Skip to main content

The Globe and Mail

Rexall’s buyer thirsty for Canadian pharmacy assets

A Rexall drugstore is shown in Ottawa, on Wednesday, March 2, 2016. National drugstore chain Rexall Health is being sold to U.S. health care giant McKesson Corp. as part of a $3-billion deal, the two companies announced Wednesday, March 2. THE CANADIAN PRESS/Justin Tang

McKesson who? The American company buying Rexall for $3-billion barely registers with the average Canadian, but McKesson Corp. – with $179-billion (U.S.) in revenue in 2015 – is a big name in the pharmacy world and has been on a buying spree here for the past eight years.

The Canadian acquisition campaign commenced in 2008, when San Francisco-based McKesson bought 270 independently owned pharmacies operating under the Proxim and ProxiMeds brands in Quebec. The company then tried to buy Uniprix, Quebec's largest pharmacy operator. Despite board approvals from both sides, however, the deal was struck down by pharmacists who didn't like the terms.

The latest deal for Rexall deepens an existing relationship with the Katz family. McKesson bought franchised pharmacies operating under different banners including IDA and Guardian Drugs from the Katz Group, which owns Rexall, for $920-million in 2012. McKesson has also long been a drug supplier to Rexall's corporate-owned stores. Now, it's buying those very locations outright.

Story continues below advertisement

Before the Rexall purchase, McKesson owned the banners for 1,900 of Canada's 9,000 pharmacies. The latest transaction adds 470 drugstores – as well as other assets, such as ClaimSecure, a health-care management and technology firm.

The retail-buying spree is tied to McKesson's diversification strategy. Drug pricing is rapidly changing in Canada as provincial health plans increasingly turn to much cheaper generic drugs.

In 2005, generic drugs accounted for 44 per cent of all prescriptions in Canada, according to IMS Health; by 2014, that market share jumped to 67 per cent. Because generics cost less than their private-label counterparts, margins are squeezed through the entire distribution chain.

McKesson's diversification has also included building a unit that focuses on unique drugs and complex treatments, such as infusions. Medical conditions addressed include Hodgkin's disease and Crohn's disease. The division was set up in 2004 and got a kick-start with the acquisition of Canadian-based Phase 4 Health.

While the company has been building out in Canada, its roots lie in pharmacy deliveries. Before 1991 it was known as Medis Health and Pharmaceutical Services, and it focused on wholesale drugs and distribution. McKesson bought the firm from its Canadian owners that year, and a decade later changed the name to that of its U.S. parent.

At the same time that McKesson has expanded its retail pharmacy arm, it has also had to upgrade the legacy business. In 2013, the company announced plans in Ontario to streamline some of its distribution centres. Last year a new, more efficient facility that is largely automated was opened in Trenton, Ont.

McKesson does not break out its Canadian profit when reporting earnings; however, its $10.7-billion (U.S.) in revenue last year made it the sixth-largest private company operating in Canada, according to The Globe and Mail's annual rankings.

Story continues below advertisement

Report an error Licensing Options
About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨