Omnicare, Inc.

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Omnicare, Inc.

1600 RiverCenter II
100 East RiverCenter Boulevard
Covington, Kentucky 41011
U.S.A.
Telephone: (859) 392-3300
Fax: (859) 392-3333
Web site: http://www.omnicare.com

Public Company
Incorporated: 1981
Employees: 9,300
Sales: $2.15 billion (2001)
Stock Exchanges: New York
Ticker Symbol: OCR
NAIC: 422210 Drugs and Druggists’ Sundries Wholesalers

Omnicare, Inc. is the nation’s major provider of pharmaceutical products and services to nursing homes, assisted living institutions, and other long-term care facilities. Its pharmacies usually provide prescription drugs and pharmaceutical consulting services to geriatric institutions located within a 150-mile radius. It buys many of its drugs from wholesale distributor McKesson Corporation, but increasingly purchases drugs directly from manufacturers. Related services include infusion therapy, computerized billing and drug monitoring, and dialysis services. Omnicare also uses its relationships with nursing homes to serve as a contract research organization (CRO) that conducts a wide variety of clinical trials in 27 countries for pharmaceutical and biotechnology companies.

Origins and Changing Directions in the 1980s

On May 19, 1981, Omnicare, Inc. was incorporated under the laws of Delaware. The company was started to operate healthcare services that it had gained from W.R. Grace & Company and Chemed Corporation. On May 20, 1981, the company chose Edward L. Hutton, a longtime W.R. Grace officer, as chairman and Joel F. Gemunder as president; they continued to lead the company for many years. Two months later, in July 1981, Omnicare began publicly trading its common stock.

Omnicare and Chemed remained closely entwined for several years. Chemed had started as a W.R. Grace subsidiary in 1971 with Edward L. Hutton as its president and CEO. In 1982 Chemed became totally independent as a public entity. Other Omnicare officers or directors, such as Jon D. Krahulik and Kevin J. McNamara, also served as Chemed leaders, while Chemed owned a great deal of Omnicare common stock. In addition, Omnicare for many years subleased its corporate headquarters from Chemed in Cincinnati.

In its early years Omnicare ran a variety of businesses that generally provided products and services to hospitals. In 1984 Omnicare acquired Labtronics, Inc. for an initial payment of $3 million in cash and stock. Based in Palo Alto, California, Labtronics served hospitals by maintaining and repairing their medical equipment.

Several general and specific problems made Omnicare’s hospital focus problematic. The average patient spent less time in the hospital, and hospital occupancy rates declined rapidly in the 1980s to only about 50 percent. At the same time outpatient and home-based care increased. Reflecting those trends, in 1982 Omnicare lost 14 contracts with American Medical International Inc., which owned and operated hospitals. Another 12 hospital and pharmacy contracts ended with American Medical in 1984, and ten more such contracts expired in 1986.

In 1984 Omnicare President Joel F. Gemunder also mentioned that the federal government’s restrictions on hospital costs reimbursements hurt Omnicare’s business. Thus the company tried to shift to serving home-care patients, which grew to about 25 percent of Omnicare’s revenue in 1984. Omnicare left the home-care field, however. Meanwhile, it reduced its hospital business.

In 1983 Omnicare reported revenue of $200.4 million and net income of $17.7 million. Revenue rose in 1984 to $211.8 million. Almost half (44 percent) of Omnicare’s 1984 revenue came from its Los Angeles subsidiary, called HPI Health Care Services, which provided 125 hospitals in the United States with pharmacy and other medical management services.

In 1985 Omnicare began a series of major changes, including both divestitures and acquisitions, that reoriented the company to focus on providing pharmacy services to nursing homes and other institutional customers. It tried to sell HPI Health Care Services to Hospital Corporation of America, the nation’s first multihospital corporation, but those negotiations fell apart in 1985.

In 1986 Omnicare sold two businesses. Early in the year it sold the hospital products division of its Inspiron Corp. to Intertech Resources Inc. for $13.3 million. That division manufactured and distributed disposable respiratory products for hospitals. In the fall of 1986 Omnicare sold Reliacare Inc., a subsidiary chain of home healthcare dealerships, to National Medical Care Inc. of Waltham, Massachusetts.

In 1988 it completed the first of many acquisitions of companies that provided pharmacy products and services to geriatric institutions. Then in 1989 it sold HPI Health Care Services to Diagnostek Inc. for about $27 million. That was a major step, since it marked Omnicare’s departure from the hospital pharmacy business.

Growth in the 1990s and Beyond

In 1990 the 1987 Omnibus Budget Reconciliation Act was implemented. The act strengthened the federal government’s regulations that required nursing homes to hire pharmacy consultants to ensure better patient care. Omnicare provided such services by monthly reviewing each patient’s drug program, monitoring adverse reactions, advising better therapies, and checking each facility’s record keeping and drug administration policies.

In the early 1990s Omnicare abandoned more businesses as a way to focus on its institutional pharmacy sector. Thus in 1990 the Bunn/Xorbox Group was divested, and in December 1992 it sold the Veratex Group of businesses, except for Labtronics, Inc., to Chemed Corporation for $62 million cash. At the time Chemed held 27 percent of Omnicare’s stock. In 1993 Omnicare divested Labtronics, which was the last step in eliminating its medical and dental products businesses.

At the same time Omnicare continued to acquire companies that provided pharmacy services to nursing homes. In 1992 it acquired seven midwestern companies: Westhaven Services Co. in Toledo, Ohio; Pharmacare, Inc. and an affiliated firm in Louisville, Kentucky; PRN Pharmaceutical Services, Inc. in Indianapolis; Home Pharmacy Services, Inc. in Belleville, Illinois; Crystal Care Corporation in Ashland, Kentucky; Interlock Pharmacy Systems in St. Louis; and Tulsa’s Ross Drug, Inc.

Whereas Omnicare in the early 1990s still was in the early stages of building its pharmaceutical business, its sales were much less than before all of its divestitures. In 1991 sales were just $38.3 million and net income from continuing operations was $1.2 million. In 1992 the company reported a 169 percent increase in sales to $102.99 million and net income from continuing operations of $3.4 million.

Four more acquisitions were done in 1993, again all in the Midwest. They included Freed’s Pharmacy, Inc. in Overland Park, Kansas; Kansas City Nursing Services in Kansas City, Kansas; Enloe Drugs, Inc. in Decatur, Illinois; and Dover, Ohio-based Anderson Medical Services, Inc.

Seven Omnicare acquisitions followed in 1994: Griffith, Indiana’s Care Pharmaceutical Services, Inc.; Schaufler Prescription Pharmacy in Belleville, Illinois; Weber Medical Systems in Skokie, Illinois; Wadsworth, Ohio’s Lo-Med Prescription Services, Inc.; Unicare, Inc. in Montgomery, Alabama; Lawrence Medical Supply, Inc. in Deerfield, Illinois; and Kirkland, Washington’s Evergreen (including Evergreen Pharmaceutical, Inc. and Evergreen Pharmaceutical East, Inc.). Omnicare thus extended its consolidation strategy from the Midwest into parts of the South and West.

Omnicare spent $87 million for its seven 1994 acquisitions, which brought its total number of acquisitions up to 24 for an investment of about $213 million. To finance these acquisitions, in November 1994 Omnicare raised a net of $59.2 million through a public offering of its common stock. In February 1995 it signed an agreement with a six-bank consortium to replace its $50 million credit facility with a new five-year revolving credit facility of $135 million. By the end of 1994 Omnicare served about 147,600 individuals living in 1,725 institutions in 13 states: Alabama, Indiana, Illinois, Kentucky, Kansas, Michigan, Missouri, Montana, Ohio, Oregon, Oklahoma, West Virginia, and Washington.

To assist its institutional customers, in June 1994 Omnicare came out with its trademarked “Geriatric Pharmaceutical Care Guidelines,” which it believed was “the first clinically-based formulary for the elderly residing in long-term care institutions,” according to its 1994 10-K annual report. Developed just for Omnicare by the Philadelphia College of Pharmacy and Science, the Guidelines considered patients’ health conditions, cost comparisons, and other factors.

The company’s growth led to new offices. In late 1996 it had too many employees for its Chemed Center headquarters in Cincinnati, so it moved ten employees to a small office in Covington, Kentucky’s RiverCenter office tower. This initial move came after the Kentucky Economic Development Finance Authority in November 1996 authorized tax incentives to get Omnicare to cross the Ohio River to nearby Covington. In 1997 Omnicare decided to move its headquarters to the newly built second RiverCenter tower, where it remained after the turn of the century.

Company Perspectives

Omnicare has a direct impact on the health of senior citizens. We have leveraged our pharmaceutical expertise to create unique databases and proprietary clinical information services, all focused on providing the safest, most appropriate, most cost-effective drug therapies for the elderly. Our programs and services encourage early diagnosis and treatment, since this usually provides the best quality of life at a lower cost.

In 1997 Omnicare purchased West-Val Care, the long-term care segment of Encino, California’s West-Val Pharmacy Inc.

With annual revenue of $3.5 million, West-Val Care furnished long-term patients with pharmaceuticals and related products and services. In September 1997 Omnicare acquired Brookside Park Pharmacy Inc. Based in West Seneca, New York, Brookside served about 8,000 nursing home patients from its pharmacies in West Seneca, New York; Dunlap, Illinois; and Abilene and Tyler, Texas. The Brookside acquisition marked Omnicare’s first operations in Texas.

Another 1997 acquisition was Pharm-Corp of Maine Inc., whose pharmacies served 40 Maine nursing homes and similar institutions. This marked Omnicare’s entry into the nuclear pharmacy industry in which nuclear isotopes were given to patients to help doctors diagnose internal ailments.

Omnicare announced in August 1997 that it was moving ahead on its largest acquisition to date. It said that it would pay $222.6 million and assume $11.6 million in debt to acquire American Mediserve Corporation, a Naperville, Illinois pharmacy services firm that served 51,400 persons in 11 states. In addition, American Mediserve served another 27,000 individuals through a joint venture. It had annual revenues of $144 million.

In December 1997 Omnicare completed its acquisition of Coromed Inc. of Troy, New York, a company that contracted with pharmaceutical and biotechnology firms to provide research services. This was Omnicare’s first acquisition of a contract research organization (CRO), which took advantage of Omnicare’s already existing relationships with numerous nursing homes and other long-term healthcare institutions. This was a major turning point for Omnicare, for now it was involved in the testing of new drugs, not just the distribution of drugs.

At the end of 1997 Omnicare provided its pharmacy services to about 443,100 individuals in 5,500 nursing homes, retirement centers, and other long-term care facilities in 37 states. Some 7,450 workers, including 1,796 part-time, were employed at the end of the year. In its 1997 10-K annual report to the Securities and Exchange Commission, Omnicare said that it was “the largest independent institutional pharmacy company in the U.S.”

The company’s sales grew steadily from $223.1 million in 1993 to $307.7 million in 1994, $399.6 million in 1995, $536.6 million in 1996, and $895.7 million in 1997. Meanwhile, Omnicare reported its net income rising from $11.25 million in 1993 to $13.5 million in 1994, $24.8 million in 1995, $43.45 million in 1996, and $55.7 million in 1997.

In 1998 Omnicare grew rapidly by acquiring 11 other companies, including IBAH, Inc. of Blue Bell, Pennsylvania, a product research and development company with annual sales of $88.1 million and 22 offices in 16 nations. Acquired for $63.3 million in stock, CompScript Inc. provided mostly pharmacy management services to about 20,000 patients in 137 nursing homes and long-term care facilities. Other 1998 acquisitions included Premiere Institutional Pharmacy Inc. based in Van Nuys, California; Med World Pharmacy Inc. in Valley Cottage, New York; and Inpatient Pharmacy in Hauppauge, New York.

Omnicare continued to grow by acquisitions in 1999. It gained Life Care Pharmacy Services Inc., a subsidiary of Cleveland’s Life Care Services of America Inc. and Cedar Rapids, Iowa’s Pharmacy Care Associates to build up its geriatric pharmacy distribution business, while strengthening its contract research capabilities by acquiring Institut für numerische Statistik Dr. Hasse GmbH in Cologne, Germany.

Omnicare Inc. in 2001 increased its revenues to $2.15 billion from $1.97 billion the year before. Its 2001 revenues earned it a ranking as the nation’s 657th largest company, according to Fortune on April 15, 2002. In the healthcare industry, Omnicare was listed as the 26th largest company. In 2001 Omnicare also had profits of $74 million, a healthy 52 percent annual increase, and 9,000 employees, down 3 percent from 2000.

In January 2002 the company completed a major acquisition by buying most assets of American Pharmaceutical Services Inc., which served patients through its 32 pharmacies in 15 states. Once again Omnicare continued its role as a major consolidator of the geriatric pharmaceutical distribution and consulting industry.

Key Dates

1981:: Omnicare is incorporated and its common stock begins to be publicly traded.
1985:: The company begins emphasizing pharmacy services for long-term care facilities.
1989:: Diagnostek in August acquires HPI Health Care Services, Inc. from Omnicare.
1990:: Omnicare divests the Bunn/Xorbox Group.
1992:: Selling the Veratex Group completes the transition to a geriatric pharmaceutical firm; seven acquisitions are completed.
1993:: Omnicare acquires four companies.
1994:: The Omnicare Guidelines is introduced to help clients provide better services; seven institutional pharmacies are acquired; Heartland Healthcare Services is started as a 50/50 partnership with Health Care and Retirement Corporation.
1996:: Seventeen more institutional pharmacies are acquired.
1997:: Coromed Inc. acquisition begins Omnicare’s contract pharmaceutical research business.
1998:: Omnicare acquires 11 more companies.
1999:: Omnicare acquires Life Care Pharmacy Services and Pharmacy Care Associates.
2002:: In January Omnicare completes its acquisition of American Pharmaceutical Services.

Omnicare proved to be a great example of a company that changed directions to take advantage of healthcare and demographic trends beginning in the 1980s. Since hospital occupancy rates fell and numerous community hospitals closed their doors, Omnicare quit providing products and services for such large institutions. Second, it shifted to serving the rapidly aging American population by providing pharmacy services to nursing homes, assisted living facilities, and other geriatric institutions. Omnicare’s focus on such smaller facilities was part of a general decentralization trend in the postindustrial Information Age.

Principal Subsidiaries

Omnicare Pharmacy and Supply Services, Inc.; Omnicare Pharmaceutics, Inc.; Omnicare Management Company; Omnicare Holding Company; Omnicare Clinical Research; Quebec, Inc.; ComScript, Inc.