McKesson Corporation Investor and Analyst Day Presentation
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Transcript of McKesson Corporation Investor and Analyst Day Presentation
![Page 1: McKesson Corporation Investor and Analyst Day Presentation](https://reader033.fdocuments.in/reader033/viewer/2022050808/556b0f6ad8b42ae47d8b4e2b/html5/thumbnails/1.jpg)
Investor DayInvestor Day20062006
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2Investor Day 2006
Larry Kurtz
Vice PresidentInvestor Relations
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3Investor Day 2006
Some of the information in this presentation may constitute forward-looking 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 theCompany’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 10-K report. All of this information is available at www.mckesson.com. The Company assumes no obligation to update or revise any such statements, whether as a result of new information or otherwise.
Safe Harbor Clause
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4Investor Day 2006
Investor Day Agenda
John Hammergren, Chairman and CEO
Jeff Campbell, EVP and CFO
Break
Paul Julian, EVP, Group President
Pam Pure, EVP, President, MPT
Q&A
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5Investor Day 2006
Placeholder for Video
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6Investor Day 2006
John Hammergren
Chairman and Chief Executive Officer
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7Investor Day 2006
Why Invest in Healthcare Services?
Why Invest in McKesson?
Why Now?
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8Investor Day 2006
Factors Driving Sustained Value Creation at McKesson
Well-positioned in growing healthcare services markets
Strong and growing global businesses:Solid operating profit from core pharmaceutical distribution business
Upside opportunities from higher-growth, higher-margin businesseswithout focused risk exposure
Track record of improving financial performance producing strongbalance sheet and solid cash flow enables disciplined and opportunistic portfolio approach to shareholder value creation
Experienced and deep management team
Sustained Value CreationSustained Value CreationSustained Value Creation
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9Investor Day 2006
McKesson At-a-Glance
$88 billion in revenues in FY06
FY06 EPS $2.44 (excluding Securities Litigation charge and Discontinued Operations)
More than 26,000 employees
304 million shares outstanding
$14 billion market cap
Founded 1833, headquartered in San Francisco
126% Return to Shareholders since April 1, 2000
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10Investor Day 2006
McKesson at the Center of Healthcare
$1.6 billion of drugs per week –35% of drugs in North America
Scanning 300 million doses per year to
prevent 203,000 med errors per week
99% daily fill rates to 25,000 pharmacies
Information solutions used by
3,500 hospitals, 200,000 physicians, 500,000 nurses and
600 payors
Disease management for
1.5 million Medicaid and Medicare
patients
Diagnostic care guidelines for 3,500 health plans, hospitals and
government agencies
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11Investor Day 2006
PharmaceuticalSolutions
#1 in U.S., Canada, and Mexico
#1 generics distributor
Large Rx repackaging
Specialty distribution & patient services for
manufacturers
#1 in medical management software and services for
payors
#1 in disease management for Medicaid agencies
Medical-SurgicalSolutions
#1 in primary care
#1 in extended care
Private label product offerings
Rapid growth in physician office pharmaceuticals and equipment
Leading Market Positions in All Three Segments
Provider Technologies
63% of U.S. health systems
Leader in clinical, revenue cycle, and resource
management solutions
More “Best in KLAS”products than any
other vendor
#1 hospital automation
Emerging business in U.K and France
$83.4 billion revenues$1.2 billion op profit
$3.1 billion revenues$70 million op profit
$1.5 billion revenues$143 million op profit
Note: Financial information for year ending FY06
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12Investor Day 2006
Are We in the Right Businesses for Today and Tomorrow?
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13Investor Day 2006
Healthcare Spending on the Rise in Dollars and as a Percent of GDP
16%20%
2005 2015
$2 Trillion
$4 Trillion
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14Investor Day 2006
Well-Positioned in Growing Markets
U.S. Pharmaceutical$252 B 5-8% projected growth (1)
Canadian Pharmaceutical $12 B US5-7% projected growth (1)
HIT – Hospital, Alternate Site and Automation$28 B6-7% projected growth (3)
(1) IMS(2) Medical Devices & Supplies Market Update(3) Datamonitor, 2005(4) Includes medical management software/content, disease management, coding, compliance services
U.S. Medical-Surgical $80 B6-8% projected growth (2)
Payor – Outsourced and Software$8 B20-25% projected growth (4)
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15Investor Day 2006
Demographics Continue to Drive Drug Consumption
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16Investor Day 2006
Medication Needs Increase with an Aging Population …
Number of Americans 60 and Older(in millions)
10.8 13.0 16.7 18.8 20.9
30.834.6
34.140.0
47.3
5.16.1
6.8
7.3
4.2
2000 2005 2010 2015 2020
85+65-8460-64
45.8
49.756.9
65.6
75.5Annual Number of Prescriptions
per Age Group
2.9 2.3 2.74.1
6.0
11.6
15.9
20.5
22.623.5
0-4 5-14 15-24 25-34 35-44 44-54 55-64 65-74 75-84 85+
Source: US Census Bureau Source: University of Delaware
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17Investor Day 2006
0%
1%
2%
3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20156%
7%
8%
9%
10%
11%
12%
Drug Spending as a % of GDP Drug Spending as a % of HealthcareSource: CMS
… Driving Up Drug Spending
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18Investor Day 2006
Focus on Generics Creates
Profit Opportunities
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19Investor Day 2006
Patent Expirations Driving Increased Generics Sales
CAGR 2003-2008 : 12.8%; Merrill Lynch; IMS; McKesson analysis
Annual Patent Expirations$ Billions
$11
$15
$9
$20
$16$14
2003 2004 2005 2006 2007 2008
Est. U.S. Generics Industry$ Billions
$17$20
$23$26
$28$31
2003 2004 2005 2006 2007 2008
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20Investor Day 2006
Increased Generics Sales Leads to Margin Expansion
Generic Scripts as a % to Total
47% 47% 47% 48% 50%53%
57% 59%62%
65% 66%70%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IMS and Express Scripts
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21Investor Day 2006
Focus on Healthcare Quality Drives Use of
Information Technology
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22Investor Day 2006
Rising Concern about Quality of U.S. Healthcare
98,000 or more Americans killed per year by medical mistakes
57,000 or more dying from inadequate care
4-fold variation in cost with similar quality to international average
Ranked 37th in overall health system performance by WHO
New Quality Standards and Pay-for-Performance
New Quality Standards and New Quality Standards and PayPay--forfor--PerformancePerformance
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23Investor Day 2006
Increasing Use of the Internetby Patients …
80% of Internet users or 93 million American adults seek health information – 6 to 8 million on any given day
Heaviest use – information on illness of self or others
Online patient support groups, healthy web sites, physician and provider information and communication
Information Age MedicineInformation Age MedicineInformation Age Medicine
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24Investor Day 2006
… Encourages More Use of the Internet by Physicians …
52.9%
40.6%36.6%
23.6%
11.4%
64.8%
50.1% 50.4%
29.3%
21.9%
Obtain Guidelines Exchange ClinicalData
Access Patient Notes Generate Reminders Write Prescriptions
2000-012004-05
Source: Community Tracking Study Physician Survey
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25Investor Day 2006
… And Increasing Use of Clinical IT in Their Practices
16.8%
25.8%
20.2%
24.8%
22.0%
22.5%
20.1%
15.8%
20.9%
11.1%
2004-05
2000-01
IT in None IT in One IT in Two IT in Three IT in Four or Five
Source: Community Tracking Study Physician Survey
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26Investor Day 2006
Government Support Growing for More Use of Information
Technology in Healthcare
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27Investor Day 2006
Escalating Costs of Healthcare Create Demand for Disease
Management
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28Investor Day 2006
Most Healthcare Resources Are Spent on Chronic Diseases …
Source: Centers for Disease Control, 2003 Data
Chronic Care$1 Trillion
Acute Care$0.4 Trillion
85% of all hospital costs and 69% of all physician costs go to treat chronic
diseases
57%
72%
12.5%
35%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Diabetes Asthma Hypertension Population
Increases in chronic disease prevalence (1990-2000)
Increases in chronic disease prevalence Increases in chronic disease prevalence (1990(1990--2000)2000)
Distribution of healthcare spending in the US – acute vs. chronic -
Distribution of healthcare spending in the US Distribution of healthcare spending in the US –– acute vs. chronic acute vs. chronic --
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29Investor Day 2006
… Driving Rapid Growth of Disease Management$ Millions
60
124
203
263
359
479
0
100
200
300
400
500
1997 1998 1999 2000 2001 2002
Source: McKesson Management Team
1,543
744
2,540
4,350
6,697
7,5287,018 7,287
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2003 2004 2005 2006 2007 2008 2009 2010
Source: 1987-2002 Disease Management Purchasing Consortium. 2003-2010 McKesson Internal Data
Historical growth Projected growth
Disease management stands to become a $20 Billion a year industry in the US– The Wall Street Journal
Disease management stands to become a $20 Billion a year industrDisease management stands to become a $20 Billion a year industry in the USy in the US–– The Wall Street JournalThe Wall Street Journal
CAGR 52%
$ Millions
CAGR 39%
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30Investor Day 2006
Increasing Amount of Healthcare Focus and Spending Is Outside
the Hospital
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31Investor Day 2006
$0
$300
$600
$900
$1,200
$1,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: CMS
$ Millions
Includes Physician Offices, Clinics, Nursing Homes
Alternate Site Spending Is Growing Significantly …
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32Investor Day 2006
$0
$20
$40
$60
$80
$100
$120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: CMS
$ Millions
Home Healthcare
… As Is Spending on Home Healthcare
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33Investor Day 2006
Strong Market Growth Across All McKesson Businesses
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34Investor Day 2006
Are We Serving the Needs of Our Customers?
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35Investor Day 2006
Creating Customers for Life
Working together with our customers to use the clinical knowledge, process expertise, technology and the resources of a Fortune 16 company to change the
future of healthcare for the better.
Create long-termrelationships based on custom solutions
that deliverROI & quality
Sell McKesson’s comprehensive
offering
Introduce innovations that address emerging
healthcarechallenges
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36Investor Day 2006
Long-term Relationships with Global Healthcare Leaders
Vanderbilt University Medical CenterVanderbilt University Medical Center
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37Investor Day 2006
One McKesson Solutions Create Stronger Relationships
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38Investor Day 2006
One McKesson
Pharmaceutical Prime Vendor since May 2004Daily delivery of drugs to >600 hospitals and 7 mail order facilities
Two mail order Automation Installs
Inpatient Robots, Medication Carousel and a dozen medication cabinets
Heart Disease Management Pilot—Veterans Integrated Service Network 17
Pharmaceutical Re-Packaging
CDC/Strategic National Stockpile support
Disease Management
Enterprise InterQual utilization tools
Claim-Check SW at VHA Fee Sites
Total size of 8 year contract - $32 to $35 billion
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39Investor Day 2006
One McKesson
Strategic Business Partner – Relationship since 1989Pharmaceutical Distribution Agreement since 2002
100% OneStop Generics
Clinical Auditing and Compliance Division
Enterprise InterQual utilization tools
High Volume Solutions
Medical-Surgical homecare
Pathway compliance advisor
Specialty – Prospective Health
Total size - $1.6 billion
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40Investor Day 2006
One McKesson
Relationship since 1988Pharmaceutical Distribution – 100% Direct Store Delivery customer
Central Fill in Everett Washington with 2nd site being targeted
OneStop Generics customer
Specialty pharma distributor for Costco's Prescription Benefit Administration Network
Verispan data partner and Verispan's analytical tools for pharma market
Total size - $1.1 billion
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41Investor Day 2006
One McKesson
Relationship since 1994100% sole source customer
90 pharmacies in ‘94, growing to over 1300 in FY’07
Annual volume has grown from $90M per year to a projected $1.5B for FY’07
Target is McKesson’s largest purchaser of OneStop Generics in the Retail National Account segment
Recently, McKesson was acknowledged for its innovation and broad array of strategic capabilities by being made a member of Target’s Strategic Partnership alliance, which includes companies such as Proctor Gamble, J & J, 3M, Nabisco, and PepsiCo
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42Investor Day 2006
One McKesson
Strategic Business Partner – Relationship since late 80sPharmaceutical distribution since 2001
3 hospitals, emergency department and clinical research center
Broad range of McKesson healthcare IT – Horizon Clinicals, revenue cycle and supply chain
Automation solutions in process
Horizon Expert Orders agreement established in 2001More than 150 hospital site visits hosted
Half of sites visiting Vanderbilt purchased Horizon Expert Orders
Commercial version of Horizon Expert Orders and Horizon Expert Documentation installed, rolling out other Horizon Clinicals products
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43Investor Day 2006
One McKesson
Relationship since 1996Pharmaceutical distribution since 1998
3 hospitals, 588 beds
Over past 3 years, named one of the 100 Most Wired healthcare systems in the U.S.
Top 1% of Premier’s “low cost” hospitals
Full range of McKesson IT solutions, including revenue cycle, supply chain and Horizon Clinicals
Automation technologies include ROBOT-Rx, IntelliShelf Supply, AcuDose-Rx cabinets, bar-coded medication administration
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44Investor Day 2006
One McKesson
Relationship since 2001500 bed community hospital
An acute care site, 300 bed long term care facility and regional cancer centre
One McKesson Canada: 1. McKesson Information Solutions:
Outsourced siteMost advanced Horizon site in CanadaDevelopment partner for Horizon Patient Portal
2. McKesson Automation:Robot-Rx plus 16 AcuDose cabinets
3. McKesson Distribution:Participant in Prime Vendor Program
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45Investor Day 2006
Strong Market Growth and Strong Customer Relationships
Drive Strong Financial Performance
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46Investor Day 2006
Jeff Campbell
Executive Vice President Chief Financial Officer
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47Investor Day 2006
Factors Driving Sustained Value Creation at McKesson
Well-positioned in growing healthcare services markets
Strong and growing global businesses:Solid operating profit from core pharmaceutical distribution business
Upside opportunities from higher-growth, higher-margin businesses without focused risk exposure
Track record of improving financial performance producing strongbalance sheet and solid cash flow enables disciplined and opportunistic portfolio approach to shareholder value creation
Experienced and deep management team
Sustained Value CreationSustained Value CreationSustained Value Creation
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48Investor Day 2006
Track Record of Improving Financial Performance
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49Investor Day 2006
Six Years of Strong Growth …
FY00 FY01 FY02 FY03 FY04 FY05 FY06
Warehouse SalesDirect Revenues
$36.7 $42.0
$50.0$57.1
$69.2
$80.1$88.1
16% CAGR (total sales)
$ Billions
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50Investor Day 2006
…Leveraged into Higher EPS …(continuing operations)*
$2.44
$2.18
($0.15)
$0.65
$1.43
$1.89
$2.18
FY00 FY01 FY02 FY03 FY04 FY05 FY06
25% CAGR
* EPS from continuing operations, excluding securities litigation charges.
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51Investor Day 2006
... Through Operating Leverage ...
3.07%3.05%3.26%
3.73%3.92%
4.16%
5.73%
0%
1%
2%
3%
4%
5%
6%
FY00 FY01 FY02 FY03 FY04 FY05 FY06
Ope
ratin
g Ex
pens
es* %
of R
even
ues
* Excludes the impact of Securities Litigation
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52Investor Day 2006
... And Productivity Gains
$146
$137$132
$126$116
$105$104
FY00 FY01 FY02 FY03 FY04 FY05 FY06
Annual Gross Profit/Employee $ thousands
Note: Total company Gross Profit and employees
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53Investor Day 2006
Segment Financial Highlights
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54Investor Day 2006
Pharmaceutical Solutions
Revenues(in billions)
$83.4$75.9
FY05 FY06
Op. Margins %
1.45%
1.41%
FY05 FY06
Operating Profit(in millions)
$1,211
$1,071
FY05 FY06
Target: 150 – 200 bp
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55Investor Day 2006
Four Levers for OperatingMargin Expansion
Goal of
Pharma
Operating
Margin: 150
to 200 bp
GenericsGenerics
Mfr. Comp.
Mfr. Comp.
Operating Expenses
Operating Expenses
Sell MarginSell
Margin
+ -
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56Investor Day 2006
Medical-Surgical Solutions
Revenues(in billions)
$3.1
$2.9
FY05 FY06
Op. Margins %
2.26%
3.52%
FY05 FY06
Operating Profit(in millions)
$70
$102
FY05 FY06
Target: 4% - 6%
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57Investor Day 2006
Provider Technologies
Revenues(in billions)
$1.5
$1.3
FY05 FY06
Op. Margins %
9.27%
8.22%
FY05 FY06
Operating Profit(in millions)
$107
$143
FY05 FY06
Target:Low to mid-teens
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58Investor Day 2006
Growing Contributions from International Operations
McKesson Canada – pharmaceutical distribution, specialty distribution, automation, healthcare information technology
U.S., Canada and Mexico – global agreements with pharmaceutical manufacturers and customers
U.K., France and the Netherlands – building upon NHS success and strong clinical solutions to drive growth
Australia and New Zealand – emerging disease management business based on success of U.S. model
Global sourcing of Medical-Surgical products and generics
>5% of total revenue >10% of operating profit
>5% of total revenue >5% of total revenue >10% of operating profit>10% of operating profit
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59Investor Day 2006
Strong Balance Sheet and Portfolio Approach to Capital
Deployment
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60Investor Day 2006
DSI/DSP Trends Favorable …
25
30
35
40
45
50
Q4-00 Q4-01 Q4-02 Q4-03 Q4-04 Q4-05 Q4-06
Total Company DSI Total Company DSP
Decrease of 13 days DSIIncrease of 2 days DSP
# of days
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61Investor Day 2006
… DSO Improvement of 5 Days with $50B in Additional Sales …
15
20
25
30
Q4-00 Q4-01 Q4-02 Q4-03 Q4-04 Q4-05 Q4-06
Total Company DSO
# of days
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62Investor Day 2006
… Producing Strong Cash Flow from Operations …
($0.4)
$0.3 $0.2$0.8 $0.6
$1.5
$2.7
FY00 FY01 FY02 FY03 FY04 FY05 FY06
$5.7 Billion of Cumulative Cash Flow$ Billions
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63Investor Day 2006
… All of Which Provides A Strong Balance Sheet …
29.2% 29.2% 29.4%
18.7%
25.0%
14.4%
22.3%
FY00 FY01 FY02 FY03 FY04 FY05 FY06
Gross Debt to Capital Ratio
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64Investor Day 2006
… Which Enables Portfolio Approach to Capital Deployment
Increased financial flexibility to continue to execute our strategy
Increased financial flexibility to continue to Increased financial flexibility to continue to execute our strategy execute our strategy
AcquisitionsSynergistic opportunities
Accretive/Value add in line with long term strategy
Measured share repurchase over time
Solid dividend policy periodically reviewed
Internal investment
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65Investor Day 2006
Significant Capital Deployment in Fiscal 2006 …
$958M
$73M
$327M
$603M
Share Repurchase Acquisitions Dividends Capital Expenditures
McKesson deployed almost $2 billion to create additional shareholder value in FY06
49%
17%
4%
30%
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66Investor Day 2006
… With Significant Financial Flexibility to Create Further Value
Cash
$1.0 BReq’dOps
Debt Capacity
Op Cash Flow
14.4%
Target30-40%
$1+ BSignificant Capital for
Future Deployment
$1.1 B
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67Investor Day 2006
Commitment to Clear
Communication
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68Investor Day 2006
Best Practices in Financial Communication
Detailed financial reporting focused on ongoing business performance
Guidance: range of annual EPS with key drivers and assumptions noted
Extensive disclosure in public filings
Informative additional communications
Access to management
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69Investor Day 2006
Fiscal 2007 Outlook
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70Investor Day 2006
Fiscal 2007 earnings per diluted share from continuing operations of
$2.55 to $2.70excluding Securities Litigation
charges or credits
Earnings Guidance
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71Investor Day 2006
What’s Included in Fiscal 2007 Outlook?
Impact of Q1 restructuring at Provider Technologies, acquisitions of HealthCom and RelayHealth, sale of APS to Parata
Termination of OTN logistics arrangement
Significantly lower anti-trust settlements
Equity-based compensation expense of 8 to 10 cents per share
Tax rate of 35%
Continuing operations only
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72Investor Day 2006
John Hammergren
Chairman and Chief Executive Officer
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73Investor Day 2006
Culture and Values Drive Behavior
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74Investor Day 2006
Business Metrics Drive Results
To achieve the best financialperformance in the industry,
as measured by EBIT and ROIC
Financial Success
To provide an environmentthat attracts and retains
outstanding talent
Employee Satisfaction
To fulfill our commitments toour customers and to
each other
Business Process Success
To have the most satisfiedcustomers in the industry
Customer Satisfaction Metric-Driven Execution
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75Investor Day 2006
Focused Priorities to Achieve FY07 Results
Pharmaceutical SolutionsFurther expand generics businessContinue to grow Payor disease management and software business
Medical-Surgical SolutionsResolve strategy for acute care sectorRestructure for enhanced focus on alternate site sector
Provider TechnologiesTake advantage of current clinical waveEstablish leadership in ambulatory & patient sectors
CorporateCapital deployment to accelerate shareholder value creation
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76Investor Day 2006
How We Evaluate Capital Deployment
Disciplined but opportunistic
No predetermined capital allocations
Share repurchase is the baseline for ROIC
Acquisition focus on market penetration, product line extension, complementary businesses, future direction of our markets
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77Investor Day 2006
Experienced Management Team Leads Strategy and Execution
John H. HammergrenChairman and CEO
Jeffrey C. CampbellEVP and CFO
Paul C. JulianEVP and Group President
Paul E. KirincicEVP Human Resources
Marc E. OwenEVP Strategy and Bus Development
Pamela J. PureEVP and President MPT
Randall N. SprattEVP and CIO
Laureen E. SeegerEVP General Counsel
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78Investor Day 2006
Factors Driving Sustained Value Creation at McKesson
Well-positioned in growing healthcare services markets
Strong and growing global businesses:Solid operating profit from core pharmaceutical distribution business
Upside opportunities from higher-growth, higher-margin businesseswithout focused risk exposure
Track record of improving financial performance producing strongbalance sheet and solid cash flow enables disciplined and opportunistic portfolio approach to shareholder value creation
Experienced and deep management team
Sustained Value CreationSustained Value CreationSustained Value Creation
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79Investor Day 2006
Why Invest in Healthcare Services?
Why Invest in McKesson?
Why Now?
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80Investor Day 2006
Break
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81Investor Day 2006
Paul JulianPaul Julian
Executive Vice PresidentGroup President
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82Investor Day 2006
Agenda
Introduction
Pharmaceutical Solutions
Business Overview
FY06/07 Update
Medical-Surgical Solutions
Business Overview
FY06/07 Update
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83Investor Day 2006
Comprehensive North American DistributionSignificant Share to all Channels
$87B in Revenues
US Pharmaceutical DistributionRetail Automation (Parata)Specialty Pharmaceutical ServicesHealth Solutions (Payor)
Primary CareExtended CareAcute CareHome CareMoore MedicalZee Medical
Pharmaceutical SolutionsPharmaceutical Solutions Medical Surgical SolutionsMedical Surgical Solutions
CanadaPharmacy OutsourcingPackagingVerispan JVNADRO
Profile of Business Units
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84Investor Day 2006
Pharmaceutical Solutions
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85Investor Day 2006
U.S. Pharmaceutical Broad Customer Solution Set
National Chain Pharmacy
Health SystemsDistribution ExcellenceGenericsCentral FillAutomationPharmacy SystemsVerispan
Regional Chain Pharmacy
Retail PharmacyDistribution ExcellenceGenericsManaged Care ContractingAutomationPharmacy SystemsPrivate BrandHealth Mart Franchise
Distribution ExcellenceRe-Distribution CenterCentral FillSix SigmaVerispanAutomationSpecialtyGenerics
Distribution ExcellencePatient Safety SolutionsClinical IT SolutionsPharmacy SystemsPackaging ServicesOutpatient PharmacyOneMcKesson
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86Investor Day 2006
U.S. Pharmaceutical Environment
IndustryIndustry
$252B market growing estimated 5-8%
Increased focus on generics with higher generic penetration and >$50B in brand revenue going off-patent by 2008
Channels shifting – mail order growth outpaces that of retail
Public policy influence –Medicare & Medicaid reforms
Public PolicyPublic Policy
FederalMedicare Modernization Act Public health preparednessPatient Safety issues
StatePedigreeMedicaid ReformMethamphetamine controls
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87Investor Day 2006
U.S. Market Pharmaceutical Sales$ Billions
Note: All references are calendar years, not fiscal. Source: IMS Health, IMS National
Components of Growth(CY 2003-2009)
UpwardPotential blockbusters in pipelineUnder-treated disease statesMedicare benefitDirect to Consumer (DTC) spending increasingDemographics
DownwardDelayed branded launchesBranded pipeline weaknessMore aggressive genericsStronger OTC impactPrice pressures2002 2003 2004 2005 2006E 2007E 2008E 2009E
$194
CAGR = 11%
CAGR = 8% $347
U.S. Pharmaceutical Solid Growth
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88Investor Day 2006
U.S. Pharmaceutical FY06 Key Accomplishments
Completion of buy-side transition
Stable sell-side margins
Increased generics penetration in all segments
Continued focus on operational excellence
Medicare Modernization Act
Successful D&K acquisition and integration
Re-signed all customer renewal agreements
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89Investor Day 2006
Six Sigma Drives Industry Leading Performance Metrics
* Based on Purdue University’s Benchmark Portal Research
Fully integrated Distribution Center NetworkNational Redistribution Center & 30 U.S. DCs 50,000 Rx & OTC SKUs24,000 daily deliveries via 52 couriers
Tremendous volume of transactions processed2.1M customer orders and invoices processed monthly $375M of pharmaceuticals & OTC product purchased daily
Superior service levels and pricing accuracy93+% raw service level – industry leading99.96% picking accuracy 0.14% invoice pricing discrepancy rate vs. 0.44% industry average
Centralized ServiceFirst call centersOver 8.5M calls handled annuallyMost accessible Support Center in the Industry*
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90Investor Day 2006
Capital Expenditures Continue to Improve Operations
IT investment – “One IT” strategy to simplify technical landscape, increase reliability and stability, and improve operating margin
Investing in ERP systemDecommissioning legacy systemsContinued investment in internet technologies (SMO)
Distribution NetworkDistribution Center optimizationSignificant capacity upgradesLeverage re-distribution centerDevelop central fill capabilitiesIntegration of D&K distribution centers
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91Investor Day 2006
U.S. Pharmaceutical Continues Focus on Core Priorities
Buy Side / Fee For Service
Sell-Side Strategy
Generics
Operational Excellence
Information Technology
Medicare Modernization Act
FY06 PrioritiesFY06 PrioritiesFY06 Priorities
Buy Side / Fee for Service
Segment-specific sell side strategies
Margin expansion via focus on generics
Operational Excellence
Information Technology
Public Policy
FY07 PrioritiesFY07 PrioritiesFY07 Priorities
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92Investor Day 2006
Four Profit Levers
GenericsGenerics
Mfr. Comp.
Mfr. Comp.
Operating Expenses
Operating Expenses
Sell MarginSell
Margin
+ -
Operating margin has fluctuated very little
over the past 35 years
(150-200bp)
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93Investor Day 2006
Buy Side
Fee for service agreements 99% of suppliers successfully converted
Significant reduction in working capital
Reduced seasonality of earnings
Better relationship with manufacturers
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94Investor Day 2006
Sell Side
Stable competitive environment and marginsCompete primarily on service and value
Customer retention
Sell value-added services
Execute segment-specific strategiesIndependentsRetail National Accounts / Mail OrderMcKesson Health Systems
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95Investor Day 2006
McKesson is Well Positioned for Generics Wave
McKesson is the largest distributor of generics
International generics sourcing program
New GenericsConnecttelemarketing program enhances relationships with existing customers
Offer generics programs to meet needs of all customer segments
$11
$15
$9
$20
$16$14
2003 2004 2005 2006 2007 2008
Annual Patent Expirations$ Billions
Source: Merrill Lynch; IMS; McKesson analysis
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96Investor Day 2006
McKesson Generics Are a Win-Win for Everyone
Volume purchasing powerCompetitive vendor bid processExpanded margin opportunitiesDistribution efficiencies
McKessonManufacturer
Economies of scaleAuto-substitution featureConsistent demandSingle point of deliveryNew product launch auto-ship program
Customer
Proprietary generics program offerings for all segmentsGenerics utilization diagnostic ToolAuto-substitution FeatureOnline ordering and supply management New product launch auto-ship program
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97Investor Day 2006
Opportunity to Increase Proprietary Program PenetrationSegment Sales PenetrationIndependent and Small Chain + + + + +National Chain – non warehouse + + + + +National Chain – warehouse + + + + +Mail Order – warehouse + + + + +Health System – outpatient + + + + +Health System – inpatient + + + + ++ = 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 records
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98Investor Day 2006
Direct BuyingDirect
Buying +
Brand to Generic Conversion Drives Profitability
Price Deflation
Price Deflation = Top Line
ContractionTop Line
Contraction
Increased Purchasing
Power
Increased Purchasing
Power+ Expanded
Sell MarginExpanded Sell Margin = Bottom Line
GrowthBottom Line
Growth
Example: Product X generated $1.8 million in annual Operating Profit for MCK as a branded pharmaceutical When Product X went off-patent, top line sales decreased by 80% but annual EBIT for McKesson increased by 6.5%
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99Investor Day 2006
McKessonSpecialty
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100Investor Day 2006
Specialty Environment
Specialty Pharmaceutical markets represent approximately $41B in 2005, projected to grow at 17% CAGR
Expected to grow from 16% of total Rx market to 26% of total Rx market in 2010
Biologics and oncology represents 33% of late stage pipeline
Very expensive drugs ~$1400/Rx – leading to increased Payorfocus
Require unique distribution support
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101Investor Day 2006
McKesson Specialty Poised to Compete
McKesson Specialty offers unique programs that meet customer needs
Marketing/ Reimbursement Services
LoyaltyScript; Amgen, Genentech, Serono reimbursement
NOA, Avastin, Herceptin, Sutent, Orencia
UHC, Regence
Distribution
Pharmacy
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102Investor Day 2006
North America Distribution
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103Investor Day 2006
McKesson Canada Leads Market
Solid Rx industry growth parallels US market
Stable business with leading market share position for 10+ years35% of total Rx market Over 75% of hospital segment60%+ of distributed market
Distribution and service agreements with key Canadian players Katz Group, Uniprix, Safeway, Loblaws, Proxim, CPDN, Quebec Hospital buying groups
One McKesson strategy brings selected McKesson products/services to Canadian market to diversify revenue base
Automation, Specialty, Informatics, Health related software
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104Investor Day 2006
Nadro Investment Performing Well
Increased stake in NADRO from 22% to 49%
Leading market share in growing market~25% market shareProjected five year industry growth rate 7-9%
Key customers include largest retailers in Mexico such as Wal-Mart Mexico
Emerging generics market in Mexico creates new opportunities
Focus on expansion in profitable independent market
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105Investor Day 2006
Health Solutions (Payor)
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106Investor Day 2006
IndustryIndustry
Disease management growing at 20-30%
Software market growing at 8-10%
Payor consolidation
Two key customer segmentsGovernmentCommercial
Market is demanding integrated approach/ solution
Public PolicyPublic Policy
Federal/State Funding of disease management
Medicare Modernization Act
State regulation for prompt pay and contracting standards
Driving Payor and Providorconnectivity
Health Solutions (Payor) Environment
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107Investor Day 2006
Health Solutions Well Positioned in Growing Payor Market
Market leading position with payors75% of Medicaid Disease Management market
Participation in Medicare pilot program (Mississippi)
#1 position in clinical criteria software applications (Interqual)
#1 position in claims performance software applications
Interoperability platform across products leverages unique assets for Payor Solutions
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108Investor Day 2006
Medical Surgical Solutions
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109Investor Day 2006
Medical-Surgical Solutions Broad Customer Solution Set
Acute Care
Distribution ExcellenceSupplies & Equipment, in-Office Rx & VaccinesMcKesson Brand ProductsPractice Management & EMRInventory Management Tools
Long Term Care / Home CareDistribution ExcellenceSupplies & Equipment, Vaccines, and RespiratoryMcKesson Brand ProductsInventory & Budget Management ToolsDirect to Patient ServicesCharge Capture & Reimbursement Services
Primary CareSurgery Center
Distribution ExcellenceMcKesson Brand ProductsInventory Management ToolsCost Savings ServicesRx
Distribution ExcellenceSupplies & Equipment, in-Office Rx & VaccinesMcKesson Brand ProductsPractice Management & EMRInventory Management Tools
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110Investor Day 2006
IndustryIndustry
Highly fragmented alternate site market
Solid organic growth of 6-8%
Cost, technology, demographics, and consumerism driving care to non-acute sites
More services being performed in physician office
Public PolicyPublic Policy
Medicare Modernization Act-Reimbursement
Durable Medical Equipment Reform
Telehealth
Pedigree
Medical-Surgical SolutionsEnvironment
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111Investor Day 2006
Medical-Surgical Solutions FY06 Key Accomplishments
Strong results in non-acute care segmentsAlternate site revenue growth of 9%
Zee Medical revenue growth of 9%
McKesson brand sales growth of 20%
Record flu season sales
Successful AcquisitionsSterling – Entered Direct-to-Patient HC Market
Moore Medical Expansion - Telemarketing
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112Investor Day 2006
Medical-Surgical Solutions Focus on Non-Acute Business
Explore Acute Care strategic alternatives
Leverage One McKesson assets to expand products and services in non-acute sites
McKesson Brand expansion
Sourcing capabilities expansion
Integrate Sterling
Drive operational efficiency
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113Investor Day 2006
Pharmaceutical Solutions#1 in U.S., Canada, and Mexico#1 distributor of generics#1 in medical management software and services for payors#1 in disease management for Medicaid agencies
Medical-Surgical Solutions#1 in primary care#1 in long term care and home carePrivate label product offeringsRapid growth in physician office pharmaceuticals and equipment
Key Takeaways
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114Investor Day 2006
Pam Pure
Executive Vice President President,
McKesson Provider Technologies
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115Investor Day 2006
McKesson Provider Technologies
• Hospitals: 36% of total; 54% > 200 beds• Physicians: 18% >100 MDs
• Homecare: 24% > 50K visits• EDI: 400M+ transactions/yr
• $1.5B+ revenue• 15% to R&D
• 7,000+ employees• 300+ clinicians
COMPANY PROFILE COMPANY PROFILE –– ““Largest HCIT CompanyLargest HCIT Company””
Software and Automation Products• Clinical and Medication Management• Resource/Supply Chain Management• Revenue Cycle Management
Services• Technology• Consulting• Outsourcing
SOLUTIONS PORTFOLIO SOLUTIONS PORTFOLIO –– ““Most Comprehensive OfferingMost Comprehensive Offering””
CUSTOMER BASE CUSTOMER BASE –– ““Our Most Valuable AssetOur Most Valuable Asset””
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116Investor Day 2006
MPT – We Are On A Roll…
Strong momentum with Horizon ClinicalsUnique medication management strategy continues to differentiate
Physician order entry strengthens competitive position
Accelerating leadership in medical imaging
Continued leadership in revenue cycle solutions
Ambulatory gaining powerful traction
Redefining the consumer experience
Continued progress in international business
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117Investor Day 2006
10%10%60%60%
30%30%
OtherOtherHospitalsHospitals
AmbulatoryAmbulatory
Focus onHealthcare
Focus onHealthcare
Shift in Market Dynamics – From Hospital to Other Settings of Care
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118Investor Day 2006
Healthcare Leadership Strategy
Patient RecordPatient Record
Revenue Cycle Management
Revenue Cycle Revenue Cycle ManagementManagement
AmbulatoryEHR
AmbulatoryAmbulatoryEHREHR
InpatientClinicals
InpatientInpatientClinicalsClinicals
Patient Connectivity
Patient Patient ConnectivityConnectivity
CommunityHospital
PortalsPortals
PayorConnectivity
PayorPayorConnectivityConnectivity
Physician Office
Interoperability with Non-McKesson ProductsInteroperability with Non-McKesson Products
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119Investor Day 2006
In the Hospital
In the Physician’s Office
In the Home
Why Do We Win?
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120Investor Day 2006
KLAS Clinical Market Share Report: Raw Hospital Count (200+ beds) New CIS Contracts by Year per Vendor – Additive 2002 – 2006 June ‘06
0
20
40
60
80
100
120
2002 2003 2004 2005 2006
Cerner Millennium Eclipsys SCM EpicCareGE Centricity IDX Carecast McKesson HCDMeditech C/S Misys CPR QuadraMed AffinitySiemens Soarian
Num
ber o
f Con
trac
ts
McKesson
CernerEpic
EclipsysSiemens
GE/IDXMeditech
QuadraMed
Misys GE Cent.
KLAS Clinical Market Share, p.20, June 2006 © 2006 KLAS Enterprises, LLC. All rights reserved
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121Investor Day 2006
Cerner Meditech Eclipsys Siemens
Newly Released KLAS ScoresTop 20: KLAS 2006 Mid-Year Report Card
Acute Care CDR, Orders & ChartingPACS * -- --
Cardiology Reporting & Documentation
-- -- --
Emergency Department Systems
-- --
Document Management & Imaging
-- *Surgery Management -- --
Financial/ERP -- * -- --
Acute Care Registration, Scheduling & Patient Acctg *Community HIS -- --
McKessonMcKesson
Source: Top 20: KLAS Mid-Year Report Card, June 2006, www.healthcomputing.com, © 2006 KLAS Enterprises, LLC. All rights reserved
= KLAS ranking lower than highest ranking of selected vendors * = No KLAS Ranking
-- = No Product listed in KLAS Report= KLAS ranking highest of selected vendors
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122Investor Day 2006
Why Do We Win? Leadership in the Hospital
Power of the SolutionMedication Safety
Clinical Decision Support and Physician Order Entry
Medical Imaging
Clinical Analytics
Revenue Cycle
No. 1 Solution for Small Community Hospitals
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123Investor Day 2006
Why Do We Win?Medication Safety - More than Software
Full Medication Safety SolutionFulfill-Rx connects to distribution center MedCarousel and high-speed packaging to manage medicationsHorizon Meds Manager automates pharmacyROBOT-Rx dispenses one-half BILLION unit doses virtually error-free each yearIntelliShelf-Rx for RF-based dispensingBar-coding to prevent 200K medicationerrors per week
InnovationCarePoint-RN increased nursing direct patient care by 28%4 patents issued and 2 filed
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124Investor Day 2006
Why Do We Win?Medication Safety - More than Software
Full Medication Safety SolutionFulfill-Rx connects to distribution center MedCarousel and high-speed packaging to manage medicationsHorizon Meds Manager automates pharmacyROBOT-Rx dispenses one-half BILLION unit doses virtually error-free each yearIntelliShelf-Rx for RF-based dispensingBar-coding to prevent 200K medicationerrors per week
InnovationCarePoint-RN increased nursing direct patient care by 28%4 patents issued and 2 filed
AcuDose-Rx automated cabinets displaced competitors in
50 hospitals last year
AcuDoseAcuDose--Rx automated cabinets Rx automated cabinets displaced competitors in displaced competitors in
50 hospitals last year50 hospitals last year
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125Investor Day 2006
Why Do We Win?Medication Safety
“From the bedside back”
From distribution center to the bedside
Automatically scan and inventory meds on arrival
Comprehensive pharmacy automation
Nurse Station workflow and productivity tools
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126Investor Day 2006
Presbyterian Healthcare ServicesAlbuquerque, NM
*Number of adverse drug events per 1,000 doses
Why Do We Win?Medication Safety Results
Horizon Clinicals, bar-code scanning at point of care, ROBOT-Rx, AcuDose-Rx medication cabinets, pharmaceutical distribution services
Medication errors reduced by 78%Charge capture increased up to $350,000/yrMortality index dropped from 1.2 to 0.9Harm rate* has continued to decline to current low of 0.48, within top 10th percentile nationally
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127Investor Day 2006
CPOE system that thinks like a physician…Simple physician-friendly user interface
Evidence- and experience-based decision support capabilities
Intelligent drug dosing
Integrated medication reconciliation
Performance that supports clinician “think time”
Hospitalist-focused content
Why Do We Win?Physician Order Entry
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128Investor Day 2006
Why Do We Win?Physician Order Entry Results
Vanderbilt University Medical CenterNashville, TN
Live on commercial version ofHorizon Expert OrdersHorizon Meds ManagerHorizon Expert Documentation
Coming soon: point-of-care bar-code medication administration
18,000+ orders entered by physicians
each day4,000+ med orders processed daily by
pharmacists
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129Investor Day 2006
# 2 market share750+ live sites82% increase in customers in FY06
U.S. Radiology/Cardiology
PACS Market Share
Philips
Fuji
Agfa
Siemens
Emageon
Amicas
DR
Merge
All Others
2005/FY06
GE
MCK
Why Do We Win?Medical Imaging
Source: Company 10k filings, NEMA reports, McKesson estimates
PACS market ~ 35% penetrated, growing 8-10%
Accelerated adoption in community segment where McKesson is strongEarly adopters replacing legacy PACS systems
PACS market ~ 35% penetrated, growing 8-10%
Accelerated adoption in community segment where McKesson is strongEarly adopters replacing legacy PACS systems
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130Investor Day 2006
RadiologyNo. 1 PACS in KLAS for community hospitalsEnterprise-wide imaging and information approach -- first to market with endoscopy solution
CardiologyAddresses high-revenue, high-cost area of hospitalIntegrated Imaging and hemodynamicmonitoring expedites reporting and billingLeverages McKesson’s “best practices”for staging, implementation
Why Do We Win?Medical Imaging
Top 20: KLAS Mid-Year Report Card, June 2006 © 2006 KLAS Enterprises, LLC. All rights reserved
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131Investor Day 2006
Why Do We Win?Medical Imaging Results
13 facilities2 groups of radiologists215,000 exams per year
Reduced study expense by $280K annually and growing
More than 96% report completion within 24 hours
Reduced 3.5 clerical FTEs ($97K/yr savings)
Significantly improved physician satisfaction
Roper St. Francis HealthcareCharleston, SC
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132Investor Day 2006
50
60
70
80
90
100
Jan Feb Mar Apr May Jun Jul Aug
Bar
codi
ng C
ompl
ianc
e %
The addition of daily scorecards results in superior performanceThe addition of daily scorecards results in superior performance
Scorecard
Daily presentation of scorecard results
Why Do We Win?Clinical Analytics
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133Investor Day 2006
Why Do We Win?Revenue Cycle
Source: Revenue Cycle Management – Software, March 2006, www.healthcomputing.com, © 2006 KLAS Enterprises, LLC. All rights reserved
KLAS Survey Question for Vendors’ Installed Base:“Which vendors to avoid if looking for new revenue cycle solution?”
100%
50%
0%
Cerner Eclipsys McKesson
Avoidance Rate within Existing Customer Base
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134Investor Day 2006
Fully integrated clinical and financial HISNo. 1 in KLAS for community hospital HISOver 2,200 community hospitals in the Paragon market
100-120 decisions per yearDecision drivers
Cost of ownershipTrue integrationDemand for advanced clinical solutions, including imaging and automation
Paragon differentiatorsAffordableContemporary, fully-integratedThe greater McKesson
Why Do We Win? Paragon is No. 1 in Small Hospitals
Top 20: KLAS Mid-Year Report Card, June 2006 © 2006 KLAS Enterprises, LLC. All rights reserved
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135Investor Day 2006
Why Do We Win? Leadership in the Hospital
Power of the SolutionCustomer Focus
Volume AdoptionAccelerated Time to ValueWorld Class Support
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136Investor Day 2006
Why Do We Win?Volume Adoption
Nearly 800 clinical go-lives in FY06
500K nurses interacting with Horizon Expert Documentation
355 sites using Horizon Surgical Manager
112 sites using Horizon Care Record
Nearly 100 new medical imaging customers
Industry leadership in CPOE with hospitalists
3 million physician portal logins, nearly 100K users, including 70% physiciansMore than 200K medical errors prevented weekly
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137Investor Day 2006
Why Do We Win?Accelerated Time to Value
1 2 3 4 5 6 7 188 9 10 11 12 13 14 15 16 17
Traditional Pharmacy AutomationPharmacy Automation
Packaging/Bar codingPackaging/Bar coding
Medication Admin at BedsideMedication Admin at Bedside
Solution Suite Medication Safety Suite
The Model
Concurrent/Stacked implementations
Pre-staged hardware and application with shrink-wrapped clinical content
Linux
Results
30-50% faster time to value
30-50% lower implementation costs
20-40% lower hardware costs
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138Investor Day 2006
Customer Loyalty IndexCustomer Loyalty Index
FY03FY03
FY04FY04
FY05FY05
83%
80%Cases per FTE/Mo. Cases per FTE/Mo.
FY03FY03
FY04FY04
FY05FY05
96%
94%
98%
Satisfaction with SupportSatisfaction with Support
Customer View Productivity
FY03FY03 FY04FY04 FY05FY05
00
39.739.7
42.342.3
47.147.185%
6565
FY06FY06
84% FY06FY06
96% FY06FY06
Why Do We Win?World-Class Support
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139Investor Day 2006
In the Hospital
In the Physician’s Office
In the Home
Why Do We Win?
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140Investor Day 2006
Why Do We Win? Leadership In Ambulatory
Unique “Hospital Out” Strategy
The Only Complete Solution
Strategy Roadmap
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141Investor Day 2006
Physician
Hospital
Benefits• Automate workflow• Extend patient information from the hospital• Cultivate physician relationships• Promote care team collaboration• Enable chronic disease management
BenefitsBenefits•• Automate workflowAutomate workflow•• Extend patient information from the hospitalExtend patient information from the hospital•• Cultivate physician relationshipsCultivate physician relationships•• Promote care team collaborationPromote care team collaboration•• Enable chronic disease managementEnable chronic disease management
Why Do We Win?Unique “Hospital Out” Strategy
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142Investor Day 2006
Triad Hospitals Inc.Plano, TexasTriad Hospitals Inc.Plano, Texas
Why Do We Win?Unique “Hospital Out” Strategy
6 months later…
Ambulatory EHR initiative inked
33 practices representing 195 physician locations
Tulsa, Oklahoma - Revenue cycle outsourcing pilot
6 months later…
Ambulatory EHR initiative inked
33 practices representing 195 physician locations
Tulsa, Oklahoma - Revenue cycle outsourcing pilot
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143Investor Day 2006
PortalsPortals
Payors & Payors & PBMsPBMs
RetailRetailRxRx
Revenue Cycle Management
Revenue Cycle Revenue Cycle ManagementManagement
Document Imaging
Document Document ImagingImaging
AmbulatoryEHR
AmbulatoryAmbulatoryEHREHR
Transactions Solution HubTransactions Transactions Solution HubSolution Hub
Practice Management
Practice Practice ManagementManagement
Medical ImagingPACS
Medical ImagingMedical ImagingPACSPACS
Horizon Architecture Horizon Architecture (shared data, content and technology)(shared data, content and technology)
Patient RecordPatient Record
PatientsPatients
Why Do We Win?The Only Complete Solution
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144Investor Day 2006
Duke University Health System•1,500 physicians in 80 clinics, employed and affiliated MDs
Wheaton Franciscan Healthcare•400 employed MDs in 2 states, 9 hospitals, 100 care settings
Central DuPage Hospital•100% adoption of e-prescribing among employed physicians•Extending to affiliated physicians
St. Luke’s Hospital of Kansas City•Planned deployment to 170 employed physicians and 25 affiliated
Oconee Memorial Hospital•Physician-led integrated community EHR strategy•80% of community physicians engaged
Why Do We Win?The Only Complete Solution
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145Investor Day 2006
Duke University Health System•1,500 physicians in 80 clinics, employed and affiliated MDs
Wheaton Franciscan Healthcare•400 employed MDs in 2 states, 9 hospitals, 100 care settings
Central DuPage Hospital•100% adoption of e-prescribing among employed physicians•Extending to affiliated physicians
St. Luke’s Hospital of Kansas City•Planned deployment to 170 employed physicians and 25 affiliated
Oconee Memorial Hospital•Physician-led integrated community EHR strategy•80% of community physicians engaged
Nearly 4,000 physicianscontracted
in the last 180 days
Nearly Nearly 4,0004,000 physicianscontracted
in the last 180 days
Why Do We Win?The Only Complete Solution
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146Investor Day 2006
FY06FY06FY07FY07
CustomerSize
Segments
ASC
Specialties
Geographies
Canada
Europe
S. & Lat. America
Asia
Solo
25 – 100 MDs
> 100 MDs
< 10 MDs
10 – 25 MDs
Govt DICM/C
Emp
Large
SA
M/C
Affl
S
NB
Small
SA
Payor
Primary Care
Multi-Specialty
Cardiology
USA
ChannelsDirectEnterpriseMed
SurgPartnerInternet VAR
Orthopedics
Surgery
OB/GYN
GI
Other “ologies”
At-Risk RCO
VAR PPM/PPC
HAC/Plus ASP Hosp Host
HAC/Plus ASP MCK Host
O/P Imaging
O/P Surgery
Products
Plus
Small Practice Integrated PM/EMR
HPC (RelayHealth)
HAC
O/P Surgery App
PPC (Medinotes)
PPM
O/P DIC App?
HAC/Plus SW Lic
RCO
Solutions
Homecare
eRx ASP MCK Hosted
PrePre--FY06FY06
Why Do We Win?Strategy Roadmap
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147Investor Day 2006
In the Hospital
In the Physician’s Office
In the Home
Why Do We Win?
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148Investor Day 2006
Leadership in the Home
Patient RecordPatient Record
Disease Management
Disease Disease ManagementManagement
EncounterManagement
EncounterEncounterManagementManagement
PatientVision
PatientPatientVisionVision
PatientKiosk
PatientPatientKioskKiosk PERSPERSPERS
HomeOffice & Hospital
-pay bills-schedule appts-check eligibility-e-visits
Patient PortalPatient Portal
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149Investor Day 2006
Leadership in the Home
Patient RecordPatient Record
Disease Management
Disease Disease ManagementManagement
EncounterManagement
EncounterEncounterManagementManagement
PatientVision
PatientPatientVisionVision
PatientKiosk
PatientPatientKioskKiosk PERSPERSPERS
Office & Hospital Home
-pay bills-schedule appts-check eligibility-e-visits
Patient PortalPatient Portal
What has happened sinceHIMSS?
What has happened sinceWhat has happened sinceHIMSS?HIMSS?
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150Investor Day 2006
Acquired HealthCom Partners –“Virtual Business Office”
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151Investor Day 2006
“Consumer-friendly”• Consolidated account details updated daily• Pay multiple accounts via credit, debit
or check• Intuitive user interface• E-mail alerts to activity on account
““ConsumerConsumer--friendlyfriendly””•• Consolidated account details updated dailyConsolidated account details updated daily•• Pay multiple accounts via credit, debit Pay multiple accounts via credit, debit
or checkor check•• Intuitive user interfaceIntuitive user interface•• EE--mail alerts to activity on accountmail alerts to activity on account
Acquired HealthCom Partners –“Virtual Business Office”
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152Investor Day 2006
Acquired RelayHealthClinical Communication - webVisit®
McKesson Ambulatory Solutions (EMR &
Practice Management)
Patient
webVisit ®
Physician Office
Payor
Reimbursement for webVisit® (via TSH)
Eligibility for webVisit(via TSH)
Hello Steve
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153Investor Day 2006
Acquired RelayHealthClinical Communication - webVisit®
McKesson Ambulatory Solutions (EMR &
Practice Management)
Patient
webVisit ®
Physician Office
Payor
Reimbursement for webVisit® (via TSH)
Eligibility for webVisit(via TSH)
Hello Steve
A New Way to Connect Healthcare
• Online physician –patient communication• Results • Medication Renewals• Personal Health Record
A New Way to Connect HealthcareA New Way to Connect Healthcare
•• Online physician Online physician ––patient communicationpatient communication•• Results Results •• Medication RenewalsMedication Renewals•• Personal Health RecordPersonal Health Record
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154Investor Day 2006
Why Will We Win? Leadership in the Home
Most Comprehensive Personal HealthManagement Strategy
CONNECTIVITY among physicians and care managers for secure exchange of patient information, collaboration, and care coordination
CONVENIENCE for consumers to access to routine services, medical accounts, and health records – from the convenience of home
COACHING support in for chronic care conditions through interactive personal health tools and in-home monitoring services
COMMUNICATION between patients and providers through clinical online services such as the webVisit®, optimized for use as a health plan benefit, and designed to streamline medical office workflows
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155Investor Day 2006
Physician-to-Physician Communication
Hospitalist Package
Emergency Care Network
Why Will We Win?Connectivity
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156Investor Day 2006
Access at convenient locationsHospital lobbyPhysician officeIn room access
Request appointments
Pre-register and check eligibility
Online account management
Why Will We Win?Convenience
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157Investor Day 2006
webVisit
Script Renewals
®
Lab Results
Why Will We Win?Communication
PatientPatient
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158Investor Day 2006
Home Monitoring – TelehealthImproves medication compliance Improves patient safety through daily communicationIncreases disease self-management
Personal Emergency Response System (PERS)Increases patient independence, delaying nursing home placementImproves patient communication with healthcare providersFacilitates a safe transition from the hospital to the home
Call Center SupportConsumer-centric, self-care support materialsSecure communication option for care managers and consumersManages outbound disease management campaigns24 x 7 access to care advice, nurse triage and physician referrals
Why Will We Win?Coaching
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159Investor Day 2006
Healthcare Leadership Strategy
Patient RecordPatient Record
Revenue Cycle Management
Revenue Cycle Revenue Cycle ManagementManagement
AmbulatoryEHR
AmbulatoryAmbulatoryEHREHR
InpatientClinicals
InpatientInpatientClinicalsClinicals
Patient Connectivity
Patient Patient ConnectivityConnectivity
CommunityHospital
PortalsPortals
PayorConnectivity
PayorPayorConnectivityConnectivity
Physician Office
Interoperability with Non-McKesson ProductsInteroperability with Non-McKesson Products
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160Investor Day 2006
MPT – The Momentum is Strong
Healthcare leadership strategyHospitalPhysician officeHome
Swift, flexible portfolio management
“Predictable” innovation
Revenue growth increased investment and margin expansion
VolumeInstall timeProductivity
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161Investor Day 2006
Q&A
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Investor DayInvestor Day20062006
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163Investor Day 2006
Diluted EPS Reconciliation($ and shares in millions, except EPS)
FY04 FY05 FY06
$ 643 $ (160) $ 737
Exclude: Securities Litigation charges, net - 1,200 45
Estimated income tax benefit - (390) (15) - 810 30
Income, continuing ops, excluding Securities Litigation charges $ 643 $ 650 $ 767
$ 2.18 $ 2.18 $ 2.44
299 301 316
Income (loss), continuing ops - as reported
Diluted earnings per common share, continuing ops, excluding Securities Litigation charges (1) (2)
Shares on which diluted earnings per common share were based (2)
(1) Certain computations may reflect rounding adjustments.(2) For the years ended March 31, 2006, 2005 and 2004, interest expense, net of related income taxes, of $1 million, $6 million and $6 million has been added to income from continuing operations, excluding the Securities Litigation charges, for purposes of calculating diluted earnings per share. This calculation also includes the impact of dilutive securities (stock options, convertible junior subordinated debentures and restricted stock).