2009 UBS Healthcare Services Conference

Transcription

1 2009 UBS Healthcare Services Conference February 10, 2009 John H. Hammergren Chairman and Chief Executive Officer

2 Safe Harbor Clause Some of the information in this presentation may constitute forwardlooking statements that are subject to various uncertainties. These uncertainties could cause actual results to differ materially from those projected or implied. The risk factors associated with those uncertainties are described in the Company s reports and exhibits filed with the Securities and Exchange Commission. Financial information is presented here in summary form. Full details are provided in the Company s most recent Annual Report on Form 10-K. All of this information is available at The Company assumes no obligation to update or revise any such statements, whether as a result of new information or otherwise.

3 An Opportune Time to Invest in McKesson Attractive markets Long term demand is significant for healthcare in the U.S. Public policy agenda supports greater access and improved efficiency Well-positioned businesses, even in financially turbulent times Solid operating profit and cash flow strength from distribution segment Large and diversified technology segment Steady track record of delivering results and a balanced approach to capital deployment Strong balance sheet and solid liquidity position Experienced and tenured management team

4 McKesson Over 175 Years Strengthening Healthcare 1833 Founded as drug importer and wholesaler Established first U.S. national 1850 mid- Fortune drug 18 distribution $102 systembillion in revenues (FY08) late 1800s Became leading distributor of drugs in U.S early 1900s 1999 Merged with leading IT, supply and automation companies to become largest U.S. healthcare services company World s Largest Distributor of Drugs and Provider of Healthcare IT

5 McKesson Sits at the Center of Healthcare Manufacturer Supply Chain Services Pharmaceuticals Connectivity Pharmacy Software Hospital All Software Robots Automation Pharmaceuticals Services Medical Supplies Doctor s Office Patient Biotech Drugs Biotech Software Connectivity Medical Supplies Compliance Government Pharmaceuticals Reimbursement Services Payor Software Pharmaceuticals Care Mgmt Services

6 While Healthcare Is Debated as a Key Policy Change in Washington The time has come to modernize our health care system and to finally provide affordable, accessible health care for every American. - President Barack Obama Dec 11, 2008 The health care system has problems that need to be fixed. I look forward to working through proposals and figuring out how to pay for reforms that will make the system more accessible, efficient and higher quality for everyone. - U.S. Senator Chuck Grassley Nov 12, 2008 Reforming the health care system is essential to restoring our economy. - U.S. Senator Max Baucus Nov 12, 2008 We will make the immediate investments necessary to ensure that within five years all of America's medical records are computerized. - President Barack Obama Jan 8, 2009

7 McKesson Is Helping Shape the Public Policy Agenda McKesson is uniquely positioned as an increasingly important resource to government officials Greater opportunities to serve as a knowledgeable resource on cost, quality, and access Business-based policy insights continuously tapped in Washington and across the states Leadership roles in Healthcare Leadership Council, Healthcare Distribution Management Association (HDMA), HIMSS, ehealth Initiative (ehi) Influential role of industry coalitions Healthcare Leadership Council, Business Roundtable Coalition to Advance Health Reform (CAHR) Shaping the Future of Healthcare

8 Through Broad Objectives Access Care that is available to all regardless of income, age or employment status Quality Care that is safe, error-free and at the highest standards of current medical understanding, with both short-term and long-term effectiveness Efficiency Care that is provided at the highest quality for the lowest possible cost, in the timeliest and most appropriate manner Innovation Care that is constantly improving in delivery and process, while also generating advancements in diagnostics, medicine, treatments, delivery and back-office operations Shaping the Future of Healthcare

9 And Public Policy Initiatives Pharmaceutical pricing and safety DEA regulation, price controls, supply chain safety, importation, generic utilization HIT adoption, financing and standards eprescribing, electronic health records, personal health records, patient safety Care coordination disease management and medical homes Privacy provisions that would impede use of data to improve health outcomes and quality Shaping the Future of Healthcare

10 We Have Long-term Relationships with Global Healthcare Leaders Vanderbilt University Medical Center

11 And Are Recognized by Our Customers as a Leader Ranked #1 of Top 20 Drug Retailers/Wholesalers in May/June 2007 edition of Private Label MPT earned 7 Best in KLAS/Category Leader solutions* Overall Supplier of the Year Supplier of the Year for Pharmacy Health Mart Named Pharmacy Chain of the Year by Drug Topics Magazine Wal-Mart Supplier of the Year for 2 of the last 4 years Premier s #1 Quality Wholesaler Based on McKesson calculation for core clinical competitors in the software and medication distribution areas. Source 2008 Top 20 Best in KLAS Awards: Software & Professional Services and 2008 Top Best in KLAS Awards: Medical Equipment KLAS Enterprises, LLC. All rights reserved.

12 Giving Us Leadership Positions in Both Segments McKesson Distribution Solutions #1 in pharmaceutical distribution in #1 in pharmaceutical U.S., Canada, and distribution Mexico in U.S., #1 generics Canada, distributor and Mexico Significant #1 generics position in distributor rapidly growing Specialty distribution & services #2 in rapidly market growing specialty 1,800 distribution HealthMart & retail services pharmacy market franchisees 2,000+ Health Mart retail pharmacy Comprehensive franchisees retail information systems and automation offerings #1 Comprehensive in medical-surgical retail distribution information to systems primary and and automation extended care offerings #1 in medical-surgical distribution to alternate care sites McKesson Technology Solutions 50% of all U.S. hospitals, 77% of those >200 beds Leader in clinical, revenue cycle, and resource management solutions Leading RelayHealth claims processing and connectivity business with > $1 trillion in transactions annually #1 in ambulatory #1 in hospital automation 15 products in KLAS Top 3* #1 in medical management software and services for Payors #1 in disease management for Medicaid agencies Based on McKesson calculation. Source 2008 Top 20 Best in KLAS Awards: Software & Professional Services and 2008 Top Best in KLAS Awards: Medical Equipment KLAS Enterprises, LLC. All rights reserved.

13 We Demonstrate Core Fundamental Strength of Our Model Despite Turbulent Economy Confident in the strength of the business despite current economic stress Demonstrate the resilience of the distribution model and the diversity of our technology business Generate significant cash flows while maintaining a relatively low debt to capital ratio Positioned to help customers improve cash flows and operating results Consistent execution on long term strategy

14 With Success in the First Nine Months Led by Distribution Solutions Strong relationships with branded pharmaceutical manufacturers and increased visibility to compensation In addition to branded pharmaceuticals, focus on higher-margin products and services Significant growth in proprietary generic programs Expansion of private label sales at Medical-Surgical distribution Strong presence in faster growing specialty business Six Sigma and information technology drive quality improvements and operating efficiency Expanding footprint and broad value proposition in Canada

15 Where We Have Historically Grown Revenues Above IMS Reported Rates IMS* Top 3 Distributors** 16.0% 9.2% 5.9% 9.2% 8.7% 11.4% 3.8% 7.2% * IMS National Sales Perspective and National Prescription Audit databases;** Top 3 Distributors: McKesson, Cardinal Health and AmerisourceBergen year-over-year dollar sales growth

16 And Grown Our Proprietary Generics Program Faster Than the Market Segment Sales Penetration Independent and Small Chain National Chain non-warehouse National Chain warehouse Mail Order warehouse Health System outpatient Health System inpatient Long Term Care = penetrated + = positioned for growth + = under-developed All segments have opportunity for incremental sales growth as market momentum builds and customers look for generic Rx purchasing and distribution solutions with proven track record

17 Diversified Profit Streams Mitigate Economic Impact for Technology Solutions Long-term view of fundamentals remains solid Significant portion of revenues are stable or recurring Highly-rated customer support and service, product innovation Emerging opportunities in physician and consumer-directed healthcare Growing payor software product offering Recently some customers delayed purchasing decisions due to challenging macro-economic environment This has led to a temporary slow-down in sales of hospital solutions and physician office products

18 Highlighting Resilience through Stable or Recurring Revenues Processing Maintenance Maintenance Revenue Cycle Outsourcing Processing Revenue Cycle Outsourcing Hospital and Physician Office Software Maintenance SERVICES Services Services Hardware Automation Payor Software

19 Solid Track Record of Delivering Results

20 Strong Revenue Growth $ Billions 9% CAGR $79 $87 $93 $102 FY05 FY06 FY07 FY08

21 Leveraged Into Higher EPS Growth (from continuing operations)* 16% CAGR $2.13 $2.46 $2.89 $3.31 FY05 FY06 FY07 FY08 * EPS from continuing operations, excluding Securities Litigation charges/(credits).

22 Through the First Nine Months of Fiscal Year 2009 ($ in Millions except EPS) Nine Months Ended December 31, Chg Revenues Distribution Solutions $ 78,151 $ 73,294 7% Technology Solutions 2,257 2,178 4% $ 80,408 $ 75,472 7% Operating Profit Distribution Solutions $ 1,229 $ 1,018 21% AWP Litigation charge (493) - nm Subtotal 736 1,018-28% Technology Solutions % $ 964 $ 1,233-22% Income* $ 853 $ % Diluted EPS* $ 3.05 $ % Income and diluted EPS from Continuing Operations excluding the AWP litigation charge and the Securities Litigation credit nm not meaningful

23 Portfolio Approach to Capital Deployment Allows Value Creation for Shareholders Internal Investments Dividends $8.5 Billion of Capital Deployed from FY05 FY08 $0.3 $1.3 $3.7 Share Repurchases Acquisitions Synergistic opportunities Accretive and value creating Measured share repurchase over time Acquisitions $3.2 Internal investment Dividend policy periodically reviewed Financial strength and flexibility to continue to execute our strategy

24 While Maintaining a Strong Balance Sheet and Solid Liquidity Position Conservative cash investment policy $2.3 billion in committed, short-term liquidity facilities led by large money-center banks No scheduled long-term debt repayment until 2010 Gross debt-to-capital ratio of 23% as of 12/31/08

25 An Opportune Time to Invest in McKesson Attractive markets Long term demand is significant for healthcare in the U.S. Public policy agenda supports greater access and improved efficiency Well-positioned businesses, even in financially turbulent times Solid operating profit and cash flow strength from distribution segment Large and diversified technology segment Steady track record of delivering results and a balanced approach to capital deployment Strong balance sheet and solid liquidity position Experienced and tenured management team

26 2009 UBS Healthcare Services Conference February 10, 2009 John H. Hammergren Chairman and Chief Executive Officer

27 Diluted EPS Reconciliation (In millions, except EPS) Income from continuing operations - as reported Nine Months Ended December 31, FY09 FY08 $ 542 $ 684 Exclude: Litigation charge (credit), net 493 (5) Estimated income tax benefit, net (182) - Income taxes on Securities Litigation credit, net (3) Income from continuing operations excluding the Litigation charge (credit), net $ 853 $ 681 Diluted earnings per common share from continuing operations, excluding the Litigation charge (credit), net $ 3.05 $ 2.27 Shares on which diluted earnings per common share were based

28 Diluted EPS Reconciliation (concluded) (In millions, except EPS) Income (loss) from continuing operations - as reported FY08 FY07 FY06 FY05 $ 989 $ 968 $ 745 $ (173) Exclude: Securities Litigation charge (credit), net (5) (6) 45 1,200 Estimated income tax expense (benefit) 2 2 (15) (390) Income tax reserve reversal - (83) - - Securities Litigation charge (credit), net of tax (3) (87) Income from continuing operations excluding Securities Litigation credit, net $ 986 $ 881 $ 775 $ 637 Diluted earnings per common share from continuing operations, excluding Securities Litigation charge (credit), net $ 3.31 $ 2.89 $ 2.46 $ 2.13 Shares on which diluted earnings per common share were based For purposes of calculating diluted earnings per share, interest expense, net of related taxes, of $1 million and $6 million, were added to net income, excluding the Securities Litigation charges for the years ended March 31, 2006 and This adjustment reflects the impact of the Company s potentially dilutive obligations.