SMALL BUSINESS PROBLEMS IN THE DRUG INDUSTRY WEDNESDAY, APRIL 12, 1967 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ACTIVITIES OF REGULATORY AGENCIES OF THE SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met pursuant to recess, at 10:10 a.m., in room 2359 Rayburn House Office Building, Hon. John D. Dingell (chairman of the subcommittee) presiding. Present: Representatives Dingell and Conte. Also present: Gregg Potvin, subcommittee counsel; Myrtle Ruth Foutch, clerk; and John J. Williams, minority counsel. Mr. DINGELL. The subcommittee will come to order. This morning the House Small Business Committee Subcommittee on Regulatory Agencies will continue its inquiry into sundry pricing practices in the drug industry. The first witness this morning is Mr. Jack Mandell of M. Sobol, Inc., 507 East 165th Street, Bronx, N.Y. Mr. Mandell you are certainly welcome to give whatever testimony you choose to the committee this morning. The Chair notes two things. One, that you are under subpena, which means it is necessary for you to be sworn. I believe you are also represented by counsel this morning and would like to have him appear before the committee, too. Is that correct? Mr. MANDELL. Yes, sir. Mr. DINGELL. All right, sir. Please present yourself at the main table and raise your right hand. Do you solemnly swear that the testimony that you are about to give this morning is the truth, the whole truth, and nothing but the truth? Mr. MANDELL. I do. Mr. DINGELL. Please be seated and give the reporter your full name and address for purposes of the record. TESTIMONY OF JACK MANDELL, REPRESENTATIVE OF M. SOBOL, INC., BRONX, N.Y., ACCOMPANIED BY EDWARD WOODS, COUNSEL Mr. MANDELL. My name is Jack Mandell, 1540 Pelham Parkway, South Bronx, N.Y. Mr. Woods. And I am W. Edward Woods, New York City. Mr. DINGELL. The chair will recognize counsel for questioning. Mr. Mandell, could you give the subcommittee a brief biographical statement of your personal background, particularly with reference to the drug industry. Mr. MANDELL. Yes, sir. I have been in the drug industry all my life. I was brought up in the drug industry. My father has been in the industry all his life, which would be about 50 years, half a century. I am a graduate pharmacist registered in the State of New York in 1951. I have worked as a medical representative for several pharmaceutical manufacturers and I am now in the wholesale drug business in New York City. Mr. POTVIN. The name of the firm of which you are the manager is M. Sobol, Inc.; is it not? Mr. MANDELL. Yes, sir. Mr. POTVIN. Could you tell us a bit about the background and history, the size and nature of this business? Mr. MANDELL. Yes. M. Sobol has been in business since 1928. It has been servicing accounts since that time. It is located in the Bronx now, originally located in Manhattan, and always located in New York City from the time of its inception. And we are a drug wholesaler licensed by State as well as Federal authorities to do business in that State as a drug wholesaler. Mr. POTVIN. Could you give us an idea of the number of retailers you serve, the amount of your annual gross volume, and perhaps your Dun & Bradstreet credit rating, and so forth? Mr. MANDELL. Yes. We have, oh, I would say over 600 accounts. Our annual volume last year was in excess of $3 million. Dun & Bradstreet rating at that time was B1. Mr. POTVIN. Would you briefly sketch out your competition in the area which you serve? Mr. MANDELL. Well, in the geographical area where we are located the primary competition would be a number of full-line wholesalers as well as short-line wholesalers. Mr. POTVIN. Which are you, sir? Are you a full-line or short-line wholesaler, Mr. MANDELL. We are a short-line wholesaler. Mr. POTVIN. May I infer from that that you are not a member of the National Wholesaler Drug Association-NWDA? Mr. MANDELL. We are not. Mr. POTVIN. I see. Could you give us the names of the other firms servicing the Bronx? Mr. MANDELL. Well, located in the Bronx and serving the Bronx accounts would be McKesson & Robbins, Bronx division. Mr. POTVIN. In each instance would you characterize each firm as you name it as full line or short line, and that again carries with it the connotation that if they are full line, they are NWDA; otherwise, they are not? Mr. MANDELL. That is generally the case, almost without exception. I do not know of any exception. Mr. POTVIN. Please continue. Mr. MANDELL. Yes. In the Bronx, as I stated, McKesson & Robbins, who would be a member of the National Wholesale Drug Association, and is a full-line wholesaler. County Drug, which is a member of the National Wholesale Drug Association, and is a full-line wholesaler. There is a division of Commons Bros. Several years ago County was an independent wholesaler and then was bought by a member of the National Wholesale Drug Association, was named Common Bros., and now operates as a division. Progressive Wholesale Drug is now located in the Bronx. They recently moved up there from Manhattan. The Progressive, by the way, is a National Wholesale Drug Association member and a full-line wholesaler. There is a short-line wholesaler also located in the Bronx called Essex who is a short-line wholesaler, and not a member of the National Wholesale Drug Association. And there are a number of smaller wholesalers. I really do not know all the names. Mr. POTVIN. I see. But none of them would carry as large a line as, say, M. Sobol does? Mr. MANDELL. No; I would say we are the largest short-line wholesaler. Mr. POTVIN. Now, have any wholesalers gone out of business or left the area during the last few years? Mr. MANDELL. Oh, yes. Quite a number of them. Quite a number of small wholesalers have gone out of business in the Bronx as well as surrounding areas in the past several years because of the economic. pressures involved. Mr. POTVIN. Have any moved away? Mr. MANDELL. Quite a number of-well, I remember two specifically who have moved out of the area. Ketchum Division in Manhattan who was servicing the Bronx and Manhattan has moved out of New York entirely. Mr. POTVIN. And Ketchum is a full-line wholesaler? Mr. MANDELL. Ketchum is a full-line wholesaler and a member of the National Wholesale Drug Association. I'm sorry, there was one other, D. Coffelt, who for many years serviced Bronx accounts from their Bronx warehouse and have moved to their facilities in New Jersey and service some accounts. They have a lot of Bronx accounts. They still service some Bronx accounts from that warehouse. Mr. POTVIN. And would the accounts they service tend to be the larger accounts? Mr. MANDELL. Oh, yes. Mr. POTVIN. From testimony received from Bronx retailers earlier this week, we learned that there are today approximately 400 retailers in the Bronx. Mr. MANDELL. Yes; there would be approximately 400. Mr. POTVIN. This is down over a 10-year period from something like 600? Mr. MANDELL. 600; right. Mr. PoTVIN. How many people live in the Bronx, approximately? Mr. MANDELL. I do not know. I would guess about 2 million. Mr. POTVIN. Several million. At the present time what is the state of the service being received by retailers, and I ask this in the following context: state if you have heard comments by retailers concerning the quality or lack of quality of service there. Mr. MANDELL. Well, we have received, oh a legion of complaints over the past several months and years. It has become more critical as time has gone on as to service. Many of the smaller retail pharmacies in the Bronx and Manhattan find great difficulty in getting goods at a decent price and at decent service. In fact, many of them cannot even get same-day delivery, which has been traditional in New York City, from the full-line wholesalers. Mr. POTVIN. Is a same-day delivery particularly vital to a small retailer? Mr. MANDELL. Well, if you have a really small retailer who has no buying power, almost without exception I think the full-line wholesalers in New York today insist that the retail store give him a minimum amount of business per month. And generally, from what I have heard, it runs anywhere from $600 on up. Now, he does not have much buying power and he must maintain one full-line, at least one full-line wholesaler to buy from. Some of them cannot maintain more than one, unfortunately. It would be good to have two because there is always a situation where a wholesaler is out of stock on a particular item. Now, if the small retailer gets a prescription for a pharmaceutical, of course, when you get a prescription you cannot substitute, you cannot give a drug other than the one called for on the doctor's prescription, so that the small retailer would have to, if he did not have it in stock, then, and the small retailer would have great difficulty keeping everything in stock, especially in quantity, because of economics. He would have to get on the telephone and get to his wholesaler and see if he could get that drug over there so he would not lose the prescription. Mr. POTVIN. Could you in brief describe the structure of the wholesale drug industry for the subcommittee? First of all, are drug wholesalers licensed and, if so, by whom and in what respect? Mr. MANDELL. Drug wholesalers are licensed by State authority, generally by the State board of pharmacies in New York. We are licensed by the New York State Board of Pharmacies. Mr. POTVIN. Are you not also required to have certain licenses from FDA? Mr. MANDELL. Oh, yes. Also licensed by Federal agencies; the Food and Drug Administration licenses us to carry a drug-abuse item, which you may be familiar with. There is a new Federal law. Mr. POTVIN. And while there is a trend away from the State requiring a licensed pharmacist on the premises, as a practical matter, at least the vast majority of drug wholesalers at the present time also have licensed pharmacists on the premises; do they not? Mr. MANDELL. Yes; they do. I do not know of any who do not have at least one pharmacist on the premises. It is a good idea to have one. Mr. POTVIN. Now, you have referred to the National Wholesale Drug Association. Would you explain what the association is, what its membership is comprised of, and other details you feel might be helpful to the subcommittee. Mr. MANDELL. Well, the National Wholesale Drug Association, from what I understand, we are not a member and although we have made applications on several occasions and have been unsuccessful in becoming a member of that association, it seems to be an organization comprising a little, I guess, close to 400 wholesalers throughout the United States. Mr. POTVIN. When you say 400 wholesalers, do you mean 400 separate, independent entities? Mr. MANDELL. No. I think only about, oh, 30 percent of the membership of the National Wholesalers Association would be individual business. > Mr. POTVIN. As an example, the firm of McKesson & Robbins, which is, among other things, a drug wholesaler, has roughly how many branches belonging to NWDA? Mr. MANDELL. I think they have close to 100 branches and I think that McKesson & Robbins is virtually synonymous with the National Wholesale Drug Association. Mr. POTVIN. There is another firm, Southwest. Mr. MANDELL. Yes, sir. Mr. POTVIN. And Brunswig. Mr. MANDELL. And Brunswig. They would be probably-Brunswig would be the second largest wholesaler in the United States and Southwestern and between, I think, McKesson & Robbins, Brunswig, and Southwestern they pretty much control the drug industry in the western area of the United States. Mr. POTVIN. They would comprise approximately what percentage of the total NWDA members? Mr. MANDELL. McKesson and Brunswig and Southwestern? Mr. POTVIN. Yes. Mr. MANDELL. I think McKesson would be somewhere, would have approximately 100 branches, perhaps 85 to 92. I am not sure of the exact number. Perhaps a few more. But something approximating 100. I believe Brunswig has something like 23 branches at the last count. I think I read something somewhere where they acquired another one. Southwestern I believe has 10, 11, or perhaps 12 branches. And then there are many wholesalers who are multibranched. To my knowledge of the National Wholesalers Association, as I said, membership would comprise only about 30 percent of individually owned wholesalers. The rest are multibranch. Mr. POTVIN. Can you tell us whether there is a present trend for further acquisition by these larger, multibranch wholesalers? May I ask you specifically, have you studied the figures for the largest State of the Union, the State of California? And I say that with some regret to a gentleman from the Empire State of New York. Mr. MANDELL. Yes. California is a rather interesting State. From what I know out there there are only three drug wholesalers in the entire State, operating in competition and they are all members of the National Wholesale Drug Association. I mean full-line wholesalers. There are only three of them in the entire State. Various branches of McKesson & Robbins, branches of Brunswig Drugs, and there is another major wholesaler whose name escapes me at the present. Mr. POTVIN. Distinguished from but allied with the drug wholesalers are two other lines, the veterinary medicine wholesale business and the surgical supply business; is that correct? Mr. MANDELL. Yes, sir. Mr. POTVIN. I noted in the April 10 issue of the Drug News Weekly that the Brunswig firm in California is moving into both of these fields through negotiations for major acquisitions in each. Are there separate marketing categories for manufacturers for NWDA and non-NWDA members? Mr. MANDELL. There must be. Mr. POTVIN. May I ask you specifically, are you privileged to carry the line manufactured by Bauer & Black? |