New McKesson strategy begins to pay off

Article Excerpt

MCKESSON CORP. $48 (New York symbol MCK; WSSF Rating: Above average) gets about 90% of its revenue and profits from supplying drugs to retail pharmacies, hospitals and clinics. In 2005, the company changed the way it deals with pharmaceutical makers. Under the old method, McKesson earned most of its money from the spread between the price it paid for bulk drugs and price it charged customers. You might say it was speculating on drug prices, and this greatly added to its risk. Under its new method, McKesson earns a fee for distributing drugs. Thanks to this new policy, revenue at this business rose 9% in the company’s third fiscal quarter ended December 31, 2005. McKesson’s fastest-growing business is its Provider Technologies unit, whose revenue grew 21% in the third quarter. This business supplies computer software and other services that drug stores and hospitals use to cut their costs. Right now, 51% of hospitals with more than 200 beds in the United States use McKesson’s…

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