems. In addition, new on-line software technology will soon be combined with
our existing proprietary software. The result will be a system that supports our
ongoing work with managed care and PPS, and which will also be a valuable
medication management tool.
Finally, we are happy to report that at our first senior management meeting in
April, the energy and camaraderie exhibited by PharMerica managers proved that
Capstone and PCA have merged easily and quickly. With a shared set of core
values and significant progress toward our strategic plan we remain agile and
can concentrate our efforts on PharMerica's goal of being the nation's leading
pharmacy management company.
MOVING FORWARD
We are confident about our future. With your help, in a little over a year's
time we have developed an exciting new company that has already assumed a
leadership position in providing pharmacy services to a wide array of Americans
- - regardless of the care delivery environment. We are committed to continuing to
produce results for our customers and their patients, and for our shareholders.
Sincerely,
C. Arnold Renschler, MD
President and Chief Executive Officer
<PAGE> 5
This release involves forward-looking statements with respect to acquisition
prospects, development of preferred provider relationships, and other plans and
expectations on the part of the company. The accuracy of these statements
involves a number of risks and uncertainties, including but not limited to the
availability of acquisition prospects and financing for such prospects, changing
economic and market conditions that would impact such prospects or financing
related thereto, changes in governmental reimbursement regulations and laws that
could impair or hinder the entering into of strategic alliances of preferred
provider agreements, as well as other risk factors detailed in the company's
Securities and Exchange Commission findings, to which recipients of this release
are referred for additional information concerning the company and its
prospects.
