Magazine article Drug Topics

Neuman Bankruptcy No Surprise to Insiders

Magazine article Drug Topics

Neuman Bankruptcy No Surprise to Insiders

Article excerpt

To those outside the pharmacy supply realm, Neuman Distributors seemed to have the world by the tail. Despite being regional by definition, Neuman had annual sales of more than $2 billion, ranking it as the largest privately held drug wholesaler in the country and the sixth-largest wholesaler overall, according to the National Wholesale Druggists' Association's 1999 NWDA Industry Profile and Healthcare Factbook. The company ranked 11th on Crain's New York Business' 1998 list of the top 250 privately held companies in the New York area and 77th on Forbes magazine's 1998 list of the 500 largest privately held companies in the United States.

The company had about 1% of the national wholesale drug market, though estimates of its market share in the New York metropolitan area ran as high as 25%. In March 1999, Neuman opened a state-of-the-art, 330,000-sq. ft. distribution center in Teterboro, N.J., with the capacity to warehouse and ship more than 45,000 items. Its customer base included nearly 3,000 independent and chain drugstores, along with more than 350 hospitals and managed care organizations. Yet when Neuman filed for bankruptcy last month, it reportedly owed more than $100 million to its suppliers.

Rumors of Neuman's impending demise had been circulating for months. "It's not a huge surprise," said David Buck, an analyst with the Buckingham Research Group in New York City He said that the company had been facing a certain amount of financial hardship "due to the cost of that distribution center" and added that the bankruptcy filing may also reflect difficult business conditions for regional drug distributors.

While the top five wholesalers may benefit from price competition in the industry because of their economies of scale, "it's more difficult for the regional players to compete for large national contracts. They don't have the base of business, the leverage across their costs," Buck explained. "If you have enough revenues and can do things efficiently, with sufficient volume, you can take lower margins and still make money."

Mark Doyon, NWDA director of marketing, communications, and product development, agreed that industry insiders knew the company had some problems, though "there were few outward signs." However, he disputed the notion that Neuman's troubles are indicative of business conditions for regional wholesalers in general. …

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