JPMorgan Investor Meeting

Transcription

1 David B. Snow, Jr. Chairman and CEO JoAnn A. Reed Senior Vice President, Finance and CFO Richard J. Rubino,, CPA Senior Vice President, Controller and CAO Robert S. Epstein, M.D., M.S. Senior Vice President, Medical & Analytical Affairs and CMO JPMorgan Investor Meeting January 8, 2008

2 Forward-Looking Statements This presentation contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 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

3 Medco Health Solutions: Leading Pharmacy Benefit Manager Fortune 100 Company with 2006 Revenues of $42.5 Billion Largest Independent PBM Drug Spend Under Management Largest Mail-Order Pharmacy Most Sophisticated Specialty Pharmacy Leading Internet Pharmacy Industry Leading Drug Trend Management 3

4 Record 2007 YTD EBITDA Per Adjusted Script CAGR 16.0% $2.72 $1.50 $1.83 $1.89 $ * 9/2007 YTD * Excludes first-quarter 2006 legal settlements charge; see reconciliation to GAAP financial tables in appendix. 4

5 Strong 2007 Earnings Per Share Growth CAGR 19% - 20% 31% 33% $3.16 $3.21 $1.57 $1.75 $2.05 $ * 2007E * Excludes first-quarter 2006 legal settlements charge; see reconciliation to GAAP financial tables in appendix. 5

6 2007 Core Strategic Growth Drivers Generics Specialty Pharmacy New Business and Renewals Mail Order Solutions for Seniors Clinical Innovation 6

7 Generic Growth Opportunity $80 billion in Brand Drugs Off-Patent from The Majority of Generics Coming to Market Treat Chronic and Complex Conditions $18.7 $6.5 Risperdal Fosamax Keppra $15.0 Prevacid Lexapro Topamax Lamictal Valtrex Aciphex Imitrex $2.8 Flomax Lipitor Effexor XR Protonix (1) Actos Zyprexa $15.2 Singulair Seroquel Plavix Avandia Crestor Diovan $5.3 Celebrex Cymbalta $8.5 Vytorin Zetia $7.9 Nexium Abilify ) 2007 early release; court rule pending Source: U.S. Drug spend estimates are based on IMS Health data for Brand drug expirations based on expected patent expiration dates current as of January Changes may occur due to litigation, patent challenges, etc. 7

8 Brand and Generic Trend Drug Mix Trend (%) Drug Spend Mix Trend (%) MAT 2006/ 2007 Total Prescriptions Dispensed (%) Brand Name 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 Data are from IMS Health, National Prescription Audit Plans, National Sales Perspective, June

9 Mail-Order Trend Mail-Order Volume (in millions) ~ ~105 Annualized New Business and Adjusted Mail-Order Penetration $4.5 $3.7 $3.2 $1.9 $1.9 35% 32% 18% 52% 63% E 2008E E 2008E Annualized new business Adjusted mail-order penetration rate for new business 9

10 Robust Biotechnology Drug Pipeline Specialty Pharmacy Drug Spend ($ in billions) More Than 400 Drugs in Development Pipeline* CAGR 16% E Cancer/related conditions Infectious diseases Autoimmune disorders AIDS/HIV Cardio disease Neurologic disorders Diabetes/related Digestive disorders Respiratory disorders Blood disorders Genetic disorders Skin disorders Eye conditions Growth disorders Transplantation Other Accredo incremental contribution of $0.06 $0.09 $0.09 per share in 2008 Source: HealthStrategiesGroup *Source: PhRMA 2005 Survey: Medicines in Development,, Oct Some medicines are listed in more than one category. 10

11 Seniors Market Strategy 2008E 2007E Growth PDP Revenues $540 M $480 M +12.5% Announced three new Medicare prescription drug plan offerings for 2008 to provide more choice and better value to seniors 26 geographic regions Potential to further leverage the well-known Liberty Medical brand in the seniors market 11

12 2008 New Business and Renewals* $4.5B calendarized new named drug spend to date $4.8B 63.3% Completed 34% of 2008 total renewal activity Adjusted mail-order penetration rate for new named accounts *As of 3Q07 12

13 The Medco Model 13

14 A History of Successful Innovation and Growth Medco Therapeutic Resource Centers Optimal Health PolyMedica Mayo Clinic/LabCorp EXPERxT Advisor Rational IQ My RxChoices Savings Advisor Off-Patent Migration Expanded Offerings Co-branded Options Accredo, Critical Care Systems Independence Client- Facing Organization Tech- nology Innovation Foundation Stage Operational/Managerial Excellence Financial responsibility/ drug trend excellence Innovation Stage Brandable Difference Power of Information World Class Member/ Mail Experience Clinical Strategy World-Class Service and Reliability Medicare Product Leadership Stabilize Legal, Media Climate Specialty Pharmacy Medco People

15 96% of Rx Dollars Spent on Chronic and Complex Conditions Complex 3% 16% Chronic 46% Acute 17% 80% Well 34% % Members % Rx Cost 3% 1% Source: Medco data 15

16 Medco Therapeutic Resource Centers Physicians Health Care Value Map Patients Specially Trained Pharmacists Texas Neurology/ Psychiatry Diabetes Gastrointestinal Nashville, TN (Hemophilia Health Services) Hemophilia Fairfield Diabetes High Risk Columbus, OH Hepatitis C Multiple Sclerosis Oncology Infertility Anemia/Neutropenia Columbus Hematology/ Oncology Cardio Hypertension 31 Branches (ATX/HHS) Autoimmune diseases ~ Primary Immunodeficiency Syndrome ~ Autoimmune disorders Nursing services Accredo N. Versailles Cardio High Risk Warrendale, PA (Accredo Therapeutics) Pulmonary hypertension Alpha 1 deficiency Autoimmune diseases ~ Primary Immunodeficiency Syndrome Autoimmune disorders Tampa Cardio High Cholesterol Memphis, TN (Nova Factor) Enzyme deficiencies Multiple Sclerosis RSV Growth Hormone defects Spokane Pulmonary Irving, TX Rheumatoid Arthritis Osteoarthritis Psoriasis Disease Management Best Practice Rules Appropriate Utilization Appropriate Coverage Appropriate Coverage Formulary Management RationalMed Models & Analytics Patient & Clinical Appropriateness Drug Physician Profiling Episode Groupers Financial Opportunities Patient Stratification Algorithms Case Management Integrated Data Patient eligibility Patient self-reported data Pharmacy claims Medical claims Lab results 16

17 Medco Therapeutic Resource Centers Rare & Specialty Oncology & Immunology Diabetes Pulmonary Neurology & Psychiatry HIV Medco Therapeutic Resource Centers High Risk Hypertension High Cholesterol Gastrointestinal 17

18 Diabetes Rare & Specialty CYP2C9 oral hypoglycemics Personalized Medicine End-to to-end Service Pulmonary Specialized HIV Practice of Pharmacy Oncology & Immunology Diabetes Liberty (PolyMedica( PolyMedica) Optimal Health Specialist Pharmacists for people Medco Therapeutic Resource Centers ~ With Medco members, creates the largest diabetes center serving nearly 4 million lives ~ Opportunity to cross-sell sell pharmaceuticals and supplies ~ Ability to leverage Neurology well-known Liberty consumer brand High ~ Risk Lab CLIA certified & Psychiatry in 49 states ~ Opens Medicare Part B market Hypertension with diabetes High Cholesterol Gastrointestinal 18

19 Anticoagulation Cardio High Risk Personalized Medicine Mayo Clinic Rare & ~ Collaborative research study for Warfarin (Coumadin ) to demonstrate Specialty that genetic testing improves dosing accuracy, thereby reducing hospitalization rates Oncology & Immunology Diabetes End-to to-end Service Pulmonary Neurology & Psychiatry Specialized HIV Practice of Pharmacy High Cholesterol Specialist Pharmacists for people with high risk cardio conditions, Gastrointestinal drugs using anticoagulants and anti-platelet High Risk Hypertension Medco Therapeutic Resource Centers 19

20 Oncology & Immunology Personalized Medicine LabCorp ~ A collaboration to study the drug Tamoxifen which was developed to reduce the recurrence of breast Rare cancer & ~ It may Specialty not be effective for 10% of the women who are poor metabolizers or non-metabolizers ~ A genetic test is available to determine if another therapy would be better, yet very few doctors prescribe this life saving test Oncology & Immunology Diabetes End-to to-end Service Pulmonary Patient-centric platform ensures adherence to evidence-based guidelines Neurologyfor erythropoietins (i.e., Aranesp /Procrit & Psychiatry ) Specialized HIV Practice of Pharmacy Specialist Pharmacists for people with cancer and disorders involving immune system Medco Therapeutic Resource Centers High Risk Hypertension High Cholesterol Gastrointestinal 20

21 2008 EPS Guidance After a projected 31 to 33% 2007 EPS growth over 2006*, how do we grow from here? 2008 Guidance 2007 Revised Guidance % Growth EPS (GAAP) $3.89 $4.01 $3.16 $ % 27% 27% EPS (adj. for intangible amortization) $4.29 $4.41 $3.55 $ % 24% * Excludes first-quarter 2006 legal settlements charge; see reconciliation to GAAP financial tables in appendix. 21

22 Medco s s Advanced Pharmacy Model Rare & Specialty Drive Oncology Continued Diabetes & Immunology Double-Digit Digit Growth Through 2015 and Beyond Pulmonary High Risk Neurology & Psychiatry HIV Hypertension High Cholesterol Gastro- intestinal 22

23 23

24 AWP/AMP Update Medco contract language protects the relative economics of both the client and Medco regardless of benchmark used for pricing 24

25 Benchmark Change What This Means to Medco Expect a methodology change during first half of 2008 to the AWP benchmark Medco is indifferent to a change in the benchmark whether it be to WAC or AMP To date, Medco has over 95% of its drug spend covered by the contractual provision that holds both parties neutral to methodology or pricing benchmark changes Since 2001, our clients have benefited by additional discounts and rebate sharing specifically on brand- name products that, on average, have resulted in over 400 basis points of savings 25

26 Reconciliation Tables Medco Health Solutions, Inc. Selected Information (Unaudited) (In millions, except for EBITDA per adjusted prescription data) Nine Months Ended Full Years Ended EBITDA Reconciliation: Net income September 29, 2007 $704.5 December 30, 2006 $ December 31, , 2 $ December 25, 2004 $ December 27, 2003 $425.8 Add: EBITDA Interest and other (income) expense, net Provision for income taxes Depreciation expense Amortization expense Legal settlements charge $1, $1, $1, $ 1, $1, EBITDA, excluding the legal settlements charge $1,518.0 $1,632.4 $1,350.3 $ 1,243.7 $ 1,035.7 Adjusted prescriptions EBITDA per adjusted prescription $2.72 $2.01 $1.89 $1.83 $1.50 EBITDA per adjusted prescription, excluding the legal settlements charge $2.72 $2.24 $1.89 $1.83 $1.50 1) 53-week fiscal year. All other fiscal years are comprised of 52 weeks. 2) Includes Accredo's operating results commencing August 18, 2005, the date of acquisition and for the subsequent periods. 3) 2003 excludes a one-time gain of $11 million from the sale of a minority equity investment in a nonpublic company. 4) 2006 includes a $20.0 million nonrecurring tax benefit reflected for the full year. 5) 2005 includes a $25.7 million non-recurring tax benefit reflected for the full year. 6) 2004 and 2003 include accelerated depreciation of $24.5 million and $13.3 million, respectively, associated with facility closures that took place in ) This represents the pre-tax legal settlements charge of $162.6 million recorded in the first quarter of 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. 8) Estimated 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. 26

27 Reconciliation Tables Medco Health Solutions, Inc. Selected Information (Unaudited) Full Year Ended Estimated Full Year Ended Dec 29, 2007 Estimated Full Year Ended Dec 27, 2008 Earnings Per Share Guidance Reconciliation December 30, 2006 Low End High End Low End High End GAAP diluted earnings per share $2.09 $3.16 $3.21 $3.89 $4.01 Adjustment for 2006 legal settlements charge 1 $0.33 Diluted earnings per share, excluding the legal charge $2.42 $3.16 $3.21 $3.89 $4.01 Adjustment for the amortization of intangible assets $0.36 $0.39 $0.39 $0.40 $0.40 Diluted earnings per share, excluding intangible amortization and d the legal charge $2.78 $3.55 $3.60 $4.29 $4.41 Diluted earnings per share growth over prior year 31% 33% 21% 27% Diluted earnings per share growth over prior year, excluding intangible amortization 28% 29% 19% 24% 1) Represents the earnings per share effect of a pre-tax legal settlements charge of $162.6 million, or $99.9mm after tax, recorded in the first quarter of This charge reflects an agreement with the U.S. Attorney s Office for the Eastern District of Pennsylvania to settle three previously disclosed federal legal matters. 27