Mckesson 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Pretty solid execution

“we saw tremendous performance in our generics business, including strong growth in our proprietary OneStop Generics program. We delivered solid results from the first full year of the PSS World Medical acquisition and met or exceeded all of our year one integration priorities.

We expanded our long-standing distribution agreement with Rite Aid to include the sourcing and distribution of all of Rite Aid’s brands and generic pharmaceutical requirements. And we secured the acquisition of Celesio in a disciplined manner and established a platform for McKesson as a global leader in pharmaceutical distribution.”

Healthcare landscape is changing

“Pharmacies are increasingly positioning themselves as convenient alternative sites for primary care and offering services to patients to assist them in managing their health. Payers and providers are collaborating in innovative ways to design effective value based reimbursement programs that will slowly shift our fee for service based approach to a care delivery to our payment for value approach tied to outcomes delivered by providers. And consumers are more engaged in understanding the cost and quality of healthcare than ever before.”

Global sourcing capabilities a key to success

“McKesson’s global sourcing team continues to drive significant value for our Company and for our customers. Our team has developed innovative programs that help expand and foster strong partnerships with the best manufacturers across the globe. We are excited about the opportunities to continue to leverage this global sourcing capability as we expand our relationships going forward.”

Use the resources you have to make the best estimates you can

“Like any other estimate that we have to make, whether it’s brand inflation or generic inflation or generic launches, et cetera, what we attempt to do is use the best resources we have internal to the company and whatever resources are available externally to create those views.”

Release our work to the analyst community so that you can piggy back on what we’ve got

“It certainly could be wrong, and the manufacturers don’t typically tell us what they’re going to do. One of the reasons we state our assumptions so clearly in our press release is, so those of you on the phone can create your own view of our assumptions, and provide that input into your own models as you reflect on what we’ve done.”

Full ownership of Celesio pretty important to get to the $1-$1.20 in EPS accretion number

” the $1 to $1.20 of accretion is very largely just our share of Celesio’s earnings. Now again, that always assumed 100% ownership and we only own 76% of the shares at this point. So it’s important to factor that into account.”

McKesson Analyst Day Notes

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.

“pharmaceuticals are usually the first place to go from a patient care perspective. But if you don’t look under the covers, you don’t realize how much untouched opportunity still exist in this business. We think the pharmaceutical distribution businesses could close — could come close to doubling over the next decade as people become compliant to the pharmaceutical regimens that have been prescribed by their physicians and stay compliant through their entire care process”

“in the U.S. pharmaceutical industry. And really, over the next several years, we’re seeing growth rates in the 2% to 4% range, which is slightly ahead of what they’ve been over the last couple of years…demographics are going to continue to drive growth in the U.S. pharmaceutical marketplace. Aging population, more people in the system…Specialty products…given the high nature of the price of those drugs…that helps to fuel the growth. And certainly, we expect the drug pipeline to continue to show moderate improvement here.”

factors that are impacting the growth…the continued brand-to-generic conversions…puts pressure on the revenue line for us. But certainly, generics are a big contributor to our overall profitability…And I think in general, just the overall cost containment in the marketplace will continue to put some pressure on the growth.”

“the timing of generic launches is not an exact science by any means.”

“the core of our business is distribution and supply chain excellence.”

“Another example would be in the retail national account arena and a large regional chain up in the Northeast, where, as Paul said, we started really with just the core distribution business in the day-to-day pick, pack and ship. And really, the quality and efficiency that we’re able to deliver to this customer allowed us to have a different conversation about we could become more of a business partner for them. So over the course of the greater-than-20-year relationship that we’ve had with this customer, we’ve put our pharmacy information system into their operation. We’ve helped them build a Central Fill operation, and we continue to innovate with them to again help them solve their business problems, and the key being here is we want to be a valuable business partner to our customers. Not just a distributor, but a valuable business partner.”

“we bring great value to the manufacturers, certainly as well as to the end customer. And from a manufacturer standpoint, it’s really about reach and scale.”

“we just recently opened up a new 600,000-square-foot distribution center…the core of this is a hub-and-spoke strategy around distribution, and we believe that this is something that really differentiates us not only for the manufacturer, but certainly for our end customer. It allows the manufacturer to be much more efficient in terms of managing their supply chain, and we believe that it allows us to have industry-leading service levels and inventory availability.”

“Specialty Health, is that group of businesses that we have which helps specialist…physicians…those would be oncologists…rheumatologists…urologists…any physician practicing in the community setting that really is a specialist organization.”

“we continue to see growth in other specialties as some of the injectable and biologic drugs transcend pharmaoncology into some of these other spaces.”

“Physicians today have reimbursement pressures. They have pressures on where are my referring physicians going, where is my patient flow coming from. They have to deal with IT infrastructure and the requirements of Meaningful Use. They have to deal with all the other regulatory requirements that are around them to do with HIPAA, Meaningful Use, ICD-10. They have to deal with the payers that want them to move from a fee-for-service environment into a value-based environment. And then they have to deal with the relationship that they have with the rest of the health system in their local geography.

All of those things are putting a lot of pressure on physicians. It’s not an easy place to be if you’re a — whether a 2-person practice or a 50-person practice. That is an environment where they need help.”

“because we have this depth of knowledge on the physician, because we’re so deeply embedded in the practices, we can come back to the payers and be able to provide them again with insight into what’s happening in the cost of cancer care that they can’t get anywhere else. ”

“our Technology Solutions business. I believe we have the most comprehensive set of services and we cover the broadest array of customers in the industry if you look at our footprint, such as hospitals and health systems, payers, physicians, manufacturers, retail pharmacies and consumers. And I think this is a real distinctive advantage for our company because if you look at the competitive landscape, most of our competitors actually focus on one customer segment. Perhaps the largest of our competitors may focus on 2 customer segments. We clearly have the broadest customer footprint. ”

“I think we’ve been very aware of the need to have global scale…Clearly, if someone is able to garner a competitive advantage from a sourcing perspective, it will be our responsibility to try to match that advantage and to find unique and creative ways to level the playing field.”

“We do function as a family”

“The world is clearly moving at some rate from fee-for-service to fee for value.”

McKesson 1Q13 Earnings Call Notes

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.”