William Blair 28 th Annual Growth Stock Conference Glenn C. Taylor Group President, Key Accounts Richard J. Rubino Senior Vice President, Finance and Chief Financial Officer June 17, 2008
Forward-Looking Statements This presentation contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in the t statements. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and future financial results of the pharmacy benefit management ( PBM( PBM ) and specialty pharmacy industries, and other legal, regulatory and a economic developments. We use words such as anticipates, anticipates, believes, believes, plans, plans, expects, expects, projects, projects, future, future, intends, intends, may, may, will, will, should, should, could, could, estimates, estimates, predicts, predicts, potential, potential, continue, continue, guidance and similar expressions to identify these forward-looking statements. Medco s s actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors. Forward-looking statements in this presentation should be evaluated together ther with the risks and uncertainties that affect our business, particularly those mentioned in the Risk Factors section of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q Q and other documents filed from time to time with the Securities and Exchange Commission. 2
Medco Health Solutions: Leading Pharmacy Benefit Manager Fortune 100 Company with 2007 Revenues of $44.5 Billion Largest Independent PBM Drug Spend Under Management Largest Mail-Order Pharmacy Most Sophisticated Specialty Pharmacy Leader in Clinical Innovation Industry Leading Drug Trend Management 3
Strong EBITDA Per Adjusted Script Trend CAGR 17.3% $2.67 $2.96 $1.50 $1.83 $1.89 $2.24 2003 2004 2005 2006* 2007 1Q 2008 * Excludes first-quarter 2006 legal settlements charge; see reconciliation to GAAP financial tables in the appendix. 4
Strong GAAP Earnings Per Share Growth CAGR 21.2% 21.7% 35% 27% 29% $1.63 $2.07 - $2.11 $0.79 $0.88 $1.03 $1.21 2003 2004 2005 2006* 2007 2008E * Excludes first-quarter 2006 legal settlements charge; see reconciliation to GAAP financial tables in the appendix. 5
Medco s s Five Core Drivers Strong Core Growth Across All Key Drivers 1 2 3 4 5 Generics Mail-Order Specialty Pharmacy Net New Business Clinical Innovation 6
Medco s s Five Core Drivers 1. Generics $91.9 Billion in Brand Drugs Off-Patent from 2008 2015 2015 Off-Patent Compounding Effect ($ Billions, prorated) $20.9 $21.7 $95.0 $103.1 $9.7 (1) $10.5 Prevacid Risperdal Topamax Lamictal Valtrex Fosamax Aciphex Imitrex $3.6 Flomax Lipitor Effexor XR Actos Protonix (2) Zyprexa Levaquin Aricept Plavix Singulair Seroquel Lexapro Diovan Crestor Avandia $6.1 Cymbalta Celebrex $15.6 Nexium Vytorin Zetia Lyrica Nasonex $3.8 Abilify $6.5 $16.7 $25.7 $35.1 $46.9 $69.1 $80.1 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015 (1) Limited supply of Protonix is not included in 2008 spend (2) 2011 reflects the off patent date for Protonix; limited product released in 2008 Source: U.S. Drug spend estimates are based on IMS Health data for 2007. Brand drug expirations based on expected patent expiration dates current as of February 2008. Changes may occur due to litigation, patent challenges, etc. Source: U.S. Drug spend estimates are based on IMS Health data for 2007 and 2006, compounded amounts prorated for mid-term expirations. Brand drug expirations based on expected patent expiration dates current as of February 2008. Changes may occur due to litigation, patent challenges, etc. 7
Medco s s Five Core Drivers 2. Mail-Order Mail-Order Volume (in millions) Annualized New Business and Adjusted Mail-Order Penetration 88 87 89 10.5% 95 ~105 Annualized new business ($ in billions) Adjusted mail-order penetration rate for new business $3.2 $3.7 $5.1 64% $1.9 53% $1.7 35% 32% 18% 2004 2005 2006 2007 2008E 2004 2005 2006 2007 2008E 8
Medco s s Five Core Drivers 3. Specialty Pharmacy Accredo Operating Income ($ in millions) More Than 400 Drugs in Development Pipeline* $43.6 CAGR 20.9% $53.5 $63.7 1Q06 1Q07 1Q08 Cancer/related conditions Infectious diseases Autoimmune disorders AIDS/HIV Cardiovascular disease Neurologic disorders Diabetes/related Digestive disorders Respiratory disorders Blood disorders Genetic disorders Skin disorders Eye conditions Growth disorders Transplantation Other Accredo Health Group, Inc. expected incremental contribution of $0.03 $0.05 $0.05 per share in 2008 *Source: PhRMA 2005 Survey: Medicines in Development,, Oct. 2006 Some medicines are listed in more than one category. 4 4 7 6 10 9 15 14 13 17 18 22 22 44 50 210 9
Medco s s Five Core Drivers 4. Net New Business* $5.1B $4.6B 2008 annualized new named drug spend 2008 net new business 98% 2008 client retention rate *As of first-quarter 2008 earnings call 10
Medco s s Five Core Drivers 5. Clinical Innovation Medco Therapeutic Resource Centers (TRCs) ~ Full-service platform, housing specialized pharmacists to deliver superior clinical and financial outcomes for clients and members ~ Focuses on chronic and complex conditions accounting for 96 percent ent of prescription and 75 percent of healthcare spending ~ Complements the retail acute-care care model, which addresses less than 4 percent of overall drug spending Pharmacogenomics ( Personalized( Medicine ) ~ Leveraging the TRC platform, Medco launched two pilots using genetic etic tests to personalize with precision drug selection/delivery/dosing Collaboration with The Mayo Clinic for Coumadin Collaboration with LabCorp for Tamoxifen Intervention at the point of care results in reduction of overall l healthcare costs ~ New Indiana automated dispensing facility includes a world-class research center for personalized medicine 11
U.S. Molecular Diagnostic Testing Market Sales ($ Millions) $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 Pharmacogenetics (pharmacogenomics) Infectious Disease Cancer Gene and Chromosome Testing Blood Banking $5,000 Source: Kalorama Information $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year 12
Expanded U.S. Operations and Entered Non-U.S. Markets Expansion of U.S. Operations 10/31/2007: Acquired PolyMedica for $1.5 billion ~ Largest U.S. diabetes supply company ~ Provides Medco with an end-to to-end solution for commercial members served by the Diabetes Therapeutic Resource Center ~ Plan to market products to commercial members 11/14/2007: Accredo Health Group acquired Critical Care Systems for $220 million ~ Infusion business expands Accredo s capabilities and geographic footprint ~ Opportunity to take advantage of strong biotechnology drug pipeline International Initiatives 3/31/2008: Partnered with Apoteket to create the first drug utilization review system in Sweden 4/8/2008: Acquired for $120 million a majority stake in Netherlands-based Europa Apotheek Venlo, a mail-order pharmacy primarily serving Germany ~ Germany market has $35 billion in annual drug spending ~ Opportunity leverages Medco s s core competencies 13
Record Low Drug Trend 25% Trend 20% 15% 10% 20.6% 20.0% 15.9% 14.9% 12.9% 10.2% 16.9% 13.8% 8.5% 14.4% 11.6% 11.4% 6.9% 11.7% 5% 5.4% 2.8% 4.5% 2.0% 0% 2002 2003 2004 2005 2006 2007 PBMs Health Insurers Medco Source: Buck Consultants National Health Care Trend Survey, 18th Edition 14
2008 EPS Guidance 2008 Guidance 1 2007 2 % Growth EPS (GAAP) $2.07 $2.11 $1.63 27% 29% 29% EPS 2 (adj. for intangible amortization) $2.27 $2.31 $1.82 25% 27% 27% 1 As of first-quarter 2008 earnings call 2 2007 GAAP EPS growth of 35% over 2006 excluding first-quarter 2006 legal settlements charge; see reconciliation to GAAP financial tables in the appendix 15
Medco Tops Fortune s s Most Admired Company List (March 17, 2008) FORTUNE Most Admired in Health Care: Pharmacy and Other Services 1. Medco Health Solutions, Inc. FORTUNE Long-Term Investment 1. Berkshire-Hathaway 2. Medco Health Solutions, Inc. FORTUNE People Management 1. Medco Health Solutions, Inc. FORTUNE Innovation 1. Apple 2. Nike 3. Medco Health Solutions, Inc. 16
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Brand and Generic Trend Drug Mix Trend (%) Drug Spend Mix Trend (%) 12 11 10 11 12 12 13 15 16 47 47 47 48 51 53 57 61 63 88 89 90 89 88 88 87 85 84 53 54 53 52 50 47 43 39 37 1999 2000 2001 2002 2003 2004 2005 2006 MAT 2006/ 2007 Total Prescriptions Dispensed (%) Brand Name 1999 2000 2001 2002 2003 2004 2005 2006 MAT 2006/ 2007 Total Expenditures on Prescription Drugs (%) Generic Source: New England Journal of Medicine, November 15, 2007 MAT denotes moving annual total; MAT 06/07 represents the 12 months ending in June 2007. Data are from IMS Health, National Prescription Audit Plans, National Sales Perspective, June 2007. 18
Reconciliation Tables EBITDA Reconciliation: Medco Health Solutions, Inc. Selected Information (Unaudited) (In millions, except for EBITDA per adjusted prescription data) Quarter Ended March 29, 2008 1 Net income $270.2 $912.0 Add: Full Years Ended Interest and other (income) expense, net 54.3 4 99.8 65.9 39.9 59.9 Provision for income taxes 177.8 591.3 381.6 6 Depreciation expense 40.1 168.9 173.6 165.0 197.6 8 Amortization expense 69.5 228.1 218.5 192.5 179.9 EBITDA $611.9 $2,000.1 $1,469.8 $1,350.3 $ 1,243.7 Legal settlements charge 9 - - 162.6 - - EBITDA, excluding the legal settlements charge $611.9 $2,000.1 $1,632.4 $1,350.3 $ 1,243.7 Adjusted prescriptions 10 206.7 748.3 729.9 714.1 678.3 EBITDA per adjusted prescription $2.96 $2.67 $2.01 $1.89 EBITDA per adjusted prescription, excluding the legal settlements charge $2.96 December 29, 2007 1 December 30, 2006 December 31, December 25, 2005 2004 December 27, 2003 $ 602.0 $ 481.6 $425.8 1) Includes PolyMedica s and Critical Care System Inc. s operating results commencing October 31, 2007 and November 14, 2007, the dates of acquisition, respectively 2) 53-week fiscal year. All other fiscal years are comprised of 52 weeks. 3) Includes Accredo's operating results commencing August 18, 2005, the date of acquisition and for the subsequent periods. 4) Includes a $9.8 million charge for the forward-starting interest rate swap agreements associated with the March 2008 issuance of senior notes. 5) 2003 excludes a one-time gain of $11 million from the sale of a minority equity investment in a nonpublic company. 6) 2006 includes a $20.0 million nonrecurring tax benefit reflected for the full year. 7) 2005 includes a $25.7 million non-recurring tax benefit reflected for the full year. 8) 2004 and 2003 include accelerated depreciation of $24.5 million and $13.3 million, respectively, associated with facility closures that took place in 2004. 9) This represents the pre-tax legal settlements charge of $162.6 million recorded in the first quarter of 2006. This charge reflected an agreement with the U.S. Attorney's Office for the Eastern District of Pennsylvania to settle three previously disclosed federal legal matters. 10) Adjusted prescription volume equals the majority of mail-order prescriptions multiplied by 3, plus retail prescriptions. These mail-order prescriptions are multiplied by 3 to adjust for the fact that they include approximately 3 times the amount of product days supplied compared with retail prescriptions. $ 630.2 350.9 7 324.7 $1.83 23.7 5 302.9 189.0 8 94.3 $1,035.7 - $ 1,035.7 688.2 $1.50 $2.67 $2.24 $1.89 $1.83 $1.50 19
Reconciliation Tables Medco Health Solutions, Inc. Selected Information (Unaudited) Full Years Ended Earnings Per Share Reconciliation December 29, 2007 December 30, 2006 GAAP diluted earnings per share $1.63 $1.04 Adjustment for the 2006 legal settlements charge 1 - $0.17 Diluted earnings per share, excluding the legal charge $1.63 $1.21 Diluted earnings per share growth over prior year 35% 17% 1) This represents the pre-tax legal settlements charge of $162.6 million recorded in the first quarter of 2006. This charge reflected an agreement with the U.S. Attorney's Office for the Eastern District of Pennsylvania to settle three previously disclosed federal legal matters. 20
Reconciliation Tables Medco Health Solutions, Inc. Selected Information (Unaudited) Full Year Ended Estimated Full Year Ended Dec 27, 2008 Earnings Per Share Guidance Reconciliation GAAP diluted earnings per share $1.63 December 29, 2007 Low End High End $2.07 $2.11 Adjustment for the amortization of intangible assets $0.19 $0.20 $0.20 Diluted earnings per share, excluding intangible amortization $1.82 $2.27 $2.31 Diluted earnings per share growth over prior year 27% 29% Diluted earnings per share growth over prior year, excluding intangible amortization 25% 27% 21