The McKesson Growth Study

The McKesson Growth Study

Since its incorporation in the early 19th Century, McKesson has constantly grown and expanded its range of medical solutions to cater to global healthcare needs. Let’s take a look at McKesson’s inspirational journey…

One of the oldest and largest healthcare companies in the United States of America formed in the early 19th Century, Mckesson has always been active - even more so in times of global healthcare crises such as influenza and Covid-19. What’s even better is that it shows no signs of stopping - none whatsoever - as it continues to lead the fight against Covid-19, being the key distributor of vaccines in the US.

One of the most admirable things about McKesson is its early investment in medical technology and its strategic expansion policy. Courtesy of the continuous diversification in the range of products and services it provides, McKesson has been able to triple its revenue since 2005!

Following are a few facts and stats from 2021 that highlight the success achieved by McKesson:

McKesson has made commendable contributions to healthcare in the USA, Europe, and Canada, and is indeed, an indispensable company in the healthcare sector.

Let’s take a deeper look into the growth of the business right from 1833 to the pinnacle of the healthcare industry today…

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A History of Resilience

The journey of McKesson began in 1833 when it was founded by John McKesson and Charles Olcott in New York City. The company was established as a wholesale business, and within the first century of its founding, it became the largest drug distributor in the USA.

Throughout the years, one of the biggest aims of the company has been to create a robust supply chain for drugs and to ensure an efficient distribution system, which would improve national healthcare.

As with all huge successes, this one certainly wasn’t easy. McKesson was ranked #7 on the Fortune 500 companies in 2021, but it has reached this point after undergoing many challenges. One of the biggest of those was the juggling of ownership between different partners.

Changing Ownership

In 1833, the company was titled ‘McKesson & Olcott’ in honor of its two founders. With the death of Charles Olcott in 1853, a new partner - who was previously an employee of the company - was added, and the title was subsequently changed to ‘McKesson & Robbins’.

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At that point, the operation of the company was relatively smooth; McKesson had a good reputation and had spread its market into seventeen states across America.

John McKesson died in 1893, and his heirs left the company to pursue other fields. A few years later, the company was sold to Frank D. Coster, which was when the real challenge started. Coster was a pseudo-name, devised to hide a criminal. A quick search on ‘Philip Musica’ will tell you all you need to know about the history of crime that the Musica family was notorious for. Nevertheless, the company continued its operations unknowingly, until it was investigated in 1938 and it was discovered that Coster had committed embezzlement worth $3 million.

Following this event, Coster shot himself to death in 1939 while the company was left to pick up its pieces. While the company became associated with this scandal, the directors of the company were soon able to rid McKesson of the bad reputation wrought by the criminal-in-disguise.

As we will see ahead, the company achieved remarkable feats since it was established despite the obstacles it faced.

From a Small Company to the Largest Wholesale Distributor

Considering McKesson’s history, it is surprising to notice that the company didn’t just hold out during the crises, it also managed to expand while doing so. Despite its changing ownership titles, McKesson managed to keep a laser-eye focus on its aims as a business. As a result of that, the company became the ‘first-ever nationwide wholesale pharmaceutical drug distribution network’ during the first century of its establishment.

In 1833, when the company was just starting out, the company imported drugs from Europe and spices from Pennsylvania Shaker Colonies. Therefore, from the start, the product lineup was not limited to chemical drugs but also included herbal ones.

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Under Robbins, the company expanded its drug distribution network into 17 states and by 1900, the company managed to convince other large wholesale distributors to become McKesson’s subsidiaries. Coster, who we’ve already discussed above, cost the company much in terms of reputation but he was also the one who expanded the business into 42 cities by going on an ‘acquisition spree’ during the Great Depression. Meanwhile, by 1905, McKesson Canada had been established as well, serving as proof of the company’s progress.

Mobilizing Resources for the Sick

Medicine is a tricky business; you never know when a healthcare crisis could break out. McKesson has had an excellent disaster preparation policy from its beginning. So, when influenza broke out in 1918, creating panic all over the world, McKesson readily made lozenges available to decrease the impact of the flu.

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The company was also active during the war and provided Penicillin, a drug that prevents and cures infectious diseases. Not only was McKesson engaged in the distribution of the medicine, but it was also involved in the experimental production of the drug, and was, therefore, recognized by the Wartime Production Board in return for its quick response and active effort.

Key Takeaway 1: Have a Laser-Eye Focus On Your Core Objectives

In order to handle scandals, it’s better to focus on the present and the future, than to ruminate over what’s already happened.

With the suicide of Coster, McKesson continued to run its operations smoothly and in compliance with the new auditing standards. What’s more, the company didn’t compromise on its main goals and continued to expand its drug distribution network, and was even able to expend its efforts during the war, which closely followed the scandal.

The result of their unwavering focus was that the customers were able to trust them. A business can’t thrive if the customers are unhappy, and McKesson managed to achieve customer satisfaction even as it was emerging from the misadventure that Coster had led it into.

Exploring New Avenues

We’ve already seen that McKesson was a company that was hard to take down. With its priorities set straight, McKesson continued to work as the largest drug distributor in the United States. However, the ambition didn’t run dry following the scandal of the 1930s. In fact, in the subsequent years, the company continued to expand and diversify, testing the market for different products.

Foremost Diaries Takes Over

Before delving into the history of McKesson’s many mergers, acquisitions, and sales, once again, let’s look at another low period in the life of the company.

In the 1940s, McKesson continued to operate smoothly; it was experimenting in its laboratories as already mentioned and was quite active during the war. However, its peaceful existence was rudely interrupted by the takeover of Foremost Dairies. At that time, the people heading McKesson weren't particularly happy with this takeover, so relationships between McKesson and Foremost remained strained.

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What’s more, the owner of the joint company didn’t know how to organize the two diverging companies. From 1967 to 1974, the company suffered under the leadership of Rudolph Drews, as he struggled to establish the company’s image under a single title. However, he was known better for acquiring companies rather than running them, and so was voted out in a board meeting in 1974.

McKesson was luckier under Drews’s successors. After 1974, the directors had two main goals.

The first one was to streamline the company’s image. At that point, half the people knew the company as a drug company while the other half knew it as a producer of dairy products.

The second goal was to change the company’s role of the ‘middleman’ into something larger. As a result, due to their efforts, the company took on a marketing role alongside its role as a wholesale business. We will look into this further below.

Ironically, the Foremost Division was sold in 1983 as part of the restructuring process, after which Foremost-McKesson continued as ‘McKesson’ once again.

Beyond the Role of the Middleman

As mentioned earlier, McKesson was a company that took full advantage of the advent of technology. One of its many projects was what the Harvard Business Review dubbed as 'value-adding partnerships' through which it empowered independent drug-sellers and lowered their costs. Since the Foremost leaders were concerned with the idea of being the 'middleman', attention was directed toward data processing procedures that would aid both suppliers and customers. A huge part of this was automation in the warehouse and in data processing, which ultimately led to an average profit growth rate of 20% per annum.

So, what are these ‘value-adding partnerships’?

These were McKesson's solutions to the competition that threatened to eat up independent drug stores, which constituted a huge chunk of McKesson's market. Any threat to these drug stores, therefore, was an attack on McKesson itself. Therefore, the leaders of McKesson came up with an ingenious solution, allowing the independent drug stores to lower their costs by a considerable margin.

The solution was simple – McKesson worked on improving the data processing system through automation. Instead of manually recording the order and/or checking inventory, data collection devices were arranged which would complete these tasks for the stores.

McKesson was encouraged by the success of this endeavor. Hence, they began to play around with technology to help their customers with design store layouts, accounting, customer service, and so on.

What made the value-adding partnerships successful was that McKesson wasn’t just concerned with lowering costs, but also with increasing efficiency. McKesson, therefore, played a huge role in speeding up the entire process through its use of information technology. They sped up payments, provided information on sales, and used the technological system to process insurance claims. Their deep understanding of the complex dynamics of the supply chain allowed them to identify time lags and therefore, fix them wherever possible through automating the process and offering innovative services.

Expansion Continues

Alongside offering the aforementioned innovative services, McKesson also acquired many other businesses to expand its network. While most of these businesses were from the healthcare sector, before the 1990s, McKesson acquired a lot of other unrelated businesses that allowed them to diversify their product lineup.

For example, in 1979, McKesson acquired Armor All which served the automotive protective market, and expanded its product line to include car waxes, detergents, and spray cleaners. In 1981, the company purchased a chemical recycling plant (which later closed due to poor performance).

Furthermore, the takeover of Foremost allowed the new joint company to become the largest distributor of medication, chemicals, and alcoholic beverages in the USA. McKesson also sold processed water, the sale of which skyrocketed in the 1980s and 1990s.

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In 1983, the company acquired Zee Medical which provided first-aid products and was also concerned with occupational safety. This turned out to be a fruitful acquisition when the government tightened workplace safety restrictions in 2000. The company invested in the Health Mart Franchise, which was a network of independent pharmacies. Relay Health, the nation’s leading pharmacy network, was also acquired during this period.

HBO & Company, which also employed technology to provide healthcare services, was also acquired. McKesson was retitled McKesson-HBOC in 1999 before it reverted to its original name in 2001.

As can be seen above, McKesson was determined to integrate as many distributors and suppliers as possible under its parent title.

However, alongside these takeovers, there was also a constant battle to streamline the company’s products. Neil Harlan, the chairman of McKesson during the late 1970s and 1980s, was particularly insistent on restructuring. He was the one who ultimately sold the Foremost Division and commented that: “Any company that doesn’t stick to what it does best is inviting trouble”. As a result, in the 1980s, McKesson narrowed down its interests to healthcare-related products and services.

Later, in 2000, the McKesson Water Products division was also sold, solidifying its reputation as a distributor of healthcare products and services.

Key Takeaway 2: Think Outside the Box and Be Ahead of Your Time

McKesson has been able to come this far because it didn’t stick to its script. It broke out of its role as the ‘middleman’ by providing services that would ultimately increase the efficiency of the entire supply chain.

If you want to become successful, you need to identify the problems that aren’t obvious at first sight. McKesson understood that its success didn’t just rely on its own operations but on the operation of its suppliers and customers.

Furthermore, McKesson realized that technology would be the key tool through which it could defeat its competitors. Instead of waiting for the competitors to catch up, McKesson took the lead and employed technology to speed up the supply chain. In that way, it was ahead of its time, and later, many companies replicated McKesson's technological solutions to maximize their profits.

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Expansion through Strategic Acquisitions

McKesson achieved most of its expansion through strategic mergers and takeovers. Apart from coming up with avant-garde solutions to strengthen the supply chain, the company also kept its eyes peeled for gaps in local healthcare.

Number Two in Specialty Product Distribution

In 2010, McKesson had a 16% market share in the Specialty Product Distribution market, which was the second-largest share in the market. But how did it achieve that?

It began with the acquisition of a Group Purchasing Organization.

A Group Purchasing Organization or a GPO negotiates with manufacturers to help wholesalers seal the optimal deals in terms of cost, risk, and quality. This is very convenient for the buyer as it saves them the time of engaging in negotiations with the manufacturers. Therefore, in 2006, McKesson acquired the Onmark Group Purchasing Organization.

In 2007, the company had also acquired the Oncology Therapeutics Network. This corporation was a distributor of specialty drug products, serving more than 3500 oncology specialists at that time.

McKesson’s next big purchase was that of the US Oncology Network and the US Oncology Research Center. This transaction was carried out in 2010, following which McKesson became the second-largest specialty product distributor.

The US Oncology Network, as suggested by its name, was a 'network' that connected physicians in order to provide the best healthcare for cancer patients. Through this network, physicians had access not just to resources and information, but also the opportunity to take part in clinical trials which would benefit cancer patients in the future. Considering the nature of the services the network provided, it isn't a surprise that this was a big win for McKesson.

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McKesson, however, didn’t just stop at becoming the second-largest specialty product provider. As can be seen from its history, the company was also committed to providing the best services to its customers.

Therefore, in 2016, McKesson took over Vantage and Biologics Oncology. Vantage Oncology was a big name in radiation oncology, medical oncology, and other value-based cancer care services while Biologics was a pharmacy services company that was committed to creating a cohesive care management system for cancer patients. Owing to the good reputation of both companies and the special services they provided, McKesson was able to leave a very firm footprint in the field of oncology healthcare. Furthermore, McKesson later expanded Biologics in 2019 to go beyond cancer and provide specialty care for other patients with rare conditions.

Apart from the acquisitions, McKesson also drew from its long history of combining technology and healthcare, launching Ontada in 2020. Ontada is an oncology technology and insights business, which allows oncology practitioners to research in the field of cancer. This company continues to function to this day, allowing data science and oncology doctors to combine their resources and allow for the best patient care system possible.

Expanding Expertise in Healthcare

Apart from the Oncology department, McKesson continued to secure its position in the healthcare market through other innovative solutions.

The company understood that healthcare wasn't just about clinical solutions. As a result, it was always on the lookout for ways to avoid administrative waste and reduce costs for its customers. The next series of mergers and acquisitions that McKesson made, therefore, were focused on identifying customer problems and solving them by joining hands with other firms.

In 2016, for example, McKesson acquired Change Healthcare. This company was combined with the McKesson Technological Division to create a new joint IT venture, which would focus on providing both clinical and financial solutions to customers.

McKesson acquired another company in 2016 called RxCrossroads. Among other services, RxCrossroads was known for providing special logistics services, sales operation support, and mail-order pharmacy services to pharmaceutical and medical device manufacturers. Through this acquisition, McKesson was able to provide support to its manufacturing partners, thereby strengthening the supply chain further. RxCrossroads was assimilated into the McKesson Specialty Health division.

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In 2017, McKesson also acquired CoverMyMeds. This was a big name in the healthcare industry, known for its service as an electronic prior authorization provider. The acquisition of this company ensured that McKesson’s clients would be able to avoid wasting time and energy on the prior authorization process of medication.

By 2018, McKesson had acquired one more company called Medical Services Distributors. Once again, this acquisition proved to be strategic as it helped McKesson provide services to clients seeking healthcare in their homes. Medical Services Distributors was specifically concerned with providing biomedical and technological solutions to home-based or low-cost sites of care.

McKesson was also careful not to forget its market in the UK. In 2019, through its acquisition of Echo, a startup based in the UK. Echo was a digital app that allowed patients to order medication online. Before the acquisition, McKesson had been Echo's supplier. The acquisition of Echo allowed the app startup owners to reduce their buying costs and therefore, speed up the digitization of pharmacies in the UK.

Despite all its acquisitions, McKesson didn’t forget its initial lesson on realigning and restructuring its different segments. In 2021, McKesson combined four of its acquisitions including RxCrossRoads, Relay Health, and Prescription Automation under the new brand name CoverMyMeds. This ensured specialization in prescription technology through the unification of leading names in the field.

Increasing Accessibility for Specialty Care Patients

As mentioned earlier, McKesson expanded into the specialty care market while also engaging in many mergers and takeovers to diversify its medical services.

In 2019, McKesson combined these two achievements by launching Access For More Patients. This was the combined brainchild of RxCrossroads and CoverMyMeds.

Access for More Patients was a technological platform that allowed quicker access to specialty medications for both physicians and patients. A case study showed that the platform made the process 27% faster. Furthermore, it increased patient enrollment completion by 92%.

Therefore, the launch of the platform was highly successful. Once again, McKesson blew away the market through its thoughtful and innovative solutions.

In Case of an Emergency

In the end, McKesson is a healthcare company. Apart from coming up with new ways to create ease for patients, McKesson was always on the standby for national healthcare emergencies. Keeping a vigilant eye on local situations, the company devised a strong disaster-preparedness policy through which it served victims of diseases and national disasters.

Through this policy, McKesson firstly ensured that there were enough support teams who would be able to aid the victims. These teams would check inventories, travel to affected places, and would be on standby for further emergencies. Secondly, McKesson also partnered with government agencies to speed up the delivery of medical supplies.

The effectiveness of the company's policy can be seen throughout its history. In 2005, when Hurricane Katrina hit the United States with a vengeance, McKesson was the company that increased access to critical medications. Following this disaster, the company also ensured that the process of delivering such medications would be speeded up through its partnerships with several private and public sector organizations.

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McKesson’s policy regarding national disasters paid off well. In 2007, it was selected by the Center for Disease Control as the national vaccine distribution vendor. This was following the rising awareness of the number of uninsured and underinsured children, who did not have access to vaccines. Through the joint efforts of the CDC and McKesson, more than 1.8 million children were able to protect themselves through vaccination.

The partnership with CDC continued in the following years. In 2009, when the H1N1 Flu hit the USA, McKesson, under CDC, was able to become the sole vaccine distributor for the disease. The scale of this distribution was huge - over 125 million doses were administered - and therefore, it went down as the largest public health initiative of the time.

McKesson's medical services were not just limited to the USA, however. When the deadly Ebola hit West Africa in 2014, McKesson donated a large number of medical relief supplies including disinfectants, latex gloves, and protective equipment kits. Therefore, the company understood its responsibility as a healthcare company; the nature of its company indicated that it had to think in terms of the people and not just the profit.

McKesson Responds to Covid-19

As the pandemic swept the world, all healthcare companies were scrambling to provide the necessary support to the patients. As a leading name in healthcare, McKesson took the responsibility of distributing vaccinations and providing as many medical supplies as possible.

During the Covid-19 period, McKesson continued its partnership with the Center for Disease Control and was eventually selected as the centralized distributor of Covid-19 vaccines in the USA. The company not just distributed vaccines but also the ancillary kits through which the vaccinations would be administered. Furthermore, it also ensured that an efficient distribution system was put in place, using technology and cold chain processes to speed up the process of delivery. By April 2021, McKesson had distributed over 185 million vaccines throughout the country and had gathered enough kits to administer 785 million doses.

McKesson also provided vaccines through its branch in Europe and took the lead in conducting vaccination pilots in Canada.

It is important to appreciate, however, that the Covid-19 period was not easy. Healthcare companies all over the world suffered from a shortage of medical supplies.

McKesson’s solution for the supply shortage was to use an allocations approach. This wasn’t an ideal situation but it ensured that as many customers could benefit from the medical supplies as possible. Over time, as the initial impact of the pandemic reduced, McKesson was able to reduce allocation measures on its products. However, with the Russia-Ukraine war, global supply is still constrained, and the company continues to take measures and communicate with global suppliers to provide the necessary equipment to its clients.

Key Takeaway #3: Become Client-Centric

McKesson grew exponentially ever since its establishment because of its countless mergers and takeovers. Once you take a closer look at its history, it becomes clear that these ventures weren’t random.

The reason is that McKesson was searching for gaps in the market. Despite being a healthcare company, it didn't limit itself to medical solutions. From the speed of delivery to administrative procedures, McKesson thought of every possible way through which its clients could be satisfied.

In other words, McKesson focused on the people, even as it generated huge profits and became a Fortune 500 company.

McKesson Today & Strategic Takeaways

Today, McKesson continues to be a leading name in national healthcare. Within two centuries of its establishment, the company has worked relentlessly to provide the best services to its clients.

Despite the challenges, McKesson has always understood the importance of developing the trust of clients. This is part of the reason why the company was chosen as the centralized distributor of Covid-19 vaccinations in the USA.

Considering McKesson's remarkable achievements throughout its history, therefore, the following numbers should come as no surprise.

Growth By Numbers

 

2021

2013

Revenue

$238.2 billion

$122.5 billion

Share Price

$248.57

$161.40

Workforce 

80,000

43,500

Total Assets

$65 billion

$34.7 billion

Strategic Takeaways

The McKesson journey comes equipped with a multitude of strategies that propelled the company to create a massive name for itself in the healthcare industry.

Here are the takeaways to note from its illustrious history of progress:

Focus On The Long-Term

The first few years of McKesson weren’t smooth. After all, being taken over by a famous outlaw isn’t exactly how one would want to start their business. However, despite the obstacles, McKesson has exceeded expectations ever since its establishment in 1833.

Consider this: in the late 1930s, McKesson was known for its scandal. Today, McKesson is the leading distributor of Covid-19 vaccinations in the USA - and not only that, it's made it to the Fortune 500 list!

McKesson didn't lose itself in the drama that followed Coster's suicide. It continued surveying the market for more opportunities to grow. From the beginning, the company was committed to providing the best healthcare products and services possible. Therefore, despite all the noise in the background, McKesson was able to achieve its goal through its concentrated effort and its knowledge of the market.

Creativity Leads To Progress

The value-adding partnerships spearheaded by McKesson were mentioned in the Harvard Business Review as a "beast" whose "presence is starting to be felt". In other words, the company's unique way of handling competition while increasing its efficiency was so brilliant that it occupied a large presence in the business world.

Essentially, instead of sticking to tried-and-tested methods of protecting small drug businesses, McKesson grasped at the idea of technology to get it through its rough patch.

Understand Your Business and Delight Customers

A large portion of McKesson’s market consisted of small, independent drugstores. Before the company introduced the value-adding partnerships, these drug stores were in danger of being swallowed by larger companies.

McKesson's position in the supply chain as a wholesale business and distributor made it dependent on the people above and below it in the chain. The company realized this, and therefore when any of the entities were in danger, McKesson swooped in as their savior.

In other words, instead of looking at direct links between services and profits. McKesson zoomed out and looked at the larger picture, thereby, identifying the more obscure link between large and small drugstores, which ultimately impacted McKesson’s profits.

Expand & Diversify

All the acquisitions in McKesson’s history served a particular purpose. With each takeover, the company didn’t merely add to its size but also to its service range.

It was through acquisitions that the company was able to become the number two business in specialty care distribution. It was also through acquisitions that the company was able to offer such a wide range of clinical, financial, and technological solutions to its clients.

Therefore, the McKesson growth story depicts the importance of competitor analysis and the key to growing and expanding horizons is firstly to delight the existing clients so they keep coming back for more and broaden the client base.

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