Lehman Brothers 8th Annual Global Healthcare Conference April 1, 2005
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Transcript of Lehman Brothers 8th Annual Global Healthcare Conference April 1, 2005
Lehman Brothers8th Annual Global Healthcare
ConferenceApril 1, 2005
Express ScriptsAligning Interests
2
Statements included in this presentation or in the oral comments made as part of this presentation may contain forward-looking statements, including but not limited to statements of the Company’s plans, objectives, expectations or intentions, that involve risk and uncertainties.
The Company’s actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of factors, which are discussed in detail in the Company’s filings with the Securities and Exchange Commission.
Forward-Looking Statements
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Our Interests are Aligned with Clients and Patients:
To make the use of prescription drugs safer and
more affordable
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Alignment – Formulary Management
We Evaluate Drugs for Price and Value 1. Determine cost per Rx (AWP)
Ensure Clinical Quality at Lowest Cost
$0 $20 $40 $60 $80 $100 $120
Rela
tive c
lin
ical valu
e
Cost for 30-day supply
Drug B Drug A Drug D Drug C
5
Alignment – Formulary Management
We Evaluate Drugs for Price and Value 1. Determine cost per Rx (AWP) 2. Evaluate relative clinical value
Ensure Clinical Quality at Lowest Cost
$0 $20 $40 $60 $80 $100 $120
Rela
tive c
lin
ical valu
e
Cost for 30-day supply
Drug B
Drug A
Drug C
Drug D
6
Alignment – Formulary Management
We Evaluate Drugs for Price and Value 1. Determine cost per Rx (AWP) 2. Evaluate relative clinical value 3. Account for market share
Ensure Clinical Quality at Lowest Cost
$0 $20 $40 $60 $80 $100 $120
Rela
tive c
lin
ical valu
e
Cost for 30-day supply
Drug B
Drug A
Drug C
Drug D
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Alignment – Formulary Management
Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
More choice
Lower co payment
More choice
Higher Profit/Rx
More flexibility
We Evaluate Drugs for Price and Value
1. Determine cost per Rx (AWP) 2. Evaluate relative clinical value 3. Account for market share 4. Select formulary products 5. Determine effects of rebate
Ensure Clinical Quality at Lowest Cost
$0 $20 $40 $60 $80 $100 $120
Rela
tive c
lin
ical valu
e
Cost for 30-day supply
Drug D
Drug C
Drug A
Drug B
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Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
Lower co payment
Higher Profit/Rx
Alignment – Clinical Programs
4.5
14.0
0
2
4
6
8
10
12
14
Mil
lio
ns
Q1 2003 Q4 2004
Members in Step Therapy Programs
Clients using step therapy realize on average a
2 percentage point increase in generic utilization
Plan Designs Encourage Greater Use of
Generics and Preferred Low-cost Brands
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More Number of Drugs Fewer
Alignment – Supply Chain Management
Therapy Class
We Provide Flexible Management of
the Supply Chain 1. Select number of drugs in therapy class
# ofdrugs
# ofdrugs
# ofdrugs
# ofdrugs
10
More Number of Drugs Fewer
Alignment – Supply Chain Management
Therapy Class
We Provide Flexible Management of
the Supply Chain 1. Select number of drugs in therapy class 2. Determine formulary control
Ben
efi
t O
pti
on
s # ofdrugs
# ofdrugs
# ofdrugs
# ofdrugs
Open
DifferentialCo-pay
Closed
11
More Number of Drugs Fewer
Ben
efi
t O
pti
on
s
Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
More choice
Lower co payment
More choice
Higher Profit/Rx
More Flexibility
Alignment – Supply Chain Management
Therapy Class
We Provide Flexible Management of
the Supply Chain 1. Select number of drugs in therapy class 2. Determine formulary control 3. Drive towards lowest overall cost
# ofdrugs
# ofdrugs
# ofdrugs
# ofdrugs
Open
DifferentialCo-pay
ClosedLowestOverall
Cost
12
Alignment – Home Delivery
Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
Choice
Lower co paymentChoice
Higher profit/Rx
Video of Express Scripts High Volume Mail Pharmacy
We Offer Highly Efficient, Cost-effective
Home Delivery
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16.4%
18.5%
22.6%
20.2%
17.2%
13.8%
15.8%
13.1%0
100
200
300
400
500
600
1996 1997 1998 1999 2000 2001 2002 2003 2004
Ad
just
ed C
laim
s* (
mill
ion
s)
13.0%14.0%15.0%16.0%17.0%18.0%19.0%20.0%21.0%22.0%23.0%24.0%
% m
ail p
enet
ratio
n
Total Adjusted Claims Mail Penetration
* Represents network claims plus 3 times mail claims - mail claims are 90 days vs. 30 days in the network. Excludes UHC claims
D IVERSIFIED®
Increased mail penetration
Home Delivery Helps Manage the Cost of Maintenance Drugs
Alignment – Growing Demand for Mail
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Alignment – Generic Utilization
Generic Utilization Rate
38%40%42%44%46%48%50%52%54%
Q102
Q202
Q302
Q402
Q103
Q203
Q303
Q403
Q104
Q204
Q304
Q404
ESI PBM B PBM C
Impact on Client
Impact on Patient
Impact on ESI
Lowest drug cost
Lowest co payment
Highest profit/Rx
Source: From public filings
Express Scripts Leads in Generic Utilization
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$7.0
$8.1 $8.4
$6.1
$8.6
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$ -
bil
lio
ns
2004 2005 2006 2007 2008
U.S. Sales for Brand Products with Patent Expirations From 2004-2008
ESI Analysis
Represents
approximately
18% of 2003
branded
drug sales
Our Clients and Members Will Benefit From a Growing Generic Opportunity
Alignment – Growing Generic Opportunity
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100%$35 Total
19%3.5Other
1%0.5Growth Hormone
1%0.5Infertility
2%0.6RSV prophylaxis
4%1.5Rheumatoid arthritis
4%1.5Multiple sclerosis
4%1.5Transplant
5%1.6Hepatitis C
5%1.6Hemophilia
9%3.2Renal
10%3.4HIV/AIDS
36% $12.6Oncology
Biotech Market, $35B, 15%
Traditional Rx Market,
$200B, 85%
Alignment – Specialty Pharmacy
Specialty Market
2004
Billions
Source: ESI Analysis
Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
Lower co payment
Higher profit/Rx
Improved reporting
Improved quality of
care
Higher client
satisfaction
Clients are Seeking Solutions for High-cost
Specialty Drugs
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Alignment -- PBM Tools Work
Availability of Proven PBM Cost Management Tools Will Produce Savings of 20 – 25% (CBO)
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What Do Plan Sponsors Want?
• Affordability
• Flexibility
• Accountability-5%
0%
5%
10%
15%
20%
2001
2002
2003
2004
2005
2006
2007
2008
Plan Sponsors Want Value for Their Drug Spend
Unmanaged Drug Trend
Source: 2003
ESI Drug Trend Report
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What Does Express Scripts Provide?
• Affordability– Low-cost formulary– Effective clinical
programs– Mail pharmacy services
• Flexibility– Customized
management of the pharmacy benefit
• Accountability– Alignment of interests– Transparency
-5%
0%
5%
10%
15%
20%
2001
2002
2003
2003
1 N
ew T
oo
l
2003
2 N
ew T
oo
ls
Source: 2003
ESI Drug Trend Report
Unmanaged Drug Trend
2003
Man
aged
ESI Provides Value for Clients’ Drug Spend
Managed trend - 2003
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Alignment – A Win-Win-Win Proposition
Retail Non-pref. Brand
Retail Pref.
BrandGenerics
Mail Pharma
cy
Increased Savings
Opportunities:
Client
Member
Increased
Profit
Opportunities:
Express Scripts
Moving to preferred brands, mail and generics
We make money by saving clients and members money
Moving to preferred brands, mail and generics
Moving to preferred brands, mail and generics
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PBM’s Are Part of the Solution for Medicare
$1,610
$2,322
$3,160
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2000 2003 2006E
Average Annual Drug Spend
Among Medicare Population
Source: Actuarial Research Corporation
The Medicare Prescription Drug Act will shape
the direction of our industry for years to come
Medicare Prescription Drug Act of 2003
• PBM’s are expected to play an important role
- Congressional Budget Office estimated
PBM’s would save Medicare about 25%
• We will review the regulations to evaluate
our participation in the program
• We will work closely with employers and
plans supporting their participation in Part D.
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Benefits of ePrescribing
Prescription & Pharmacy Benefit Information
Point of Sale
Point of Care
Benefit / Gain
ClinicalMessages at pharmacy
Physicians see clinical issues
Better informed, safer prescribing
Formulary
Enforcement after prescribing
Awareness at prescribing
Better choices, increased generics
BenefitReferenced at pharmacy
Real-time guidance
Cost-effectiveness, fewer callbacks
Medication History
Partially known
History while prescribing Patient safety
Prescription
Carried, faxed, called, mailed
Convenience at pharmacy
More efficient, patient safety
Medicare Part D Will Advance Important Initiatives Including e- Prescribing
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We Deliver Against Client and Patient Expectations:
To make the use of prescription drugs safer and
more affordable
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Client/Patient Focus
Commercial26%
Canada10%
Managed Care39%
Public Sector25%
By membership
• Successful track record in growing membership to over 50 million
• Differentiation through flexible formulary, clinical programs and retail network management
• New market opportunities – 70 to 100 million unmanaged lives
– Medicare– Medicaid– Uninsured
Health Plan Sponsors Recognize Express Scripts Single
Focus on Making Prescription Drugs More Affordable
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Case Study: Medium-Sized Employer
Generics policyPlan designClinical/trend programs
$1,000
800
600
400
1999 2000 2001 2002 2003
PMPY
Mbr share
GFR
0
60%
40
20
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Case Study: Medium-Sized Employer
Generics policyPlan designClinical/trend programs
$1,000
800
600
400
1999 2000 2001 2002 2003
PMPY
Mbr share
GFR
0
60%
40
20
SAVINGS:$250 PMPY
Express Scripts’ Major Locations –Thru Mid 2004
St. Louis, MO• Corporate Headquarters
• Patient Contact Center• Mail Service Pharmacy
St. Marys, GA• Patient Contact Center
Orlando, FL• CuraScript
• High Vol Mail Services
Tempe, AZ• Patient Contact Center
• Mail Service Pharmacy• Mail Service Pharmacy
Albuquerque, NM• Patient Contact Center
• Mail Service Pharmacy
Troy, NY
• Patient Contact Center
Bensalem, PA
• Patient Contact Center
E. Hanover, NJ• Patient Contact Center
• Mail Service Pharmacy
Harrisburg, PA• Patient Contact Center
• Mail Service Pharmacy• High Vol Mail Services
Farmington Hills, MI• Patient Contact Centers
Bloomington, MN• Patient Contact Centers
• High Vol Mail Services• High Vol. Mail Services
Express Scripts’ Major Locations –2005 Plan
St. Louis, MO• Corporate Headquarters
• Patient Contact Center
• High Vol Mail Services
St. Marys, GA• Patient Contact Center
Orlando, FL• CuraScript
Tempe, AZ• Patient Contact CenterAlbuquerque, NM
• Patient Contact Center
Farmington Hills, MI• Patient Contact Centers
Bloomington, MN• Patient Contact Centers
Troy, NY
• Patient Contact Center
Bensalem, PA• High Vol Mail Services• Patient Contact CenterHarrisburg, PA
• Mail Service Pharmacy
• Mail Service Pharmacy
• Mail Service Pharmacy
• Rx Entry
• Rx Entry
• Mail Service Pharmacy• Mail Service Pharmacy
Albuquerque, NM• Patient Contact Center
• Mail Pharmacy Services
• Patient Contact Center
E. Hanover, NJ• Patient Contact
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70%
80%
90%
100%
2002 2003
Client Satisfaction "Top 2 Boxes"
High Client Satisfaction
Our Focus on Service is Evident from High Overall Client Satisfaction
70%
80%
90%
100%
2002 2003
Likelihood to Recommend ESI
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Our Financial Results
Express Scripts has demonstrated a proven track
record
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Financial Overview
• 4Q EPS $1.07, up 24% from last year
• Record cash flow from operations of $193.0 million• Repurchased 2.4 million shares for $176 million
• Record mail claims of 10.1 million, up 17% from last year
• Generic drugs were 52% of total prescriptions vs. 48% last year
• Gross profit up 13%
Q4 2004 Highlights
32
518 26
4358
73
113
212
242
294
355
379399
0
50
100
150
200
250
300
350
400
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Network Claims* (Millions)
1992-2004 = 44% CAGR
0.7 1.2 1.6 2.1 2.83.9
7.4
10.6
15.2
20.5
27.2
32.3
39.1
0
5
10
15
20
25
30
35
40
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Mail Claims (Millions)
1992-2004 = 40% CAGR
• * Excludes UHC claims
•
Greater Rx Volumes Have Created Economies of Scale
Claims volume growth
Financial Overview
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Financial Overview
$0.68
$0.80$0.88
$1.03
$1.12
$1.05
$0.50
$0.70
$0.90
$1.10
1999 2000 2001 2002 2003 2004**
Pricing can be lowered as clients tighten formulary compliance, increase mail, utilize generics and restrict retail networks. These changes result in lower prices to our clients and greater profits to ESI
EBITDA* per adjusted claim
* A reconciliation of EBITDA to net income and to net cash provided by operating activities can be found in the Investor Relations
Section of Express Scripts’ web site at www.express-scripts.com under Presentations.
** Excluding $25 million charge to increase legal reserves for the cost of defense and $5.5 million termination payment received.
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Financial Overview
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
Q1'01
Q2'01
Q3'01
Q4'01
Q1'02
Q2'02
Q3'02
Q4'02
Q1'03
Q2'03
Q3'03
Q4'03
Q1'04
Q2'04
Q3'04
Q4'04
Per
sh
are
EPS Free cash flow per share*
(1) Reflects a $70-$75 million reduction in Q2 2003 due to the one-time impact of implementing a new wholesale purchase agreement
(2) Excludes a $0.10 per share charge for the early retirement of debt
(3) Excludes a $0.20 charge to increase legal reserves for the cost of defense.
Quality of earnings
(1) (2)
* Reflects a 12 month moving average of free cash flow (cash from operations less CapX)
(3)
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Focus on Return on Invested Capital (ROIC)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2000
2001
2002
2003
2004**
Express Scripts ROIC*
ROIC is our Preferred Performance Metric
* Reflects operating income less tax divided by average invested capital, which consists of stockholder’s equity, plus interest bearing liabilities plus long-term deferred income taxes, net. ** Excludes $25 million charge to increase legal reserves for the cost of defense and $5.5 million termination payment received
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Industry-Leading ROIC
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Expre
ssScr
ipts
Car
dnia
lH
ealt
h
Car
emar
k
Pri
ori
tyH
ealt
h
Mck
esso
n
Acc
redo
Hea
lth
Am
eris
ourc
e
Med
co
Comparison of Peer Group ROIC - 2004
We Lead Our Peer Group in ROIC Performance
Source: ESI Analysis
37
Our Value Proposition Will Continue to Drive Growth
• Making the use of drugs safer and more affordable is more important than ever
• Plan sponsors will increasingly deploy our tools
• Express Scripts is well-positioned for sustainable growth
• Strong market fundamentals/new business opportunities • Increased use of home delivery and generic drugs• Growth in management of specialty pharmacy• Productivity and capital structure improvements
• We have taken a different approach• Alignment -- we make money by saving our clients money
• Strategic acquisitions have enhanced our value proposition
Express ScriptsAligning Interests