McKesson 1Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“we have anticipated the challenge of the low level of new generic launches in our industry and its affect on McKesson in fiscal 2014.”

“In fiscal 2013, we experienced the largest number of brand-to-generic conversions our industry has ever seen”

“while generic drugs have a deflationary impact on our top line growth, they certainly are a good thing financially for our company. You see this in our full year adjusted gross profit growth of 6%, as our economics are better on generic drugs.”

“I see a market that is competitive today, just as it has always been, I guess. And while there has been some attention recently to some of these big customer switches in the industry, I think we’ve been very pleased to have renewed a large portion of McKesson’s U.S. pharmaceutical business headed into this fiscal ’14. ”

“On the branded side for our internal purposes, we measure inflation looking at our particular product mix and doing a dollar-volume weighted calculation of the average price increase. And that is influenced not just by the average size of the price increase, but by how many you have, and some products take more than one in a year. When you do all that calculation, our index was in the 10% to 11% range last year, and we expect that same kind of range next year. The generics side is even trickier to talk about a number, because we model every new launch individually. For mature products, we calculate a dollar volume weighted average of how the overall price trends are going. As you know, if you go back 4 or 5 years, that indices used to often go down quite significantly, 10% or 15% a year. In recent years, it’s been flat to up a little bit to down a little bit, and that’s the same kind of trend we would anticipate for next year.”

“I guess the point is that we think we have significant scale today. We don’t think that our success is dependent on some type of a joint purchasing program or some type of an acquisition.”