DrugMax poised to bolster specialty, worksite business

Drug Store News,  Oct 10, 2005  by Antoinette Alexander

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FARMINGTON, Conn. -- Specialty pharmacy and drug distribution provider DrugMax continues to set its sights on bolstering the specialty pharmacy and worksite pharmacy business and has gained additional support from institutional investors and a major bank to do just that.

Late last month, the company, which merged with Familymeds in November, announced that it had agreed to sell more than 40 million shares of its common stock and warrants to buy more than 20 million shares of its common stock with an exercise price of $1.09 per share. In addition, the company entered an agreement to sell 2.6 million shares of its common stock and warrants to purchase 1.3 million of its common stock with an exercise price of $1.20 per share.

The $51.1 million in proceeds will be primarily used to pay down debt and provide the company with capital to expand its base of specialty pharmacies and employer-sponsored worksite pharmacies. Those are two areas co-chairman and chief executive officer Ed Mercadante has, in the past, identified as key growth drivers going forward.

To provide even greater financial flexibility, the company, which operates 77 specialty pharmacy locations, has signed a commitment letter with Wells Fargo Retail Finance to refinance a new $65 million loan.

With its bolstered financial support, DrugMax is positioned to become an even greater player in the specialty pharmacy business. In earlier discussions with Drug Store News, Mercadante has said a key growth initiative for the company is to revamp the former DrugMax distribution platforms so it can sell, through an inside sales force and direct marketing campaigns, specialty drugs directly to doctor's offices, pain management centers and acute ambulatory clinics.

During its second quarter conference call in August, Mercadante said future growth areas also include organically opening more units in or near medical campuses, potential acquisitions of apothecary pharmacies in or near medical facilities, patient programs like diabetes and mental health and employer-sponsored worksite pharmacies.

The latter is a particular area where DrugMax sees great potential. In fact, news of its private placement investments came just as the company revealed that it has signed a contract with Scotts Miracle-Gro Co. to open in late 2005 a worksite pharmacy at Scotts' corporate headquarters in Marysville, Ohio. The full-service pharmacy will be located in the new Scotts Wellness Center.

Prescriptions will be available for pick-up at the pharmacy, which will include a drive-through window. DrugMax will become Scotts exclusive mail order pharmacy for distributing medications to those who live and work outside of Ohio. The facility also will sell some home medical equipment and supplies and will offer a limited supply of over-the-counter medications, vitamins and nutritional supplements.

This marks DrugMax s second worksite pharmacy. In December, the company opened its first such location at the Mohegan Sun Casino, a move that is now saving the casino 9 percent annually on its overall drug benefit expenses.

Including the new Scotts worksite pharmacy, DrugMax expects to serve more than 30,000 worksite pharmacy patients.

Given the rise in health costs and the growth potential in the worksite pharmacy arena, this is sure to be an initiative that will quickly gain momentum. With greater liquidity and financial flexibility in place, DrugMax appears to be well positioned for the future.

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