Stocking the Flu Vaccine a Delicate Business; Many U.S. Suppliers, Including Jacksonville-Based PSS, Are Finding Supply and Demand Is Hard to Predict

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PSS World Medical had hoped to distribute 2.1 million doses of flu vaccine to about 6,000 physician offices nationwide. But production delays by manufacturer Chiron Corp. will likely cut the supply in about half, a top PSS executive said.

Before each flu season, the Jacksonville-based medical equipment distributor to physician offices and elder care facilities makes a gamble -- albeit an educated one -- that could cost it millions of dollars.

This year PSS had expected $20 million -- or a little over 1 percent of its 2005 projected revenues -- from vaccine sales, chief operating officer Gary Corless said. The company would not disclose its profit margins on flu vaccines but said sales of the product are expected to generate about $1 million in annual profits.

Corless and his team calculate the annual vaccine order based on projected demand from physician customers, hardly a rock-solid indicator.

Customers can cancel an order if the flu season proves to be sluggish. Some physicians also pre-order from multiple vaccine manufacturers to hedge against a production shortage by any one company.

The cost of misjudging demand can be steep. Overestimating could leave PSS saddled with excess inventory because unused vaccine can't be returned to the manufacturer and must be destroyed by the end of the season.

Buy too little vaccine and Corless will likely get an earful from disgruntled customers.

This makes the flu vaccine distribution business financially iffy -- PSS's vaccine venture has merely broken even over the past decade.

"If we used the normal risk-reward scenario, we would never be in this business," Corless said. "This has a much higher risk for a much lower reward than anything we do."

Yet PSS persists, saying supplying the flu vaccine is an "added service" to its customers who buy its other products from tray tables to diagnostic equipment.

"We are in it because we supply [more than] 100,000 physician offices and they ask us to be in this business," Corless said. "They buy everything else from us. You can't really say, 'Sorry, this one is hard for us, so go somewhere else. …


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