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McKesson Investor/Analyst Day (Part II: Pharmaceutical and Medical-Surgical Solutions


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McKesson Investor/Analyst Day (Part II: Pharmaceutical and Medical-Surgical Solutions

  1. 1. Paul Julian President McKesson Supply Solutions June 7, 2002
  2. 2. Agenda Business Overview l Financial Performance l Strategy l McKesson Health Solutions l Summary l 2
  3. 3. Supply Solutions Organization Paul Julian President McKesson Supply Solutions Brian Tyler Heidi Yodowitz Ted Ramlet Senior Vice President CFO Senior Vice President Business Development & Strategy Business Process Redesign 3
  4. 4. Supply Solutions Business Health Medication Medical Health Medication Medical Pharmaceutical Automation Pharmaceutical Automation Solutions Management Surgical Solutions Management Surgical n Distribution n Retail Pharmacy n Medical n Pharmacy and n Primary Care Management Medication n Repackaging n Hospital / n Extended Care Software and Management Institutional n Informatics n Acute Care Services Services n International n Specialty Pharmaceutical Services End to End Continuum of Services Multiple Points of Leverage Comprehensive North American Distribution 4
  5. 5. Supply Solutions Business Health Medication Medical Pharmaceutical Automation Pharmaceutical Solutions Management Surgical n Growth Outside Channel n 3 year OPS / IT plans n Six Sigma n Verispan Joint Venture n Strong Canadian Growth 5
  6. 6. Supply Solutions Business Health Medication Medical Pharmaceutical Automation Automation Solutions Management Surgical n #1 in Retail Automation n Eight New Product Introductions n Alaris Partnership n Solutions for Medication Safety n Expand into Supply Segment n Retail Small Chain Cross-Sell 6
  7. 7. Supply Solutions Business Health Medication Medical Health Pharmaceutical Automation Solutions Management Surgical Solutions n VitaRx Acquisition n Together -Rx Card n PEG-Intron Program n Focus on Payor Services 7
  8. 8. Supply Solutions Business Health Medication Medical Medication Pharmaceutical Automation Solutions Management Surgical Management n Grew in excess of market n Best demonstrated practice n McKesson manages purchasing n Addresses pharmacist shortage n Pull-through pharmaceutical distribution 8
  9. 9. Supply Solutions Business Health Medication Medical Medical Pharmaceutical Automation Solutions Management Surgical Surgical n Largest Customer Base n Leading Share in Alternate Care n Closed Loop Supply n Focus on McKesson Brand n DC Network Optimization 9
  10. 10. Supply Solutions Significant Positive Momentum l – Strong Revenue Growth and Operating Margin Expansion – Largest North American Distribution Footprint – Expanded Business Portfolio – Cross Business Unit Synergies Sustaining Momentum l – Execute on Business Unit plans – Specialty Pharmaceutical Services 10
  11. 11. Positive Momentum - Financial Performance Supply Solutions Revenue Supply Solutions Operating Profit $ Billions $ Millions 32.0% CAGR 16.7% CAGR $803 $33.1 $27.6 $594 $24.3 $461 FY00 FY01 FY02 FY00 FY01 FY02 Excellent Performance Note: Excludes Medical-Surgical results and warehouse sales 11
  12. 12. Positive Momentum - Operating Margin Supply Solutions Operating Margin 53 bps1 Expansion 2.43% 7 Consecutive Quarters of Operating Margin 2.15% Expansion 1.90% FY00 FY01 FY02 Note: 1. FY02 includes 3 bps from discontinuation of goodwill amortization 12
  13. 13. North America Leads Global Pharmaceutical Growth 2001 Global Pharmaceutical Sales US $ Billions CAGR Sales % Share % Growth 97-00 North America 181.8 49.9% 17.0% 13.1% Europe 88.0 24.2% 10.0% 6.3% Japan 47.6 13.1% 4.4% 2.1% Asia/Africa/Australia 27.9 7.7% 8.7% 9.8% Latin America 18.9 5.2% 0.1% 4.2% Total Global Market 364.2 100% 11.9% 8.4% Source: IMS Health 2002 13
  14. 14. Aging Demographics Drives Utilization • 75% of All Rx 85 • 65% of Hospital Million Bed / Days 75 > 50 Years Million Old • 42% of Physician > 50 Years Visits Old 2001 2005 14
  15. 15. McKesson Health Solutions McKesson Supply Solutions McKesson Health Solutions Specialty Pharmaceutical Medical Management Specialty Pharmaceutical Medical Management Services (SPS) Software & Services Services (SPS) Software & Services Pharma / Biotech Payors 15
  16. 16. Multiple Constituents with Specific Needs SPS Constituent Specific Need Payor Control over drug spend n Payor Pharma // Biotech Access to patients n Pharma Biotech Provider One-stop shop for SPS products n Provider Patient Easy access to latest drugs n Patient Pharmacies Ability to participate in market n Pharmacies 16
  17. 17. Established Base & Large Growth Opportunity McKesson Today: Strategy: Leverage McKesson capabilities & n 40 million covered lives Leverage McKesson capabilities & n 40 million covered lives relationships: relationships: n Access to majority of SPS products n Access to majority of SPS products l Structured payor programs l Structured payor programs n Physician office presence n Physician office presence l Integrated pharmaceutical // biotech l Integrated pharmaceutical biotech n Extensive retail pharmacy n Extensive retail pharmacy channel solutions channel solutions relationships relationships l MD Office & Retail “Pull-Through” l MD Office & Retail “Pull- “Pull-Through” Sizeable & growing opportunity Sizeable & growing opportunity Proven & scaleable capabilities Proven & scaleable capabilities Established McKesson relationships Established McKesson relationships Focused business unit Focused business unit 17
  18. 18. Supply Solutions: Expand Operating Margins in FY03 Product Sourcing l 3 Year Operations / IT Plans l Six Sigma l Expand Generics Program: “OneStop” l Grow Packaging Capabilities l Specialty Pharmaceutical Services l Automation Market Expansion l Significant Momentum Moving into FY03 18
  19. 19. Summary Favorable External Fundamentals l Strong Market Position Throughout North America l Many Points of Leverage l Continue Growth Momentum l Execute to Drive Operating Margin Improvement 19
  20. 20. Paul Julian Interim President Medical-Surgical Solutions
  21. 21. Agenda Business and Financial Overview l Strategy l Medical-Surgical Summary l 21
  22. 22. Medical-Surgical Today Largest Customer Base-Continuum of Care l Leading Alternate Site Supplier l Provide Integrated Technology Solutions l Favorable External Trends l Flat Operating Performance l 22
  23. 23. Financial Performance Medical-Surgical Revenue Medical Surgical Operating Profit $ Billions $ Millions (pro-forma) $2.73 $2.72 $110.7 $95.1 $2.63 $92.4 FY00 FY01 FY02 FY00 FY01 FY02 Note: FY02 includes $19 million of operating profit from discontinuation of goodwill amortization 23
  24. 24. Operating Margin Medical-Surgical Operating Margin 4.22% 3.40% 3.49% FY00 FY01 FY02 Note: FY02 includes 70 bps from discontinuation of goodwill amortization 24
  25. 25. Medical-Surgical Plan Recognize Business Performance Issues l Regain Revenue Growth and Operating Margin l Expansion – Perform at Market Growth Rates – Drive Operation Margin Expansion Execution l – Operational Improvements – Extend Leading Alternate Site Position – Penetrate McKesson Brand Products – Utilize Cross Business Unit Solutions 25
  26. 26. Medical-Surgical: Continuum of Care Primary Care Extended Care Acute Care • Market Leader • Strong #1 Position • Major GPO Relationships • Physician Offices • Long-Term Care -HPG • Clinics • HomeCare Sites -Premier -Novation • Comprehensive Solutions Provider 57,000 Active Customers Integrated Supply Chain Technology Solutions Provider 26
  27. 27. Care is Shifting to Alternate Site Primary Care Extended Care Acute Care • Aging Population • Shift from Acute • Integrated Supply Model Chain Technology • Strong Home Care Solutions -Outpatient Care Growth • Consolidation / -Surgery Center Margin Pressures Well Positioned in Growth Segments 27
  28. 28. FY03 Key Initiatives Leverage Operational Penetrate Primary and Improvements Extended Care Integrated Technology McKesson Brand Solutions Productivity Improvement; Alternate Site Growth; Higher Margins 28
  29. 29. Leverage Operational Improvements l DC Network Optimization – Consolidated Number of Sites – Standardized Layout and Processes – Reduced Inventory and Operating Expenses l ERP System Integration Underway l Formulary 29
  30. 30. Integrated Technology Solutions l Sales Force Automation – Supply Management Online – Further Enhancements with ERP Deployment l Closed Loop Supply (Intelligent Distribution) – Supply Scan – Pathways Materials Manager 30
  31. 31. McKesson Brand l Expanding Product Portfolio l Increasing Customer Awareness – Overall Value to Our Customers l Penetrating Major GPO Contracts – Leverage GPO Relationships l All Business Segments Increasing Profitability 31
  32. 32. Alternate Site Penetration l Primary Care – Strong Revenue Growth in Surgery Centers – Supply Management Online l Extended Care – Significant Revenue Growth in Home Care – Horizon Clinical Home Care Integration 32
  33. 33. Summary Regain Operating Momentum l Infrastructure Improvements Underway l Closed Loop Supply Management l Favorable Demographics l Well Positioned in Growth Segments l Execution 33
  34. 34. Patrick Blake Heidi Yodowitz President CFO Customer Operations McKesson Pharmaceutical June 7, 2002
  35. 35. McKesson Pharmaceutical Review Operating Performance l Business Overview l Strategy l Summary l 35
  36. 36. FY02 Business Successes Strong Pharmaceutical Performance 20%+ Y/Y Revenue Growth l Strong Operating Profit Growth l New Business Wins New Contracts (OTN, Randall’s, Caremark) l Automation Cross-Sell l Secure Major Contracts Extended Wal-Mart Agreement l Renewed Target l 36
  37. 37. Balanced Segment Mix Retail Retail Institutional National Independent (36%) (36%) (42%) (22%) (42%) (22%) • Strong Independent and • All Major GPOs • Strong Y/Y Growth Rate Small Chain Position • HCA / HPG • Chain Stores • Buying Group • Omnicare Partnerships • Food / Drug Stores • Specialty Logistics • Mass Merchandise (OTN) • Mail Order 37
  38. 38. Pharmaceutical Industry Drivers Aging Population l Increasing Pharmaceutical Utilization l Generics Opportunity l Emerging Biotech Drug Pipeline l Strong Pricing Environment l Excellent External Fundamentals 38
  39. 39. 50+ Age Group Continues to Grow Percent of Population Age 50 or Over 30.0% 29.5% 29.0% 28.5% 28.0% 27.5% 27.0% 26.5% 26.0% 2000 2001 2002 2003 2004 2005 2006 Source: IMS Health, Census Bureau Estimates and Forecasts, 2001 39
  40. 40. US Rx Spend Continues to Increase US Pharmaceutical Market Spend $ Billion Projected CAGR 13.8% 289 Historic CAGR 254 16% 223 196 172 147 128 1999 2000 2001 2002E 2003E 2004E 2005E Source: IMS Health 2002 40
  41. 41. Favorable Industry Segment Trends Retail National Retail Independent Institutional Retail National Retail Independent Institutional • Store Growth • Store Count Stabilized • Improving Financial Condition • Mail Order / Food are • Service, Value, and Fastest Growing Relationships • Integrated Supply Segments Chain Solutions 41
  42. 42. FY03 Pharmaceutical Key Initiatives Operational Cross Business Unit Performance Synergies • Retail Small Chain - • Six Sigma Automation • 3 year Operations / IT Plan • Canadian Market – • Carrollton Customer & Automation Financial Services Generics New Initiatives • “OneStop” Program • Verispan • Together-Rx Card Execute to Drive Margin Improvement 42
  43. 43. Six Sigma Operational Excellence Pharmaceutical FY02 Continue Operating Accomplishments Excellence in FY03 $30MM Expense Expanding Six Sigma l l Reduction DC Delivery and Order l 60 Blackbelts Process l 70 Projects Completed Marketing - Generics l l 85 Active Projects Back-Office Operations l l An Integral Part of Our Operating Culture 43
  44. 44. Operations / IT Plan Drives Margins Investment Returns Investment Returns Buying Processes Buying Processes Generics Credit Process Generics Credit Process OPS / IT 3 Year Plan Supplier Sales Supplier Sales Profitability Re-Engineering Profitability Re-Engineering Inventory Profitability Inventory Profitability Management Models Management Models 44
  45. 45. Continued Back-Office Improvements Improving Contract Administration / Excellent Results Chargeback Process Further Automation and Reduced working capital by l l Refinement of Processes $88MM in FY02 Reducing Working Capital Reduced expenses by $3MM l l in FY02 Lowering Overhead Costs l Targeting World Class l Supplier Scorecard Drives l Operating Metrics Operational Excellence Highest Service Levels in l Past 18 Months 45
  46. 46. Significant Generics Opportunity Branded Pharmaceuticals Going Off Patent1 $35B Drives Generics Volume and Expands Margins Generic Rx GP% and GP$ l are Higher than Branded Rx <$10B McKesson “ OneStop” l Generics Program 2000-2001 2002-2005 (Projected) Note: 1) In 2001 Sales dollars Source: IMS Health, Analysts reports, Internal McKesson analysis 46
  47. 47. Increasing Value for Our Customers l Enhances “Select” Program l Increases Operational Efficiency – Program Simplicity / Technology – Comprehensive Drug Portfolio l Improves Quality of Service – Higher Service Levels Positive l Lowers Cost to Serve Customer Feedback – Real -Time Competitive Pricing Drive Greater Generics Volume and Expand McKesson Operating Margins 47
  48. 48. Cross Business Unit Synergies Retail Small Chain / Canadian Market / Automation Automation 48
  49. 49. New Business Initiatives Verispan Together-Rx Card Together-Rx Pharmacy Informatics Business Administer Innovative Solution • Lower Cost, Easier Access • De-Identified Patient Level, • Seven Major Pharmaceutical Longitudinal Data Companies • Solutions for Manufacturers • Retail Pharmacy (Wal-Mart, and Retail Drug Chains RiteAid, CVS, Walgreens, etc.) • $100MM First Year Sales Cross Business Unit Synergy • McKesson Health Solutions Will Administer Program 49
  50. 50. Pharmaceutical Summary Favorable External Fundamentals l Strong Market Position l Many Points of Leverage l Continuing Growth Momentum l Execute to Drive Operating Margin Improvement 50
  51. 51. Rich Lunak President McKesson Automation
  52. 52. Agenda McKesson Automation Overview l Inpatient Automation l Retail / Outpatient Automation l Summary l 52
  53. 53. Customer Segments Inpatient Retail Broadest Footprint Continuous Commercialization of New Products Fully-Integrated Product Offering Scaleable Solutions Over 10,000 Customers 53
  54. 54. Inpatient Automation 54
  55. 55. Inpatient Customer Needs Better Quality of Care l Cost Reduction Initiatives l Retention of Valuable Nursing and Pharmacy Staff l Better Management of the Supply Distribution Process l Reduction of Medical and Medication Errors l Re-Direct Professional Time to Clinical Roles l Requires Automation 55
  56. 56. Measuring the Impact of Error n Overwhelming Cost to Human Life 7,000 Deaths per Year l 770,000 ADEs l n ASHP Survey: “Hospitalized Patients Are Fearful” of Medication Errors n Staggering Financial Impact $2 Billion Annually for Inpatient l Preventable ADEs 56
  57. 57. Solutions at Every Point of Care Product Analysis fulfillment Process Usage Management analysis Programs DISTRIBUTION: CONSULTING: MONITORING: PRESCRIBING: TRANSCRIBING: DISPENSING: ADMINISTERING: 39% of errors 12% of errors 11% of errors 38% of errors Quality & Improved Pharmacist Bar Coding Point of Care Outcomes Physician Verification Robotics Check “5” Workflow Clinical Alerts Intervention Rights Centralized & Clinical tracking Longitudinal Decentralized Care Team Screening Dispensing Communication Record
  58. 58. Inpatient History of Innovation 1992 1998 1999 2000 2001 2002 MedCarousel ™ ROBOT-Rx® AcuDose-Rx™ PakPlus-Rx® Bulk Packager MedDirect™ SurePak ™ Admin-Rx™ DataStation™ NarcStation™ NarcStation™ Cartless Delivery SupplyScan™ Vault Alaris System™ 58
  59. 59. SupplyScan Large Unpenetrated Market l Over 160 Live Hospitals in Less l Than 2 Years Integrated with MIS and MMS l Solutions Diversified product offering l Open solution l Closed solution l Procedure-based application l 59
  60. 60. Inpatient Penetration Large University Hospitals Large University Hospitals Coverage Integrated Integrated Health Networks (IHNs) Health Networks (IHNs) Smallest: 80-patient hospital Smallest: 80-patient hospital Multi-Site Multi-Site Largest: > 1,500-patient IHN Largest: > 1,500-patient IHN Facilities Facilities Community United States Community United States Hospitals Canada Hospitals Canada Australia Australia Hospitals Serving Hospitals Serving Long-Term Care Long-Term Care VA Hospitals VA Hospitals Over 500 Customers 60
  61. 61. FY03 Inpatient Strategy n Continued Introduction of ROI and Safety Based Solutions n Continuous Product Innovation n Closed-Loop Strategies n Fully Utilize All McKesson Sales Channels (Cross-Sell) Leading Provider of Integrated Medication and Supply Automation Solutions 61
  62. 62. Retail / Outpatient Automation 62
  63. 63. Retail Customer Need Script Count Outpacing Pharmacist Entry l Sharp Rise in the Number of Complex l Therapeutic Drugs Efficiency and Quality l Scaleable Solutions l Requires Automation Demand Reflects Aging Population, 3/99 David Mott, Asst. Prof. of Pharmacy, University of Wisconsin, Pharmacist Pharmacist 63
  64. 64. Retail Rx Trends Are Favorable For Automation 1998 2005E Growth Number of Rxs 2.8 4.0 43% Billions Number of Pharmacists 129 137 6.2% Thousands Number of Rxs / Pharmacist 93 125 34% Requires Automation Source: NACDS 64
  65. 65. Retail History of Innovation 1999 1998 1995 2001 2002 Pharmacy 2000 AutoScript III Productivity Station Baker Universal 2010 Rx-Port SuperFill Serverless Two New Solution Products Three New Product Releases Positioned in Next 6 – 18 Months 65
  66. 66. Retail Integration n Baker Universal (all size pharmacies) n Dial Rx IVR (all size pharmacies) n Cells and Cassettes (>100 script/day) n Productivity Station™ (>180 script/day) n Pharmacy 2000 (>300 script/day) n AutoScript III (>500 script/day) n SI / Baker Central Fill (scaleable) Scaleable, Integrated Products 66
  67. 67. Retail Penetration Small Chain / Large Government / Independents Chain Institutional • Peltons • Walgreens • Dept. of Defense • Causey’s • Kroger • VA System • Grandview • Eckerd • NYU • Bi-Rite • Longs • North Carolina Medical • Savoy • Safeway • LA County 10,000+ Total Installs #1 Position in Each Customer Segment 67
  68. 68. FY03 Retail Strategy n Ongoing Product Innovation n Further Penetrate Existing Base n Continue to Expand Out-of-Store Models n Fully Utilize All McKesson Sales Channels (Cross-Sell) Leading Provider of Integrated Medication Dispensing Solutions 68
  69. 69. McKesson Automation Summary Broadest Footprint l Continuous Commercialization of Innovative Products l Fully-Integrated Product Offering l Expansion into Supply l Fully-Scaleable Solution l Large, Under-Penetrated Retail Customer Opportunity l Powerful Growth Drivers l Strong Selling Channels with McKesson Divisions l Continued Leadership Position 69