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A Pharm Exec conversation with AmerisourceBergen CEO Steve Collis
In today’s biopharma ecosystem, drug distributors occupy a position very close to the ground, with a profile so low it is often taken for granted. But the distributor’s traditional task in delivering quality medicines safely and reliably to the point of sale is growing more prominent as personalized treatments proliferate and medicines become more complex. Not only are distributors bulking up like the rest of the healthcare vertical, a strategic realignment is underway, led by a much closer identification with the patient; an emphasis on customized, value-added services that span the entire drug supply chain, from pre-registration to end of life-cycle planning; and a commitment to achieving truly global scale and reach.
Pharm Exec first began tracking changes in the drug distribution world back in 2011, when we featured a conversation with the sector’s newest CEO at the time, Steve Collis of
AmerisourceBergen. Four years later, we met up again with Collis at October’s ThinkLive, the company’s annual feedback confab for 500 of its biggest customers. In a wide-ranging talk, Collis explains what he thinks those customers really want from distributors; offered tips for a successful M&A process and restructuring to what is now a fully globalized business; his personal commitment to a flaw-free record on safety and compliance, a most critical metric in a business where no news is good news; and his team’s key achievements in positioning the company for future growth through a precedent-breaking partnership with Walgreen’s/Alliance Boots as well as the entry into adjacent businesses designed to expand the company’s service offerings. Finally, Collis offers up suggestions to his biopharmaceutical CEO peers on tackling pricing and reputational challenges-and how distributors can help.
PE: We meet just prior to AmerisourceBergen’s most important event of the year, ThinkLive, where you and others on the management team have the opportunity to engage directly with more than 500 of your key customers in biopharmaceuticals. What’s the current state of the relationship? Any insights for Pharm Exec readers on the company’s strategic objectives in the year ahead?
Collis: AmerisourceBergen has built a strong business around the proposition that we are the essential supply and service intermediary between our customers, who develop and market medicines, and the patients who benefit from them. We recently unveiled a new corporate slogan-“AmerisourceBergen, where knowledge, reach and partnership shape healthcare delivery”-to emphasize this connection. There is no better way, in one sentence, to summarize what our 18,000 associates worldwide do every day.
Building on that, ThinkLive discussions with customers will focus on three distinct themes that we believe best characterize our business: (1) improving patient care; (2) increasing product access; and (3) enhancing supply chain efficiencies. With specific reference to access, we want to position AmerisourceBergen not only as a service provider working to make medicines affordable and reimbursable to patients, but also as a reliable supplier of medicines, delivered safely, at low cost, when and where our patients need them.
Another issue I intend to raise with customers here at ThinkLive is cooperating more closely to maintain those market-oriented features of the US health care system that provide superior, high-quality care for patients. I am experiencing this first hand with my mother, who lives in Canada and is undergoing treatment there for cancer. Canada has a very good health system, but when I compare clinical treatment protocols with the US, I see how much patients in the US benefit from a flexible and patient-friendly care environment. Together with our customers, AmerisourceBergen is constantly adjusting its operating standards to register that “voice of the patient” and provide them with more options. We want to work with all our stakeholders and customers to preserve the core values of the US system: diversity, choice, and flexibility.
PE: AmerisourceBergen is the second largest drug distributor in the US and holds the top spot in the growing specialty distribution segment. What are you doing to maintain your leadership in the drug supply chain? Can you point to increased efficiencies since you became CEO in 2011?
Collis: Our biggest accomplishment in this space is the comprehensive working partnership we have forged with Walgreens/Alliance Boots, helping to structure and operationalize the transition to a globally integrated retail pharmacy chain. Our partnership has unlocked enormous value for them-enhancing working capital, upgrading consumer service, expanding product access, and, of course, scoring multiple gains on financial metrics and outcomes. What is notable about the partnership is that it includes an innovative sourcing contract that has both of us working out of adjacent HQ facilities in Bern, Switzerland. Our president for global sourcing and manufacturer relations, Peyton Howell, is now located in Bern. Her presence and expertise in day-to-day troubleshooting has put the exclamation point on the commitment I made when we spoke four years ago: to match-and exceed-the pace of our big pharma customers in globalizing the AmerisourceBergen business.
Other accomplishments include the successful private-label distribution pact we have secured with BluePoint; opening a national replenishment center in Columbus, Ohio, where many brand manufacturers are bringing overstock inventory directly to us to redistribute; and the expansion of our Consulting Services business to build competencies in drug adherence and patient access programs while exploiting decision analytics and other information opportunities, such as longitudinal data management for oncology practices and creating patient registries to build real-world evidence and track public health outcomes.
The first acquisition after I took over as CEO, World Courier, a clinical trial logistics enterprise, has grown significantly; it now operates in 50 countries. The AmerisourceBergen Specialty Group drug business, where we deal with patients with complex conditions directly rather than as a third party, is now the largest in the US. We are focused on building our specialty drug franchise in selected countries outside the US, including Canada and Brazil, where last year we acquired Brazil’s biggest publicly-held retail drug distributor, Profarma. The acquisition will serve as a long-term base for further expansion in this promising, high volume growth market.
Next, we have entered an entirely new business-animal health-with the $2.5 billion acquisition early this year of MWI Veterinary Supply, the largest US and UK distributor of pet care and farm animal medicines. Again, this deal shows how we are committed to extending customer reach; many of the biggest biopharma firms that we do business with are also active in animal health. They have had close relations with MWI stretching back decades. The vet business is a growth sector and has a long record of profitability. MWI will add to the number of platforms on distribution and sourcing we can offer to our biopharma customers.
Finally, coinciding with the start of ThinkLive, we are announcing the intent to acquire PharMEDium Healthcare, a leading supplier of customized, outsourced sterile compound drugs to hospitals and other acute care facilities here in the US. Such medicines are not commonly procured through normal commercial channels, and are supplied by PharMEDium under the highest quality, efficacy, and safety standards. The acquisition fills a critical gap in pharmacotherapy and will allow us to increase our ability to provide reliable, top-of-line innovative solutions that help patients-and where evidence of abuse by marginal players in the field remains a matter of public concern.
PE: When we spoke in 2011, you pledged that the record of AmerisourceBergen for reliability, safety, and ethical integrity in the drug supply chain would continue uninterrupted during your tenure as CEO. Can you vouch for this record and explain what the company has been doing to strengthen a compliance culture, particularly as it expands into new activities and businesses?
Collis: That’s an interesting question. My answer is that the best evidence of successful compliance on quality, safety, and ethics in the supply chain is that we are invisible on the issue. When it is not an issue. It means that we are always active behind the scenes so that our customers and patients actually take it for granted that the right product is available at the right time, in the right quantity and ready for safe use at the lawfully contracted price. That the US has a very safe supply chain is no accident. We work closely with regulators, are constantly in touch with manufacturers and other customers, and devote enormous time and resources to anticipating what motivates the patient. We don’t leave anything to chance.
One challenge we have faced over the past several years is confronting irregularities around the utilization of controlled drug substances. I think we have done an outstanding job in working with key stakeholders, especially government at both the federal and state level, to help get this problem under control. As a distributor, AmerisourceBergen does not control the prescription of controlled substances, but we have a responsibility to the public and the communities we serve as well as to the manufacturers whose products we distribute. I have met with governors and legislators of many states to brief them on our practices. I have assured them that not only is the drug supply chain safe, the bad actors in the mix represent a very small segment of the trade and their misdeeds can be countered with proper corrective measures.
In studying the issues, we have developed expertise in the management of controlled substance abuse, including the deployment of advanced analytics to track incidences of abuse and informing regulators and legislators on best practices to keep them ahead of the game. In fact, we were instrumental in supporting the Drug Quality and Safety Act signed by President Obama in November 2013, which introduced a federal mandate for a strong “track and trace” mechanism to monitor the drug supply. Among other things, the law established sterile drug compounds as a separate class of pharmacy, under the 503(b) designation. It wasn’t our focus initially, but the law created a new business opportunity for us, leading to the announcement at ThinkLive to acquire PharMEDium.
PE: In the third quarter earnings call with analysts, you stated that you “have never been happier" about AmerisourceBergen’s relationship with customers. Why-can you explain?
Collis: I was referring to the systematic way that we are working to understand, serve, and anticipate the needs of our customers. We are using the RFP (request for proposal) contracting process as an opportunity to dig down and learn more about their motivations and priorities over the long-term. We now look at every customer as a strategic account, geared to establishing where AmerisourceBergen can add value. We desire a more or less permanent relationship rather than being driven solely by the contract cycle-it’s a continuous dialogue. We strive to cover everything, from the logistics of clinical trial management to coordinating the product launch, choosing respective channel strategies, and setting
reimbursement, right on to end-of-life cycle positioning, post-patent expiry.
There is a tendency in every big company to boast of its mastery of technology. That capability we have, but actually I am most proud of our human capital. June Barry, our EVP of human resources, recently told me her job was not to administer benefit programs but to understand what motivates people, with the aim to institutionalize those human characteristics that contribute the most to the company’s success. I am particularly proud of AmerisourceBergen’s selection by Philly.com as one of the best places to work in Pennsylvania, in each of the last three years. That would never have happened in the old days, just a decade ago. It represents how far we have come.
PE: Has a distinct corporate culture helped drive this change? You might be familiar with the adage “you can copy a company’s strategy, but never its culture.”
Collis: Culture is important if it contributes to a rise in human potential within the organization. AmerisourceBergen has what I call a respectful culture. This has been immensely helpful as we took steps to grow our business through acquisitions. I am a Board member of a company that is being acquired. What I observe in that transaction is an undue focus on getting people positioned to assume key positions in the combined enterprise in order to assert control over the brand, sales, and compliance. It’s all about the little stuff. We look at the situation differently. We acquire great companies, not products. We focus on leveraging new sources of knowledge, great customer relations, and the additional services that add to the value proposition for our customers. In addition, the companies we acquire tend to be differentiated from the competition, which allows for higher margins. Consider our three most recent acquisitions: World Courier, MWI and PharmMEDium. Each was the undisputed leader in their business, with first-in-class products and a strong service orientation. Most important, we did not compete in their lines of business when we purchased them, so it was clearly a value-added transaction for us.
What it means is this: we strive to learn from the acquired company, find common ground with its culture, and retain top talent. The aim is to build a great marriage instead of stripping assets. We don’t look for a pre-ordained divorce. And the evidence shows this approach works. For example, the vast majority of the leadership and rank and file from World Courier are still with us. Jim Cleary, CEO of MWI during its tenure as a publicly traded company, is now serving as a new member of our executive management team. It starts with our own internal culture of respect. Our message is “You know your business-tell us. Teach us.” We pursue a strategy of inclusion, from the start of due diligence and continuing beyond post-merger integration of the business.
PE: How do things stand on the pace of AmerisourceBergen’s globalization efforts?
Collis: The company I started with years ago was, to be honest, a narrowly US-centric organization. As a native of South Africa, I stood out as an anomaly. Things are different today. Just after becoming CEO, I recall convening our “Day One” meeting with World Courier’s management at the Convention Center in Philadelphia. I got on the elevator preparing to meet all those new colleagues and was greeted by a man with an interesting accent that I could not place. He said “I’m Hendrik, the country manager for Finland.” I got off the elevator, paused, and said to myself “never would I have thought I’d be at an AmerisourceBergen meeting where someone introduces himself as leader of our business in Finland.” It was really an “ah ha” moment for me.
Now, however, it is a common occurrence-World Courier, for example, has opened the door for us in 50 countries outside the US. Recently, I chaired the company’s first Global Human Resources Summit, which showed in stark terms the increasing geographic diversity among our 16,000 colleagues. Every country represented presented me with a modest but distinctive gift highlighting some aspect of their culture-Australia, the original home base of World Courier, offered up a case of Fosters lager. That hit home to me how vital these relative newcomers to the AmerisourceBergen family are going to be to our future.
This is not to say that the absorption process will be flawless. We are confronting some stiff headwinds in international markets. The dollar is strong at the moment in currency markets and this has the potential for a negative impact on earnings. Economic turmoil in many emerging countries is lowering growth expectations. Hence, we have had to scale back on performance expectations for our Profarma specialty distribution business in Brazil. The slump in the exchange value of the real against the dollar is a big problem at the moment.
Another issue that requires some caution is adhering to our long-term values, which are focused entirely on the welfare of our patients. This we see as a fundamental obligation, one which we share in common with the manufacturers. Value is, thus, a bigger concept than simply increasing the return to shareholders. And it is doubly important we maintain that centricity around the patient interest in all countries where we do business, especially those with strong government influence over local health practitioners and the delivery and financing of health services. I am thinking about countries like China. The industry has experienced issues with scandal and provider corruption in foreign markets and so foreign investors need to be very careful about their local policies and procedures.
PE: In other words, you are talking about maintaining high standards of compliance and ethical business practices-no exception.
Collis: Yes. We have to work close to the ground, and stay aware of all the nuances in local sales practices, including offers of entertainment. Having World Courier come on board, with its active presence in 50 countries, proved instrumental in teaching us about local conditions, including who the good-and bad-players are in the field. My predecessor as CEO, David Yost, described it this way: “the deals you don’t do are as important as the deals you do.” There are numerous tie-ups we walked away from because we concluded there was a culture that tolerated or even encouraged behavior that our own standards could not condone. It is critical for AmerisourceBergen that our local partners are reliable, know the ins and outs of the local environment, and operate with integrity. If we conclude that such a culture is not present in a potential partner, we thank them and walk away.
PE: What is your assessment of the future of the US and those other “mature” country markets in AmerisourceBergen’s global strategy?
Collis: The US is and will remain the core of our entire business. It’s a very active area of endless potential for us. Our forecasts indicate the US will stay the biggest and fastest growing market for biopharmaceuticals in the foreseeable future. It still leads the world in product innovation as well as the ecosystem that sustains it. And the US dollar is strong-the world’s reserve currency.
That said, we are committed to growing the relationship with Walgreens Alliance/Boots, to capitalize on its extensive platforms, networks, and services around drug distribution in Europe. We need to spend more time thinking hard on how we partner with them to raise our game and compete more effectively. Ornella Barra, who serves as EVP of Walgreens Alliance/Boots, is joining our Board. She will give us an important, well-connected, and informed point of view on doing business with this, our largest customer. Alex Gourlay, the president of Walgreens, is another source of advice and expertise. His energy is formidable and entirely dedicated to helping us move this complex relationship forward.
PE: What is AmerisourceBergen’s view on the future of the generic drugs business? A big part of the segment is subject to progressive commoditization, but there are pockets of opportunity in branded generics. How does the promise of biosimilars fit into your growth strategy?
Collis: Generic drugs are a critical part of our business. The value they provide is very important to our customers and patients. It’s also a dynamic business that is changing in significant ways through consolidation. When we met in 2011, I would not have said to you that generics account for 85%
of prescriptions written here in the US. No one expected that level of growth. We are also experiencing some price inflation in the segment, with about one out of every five products posting a price rise during the past several quarters. In addition, we have had to scramble to respond to some massive swings in the generic launch cycle, with many new entrants coming on to the market at roughly the same time. That’s a logistical challenge, but frankly it is one we are happy to meet because it is good for competition and great for the patient. The market will be seeing a fresh windfall of lower-cost products as most of the early biologics cede their exclusivity through the end of the decade.
The arrival of FDA-approved biosimilars here in the US is reflective of this trend. It is a long process. The exact regulatory pathway, particularly on the interchangeability of these products at the pharmacy level, remains to be clarified. In addition to legislative complications at the state level, I expect it will be a good while for legal issues to work themselves out through the courts. Drug companies are experienced in using the law to their own ends, from both an offense and defense perspective. Hence, in my opinion, we will continue to see some delay in phase-in of the biosimilars option, compared to other products.
Nevertheless, AmerisourceBergen is poised to work with manufacturers to address the development, launch, and market take-up challenges for this new class of products. We’re partnering now to bring the first biosimilar to market, and we intend to work with other companies down the line.
PE: So you are confident that AmerisourceBergen has a solid value proposition around biosimilars that will attract new business?
Collis: Yes, without hesitation. Our capabilities embrace the needs of both the incumbent manufacturer as well as the biosimilars enterprise. Most players in this space are global multinationals that already have extensive ties to us. Two of our top executives-Peyton Howell and Bob Mauch, president of the AmerisourceBergen drug division-have extensive backgrounds in field-based reimbursement programs, price contracting, market access, and patient assistance programs-that respond to the basic requirements for launching a biosimilar. In addition, AmerisourceBergen’s lead role in specialty products, a business run by James Frary out of Frisco, Texas, gives us solid expertise in physician-administered medicines. We find such physicians to be early adopters of new products and are very receptive to innovations that add to the treatment options they can provide to their patients. Personally, I believe the acceptance rate around these products will be high, once they finally get launched. And a positive reception will also help create a favorable climate for reimbursement. In short, it’s a short distance to us for anyone seeking to commercialize a biosimilar product.
PE: Is there anything that keeps you up at night about the complexities in the generic space?
Collis: Overall, we are very happy with the performance of the generic business, particularly when I contrast this to the supply challenge AmerisourceBergen had to confront just after I became CEO. We had to address a significant shortage of injectable drug generics that proved to be a big problem for our customers. It was a reputational issue for us, because our license to operate depends on a guarantee to the customer that a product will arrive where and when it is needed, without fail.
As I have said before, AmerisourceBergen functions best when it is invisible. Having to cope with a product shortage that we are not prepared for is not conducive to that aim. I have spent a lot of time since then to improve our capacity to anticipate any problem in the supply chain and to execute corrective measures quickly, with minimal impact on our customers and patients. I’d say that is one of my most important accomplishments to date.
PE: When we first spoke you cited the importance of raising the drug distributor’s profile in public policy debates, noting that a low level of political engagement had led to AmerisourceBergen missing out on some important reimbursement provisions of the signature health reform exercise, the 2010 Affordable Care Act. What is your view on the political climate confronting the industry today? How well is the biopharmaceutical industry doing to manage its growing exposure to reputational challenges?
Collis: The record of the biopharmaceutical industry in developing medicines that save and extend lives is a remarkable achievement. At AmerisourceBergen, we see firsthand how these therapies are productively deployed in the healthcare system to improve the state of health for millions of patients. We are proud to be doing our part, in partnership with the industry, to deliver the positive outcomes that providers, patients, and the political leadership of this country expect. It is critical that we retain the policies that have contributed to making the US the global center for life sciences innovation. The danger is, if we don’t, the US will face more global competition from countries that want to use industrial policy to take that title away from us.
There is so much focus today on the pricing of pharmaceuticals. The truth is that medicines account for only around 12 to 13% of total healthcare costs. The public is not aware of this fact. Drug therapy is also one of the most efficient contributors to the health system, actually lowering the costs of other types of care, such as hospitalizations. What would physicians do without the ability to prescribe thousands of products that safely treat and cure an innumerable number of ailments? Such fundamental facts are obscured, in part, because of DTC advertising focused on “lifestyle” conditions that appear to be trivial. But we know the biopharmaceutical business-they are, to us, the folks downstairs. And we believe the industry is as committed to quality patient care as we are. Medicines, when used correctly, do something essential: they improve wellness. The options now available to achieve this make today an unprecedented, extraordinary time for the average patient.
PE: Most politicians familiar with healthcare look at distributors like AmerisourceBergen as a key driver of system-wide efficiency. The biopharmaceutical industry has evidence to make the same argument, but it does not stick. Why is this-could it be that distributors can also point to much lower margins compared to the profits retained by drug makers?
Collis: I visit many political officials in the course of my work. It is true our business is not commonly associated with extravagant returns. Our overhead is quite low compared to the rest of the healthcare community as a whole. It is wrong, however, to assume that high margins are a sign of inefficiency or system failure; it simply requires an extra effort at explaining where the added value is. It is also very important today for all private enterprises engaged in healthcare to define its principal stakeholders in the broadest way possible. Yes, it is important to be responsive to the interest of shareholders in maximizing profit, but we are also giving more prominence to the patient as well as the more diverse communities we now encounter as our business expands. Two years ago, we launched a Foundation to raise our profile in places like inner-city Philadelphia, where, among other things, we are funding a community-based independent pharmacy operating at a Project HOME’s health care wellness center in one of North Philadelphia’s poorest neighborhoods. Last week, I hosted the inaugural event for a new industry initiative with the American Cancer Society, called CEOs against Cancer, where we raised over $1 million for cancer research. All of this work helps us counter the claim that profits in healthcare simply reinforce the larger problem of economic inequality in our society. The correct perception is to see us as a source of economic opportunity-and better health.
PE: Looking ahead, from a strategic standpoint, who will AmerisourceBergen’s key customers be in 2020? Do you see any disruptive changes to this essential business demographic?
Collis: I never could have predicted in 2011 that today we would be in the animal health business. I think it’s vital to a company’s growth momentum to be open to forming new relationships. There are so many shared parallels among our many businesses, such as between our Good Neighbor Pharmacy network, independent veterinary practices, and the community oncologists. The parallel is that each of them is a small player competing against behemoths. For example, if you are a group of oncologists practicing independently in downtown Philadelphia, you have little choice but to confront that elephant in the room called Penn. What are the tools the practice will need to be successful in differentiating itself from one of the country’s largest and most prestigious academic teaching hospitals?
AmerisourceBergen Specialty can help answer that question. We offer reimbursement modeling, predictive analytics, and customized medication adherence programs like PrescribeWellness. In the future, I expect we will be doing more for the small oncology practice in areas like proactive communications with other providers, billing and contract systems management, and KOL value proposition strategies. What is most interesting to me about this is the ability to spread learnings to all our other businesses. Jim Cleary, who runs the MWI business, is now looking at how we can apply the community oncology support program to veterinarians in small group practice.
Look at it from a bit wider perspective. We know that the average patient we serve is getting older. Patients are living longer and are healthier, in part because they are taking more medicines. When they do get sick, they go to hospitals, where they will receive sophisticated, high quality drugs that must be labeled correctly and prepared in a sterile, infection-free environment-that’s where the value of our new acquisition, PharMEDium, kicks in. And guess what? Our patient’s pets are living longer, too, with chronic conditions that will require more maintenance therapy. That’s what we want to be in this business as well.
The message here is that we will keep on adding businesses, technologies, and capabilities that make sense to AmerisourceBergen’s customers and patients. I think we are very good at integrating new opportunities; it’s now an ingrained part of our culture. For many years, AmerisourceBergen put most of its free cash flow into stock buybacks, which is good for our shareholders, yielding a solid short-term return. Today, I think it’s much better to invest in a good business because the value of that transaction is locked in forever. It creates the growth dividend necessary to become a truly global enterprise-that’s the end game. It will define my legacy.
William Looney is Pharm Exec's Editor-in-Chief. He can be reached at firstname.lastname@example.org.