2. Larry Kurtz
Vice President
Investor Relations
2
Investor Day 2006
3. Safe Harbor Clause
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 the
Company’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.
3
Investor Day 2006
4. 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
4
Investor Day 2006
6. John Hammergren
Chairman and
Chief Executive Officer
6
Investor Day 2006
7. Why Invest in Healthcare Services?
Why Invest in McKesson?
Why Now?
7
Investor Day 2006
8. 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 strong
balance sheet and solid cash flow enables disciplined and
opportunistic portfolio approach to shareholder value creation
Experienced and deep management team
Sustained Value Creation
8
Investor Day 2006
9. 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
9
Investor Day 2006
10. McKesson at the Center of
Healthcare
Scanning 300 million
doses per year to
$1.6 billion of drugs per week – prevent 203,000 med
35% of drugs in North America errors per week Information solutions
used by
3,500 hospitals,
200,000 physicians,
500,000 nurses and
600 payors
Disease Diagnostic care guidelines for 3,500
management for health plans, hospitals and
1.5 million Medicaid government agencies
and Medicare 99% daily fill rates to
patients 25,000 pharmacies
10
Investor Day 2006
11. Leading Market Positions in All
Three Segments
Pharmaceutical Medical-Surgical Provider
Solutions Solutions Technologies
#1 in U.S., Canada, and 63% of U.S. health
#1 in primary care
Mexico systems
#1 in extended care
#1 generics distributor Leader in clinical,
revenue cycle,
Private label
Large Rx repackaging and resource
product offerings
management solutions
Specialty distribution &
Rapid growth in
patient services for More “Best in KLAS”
physician office
manufacturers products than any
pharmaceuticals
other vendor
#1 in medical management and equipment
software and services for #1 hospital automation
payors
Emerging business in
#1 in disease management U.K and France
for Medicaid agencies
$83.4 billion revenues $3.1 billion revenues $1.5 billion revenues
$1.2 billion op profit $70 million op profit $143 million op profit
Note: Financial information for year ending FY06
11
Investor Day 2006
12. Are We in the Right Businesses
for Today and Tomorrow?
12
Investor Day 2006
13. Healthcare Spending on the Rise in
Dollars and as a Percent of GDP
$4
20%
$2 Trillion
16%
Trillion
2005 2015
13
Investor Day 2006
14. Well-Positioned in Growing Markets
Canadian Pharmaceutical
$12 B US
5-7% projected growth (1)
U.S. Medical-Surgical
$80 B
U.S. Pharmaceutical
6-8% projected growth (2)
$252 B
5-8% projected growth (1)
HIT – Hospital, Alternate Site
and Automation
$28 B
6-7% projected growth (3)
Payor – Outsourced and
Software
$8 B
20-25% projected growth (4)
(1) IMS
(2) Medical Devices & Supplies Market Update
(3) Datamonitor, 2005
(4) Includes medical management software/content, disease management, coding, compliance services
14
Investor Day 2006
16. Medication Needs Increase with
an Aging Population …
Number of Americans Annual Number of Prescriptions
60 and Older per Age Group
75.5
(in millions)
7.3
85+
65.6
23.5
65-84
22.6
6.8
60-64 56.9
20.5
49.7 6.1
5.1
45.8
47.3 15.9
4.2
40.0
34.1
11.6
34.6
30.8
6.0
20.9
18.8 4.1
16.7
13.0
10.8 2.9 2.7
2.3
0-4 5-14 15-24 25-34 35-44 44-54 55-64 65-74 75-84 85+
2000 2005 2010 2015 2020
Source: US Census Bureau Source: University of Delaware
16
Investor Day 2006
17. … Driving Up Drug Spending
3% 12%
11%
2% 10%
9%
1% 8%
7%
0% 6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Drug Spending as a % of GDP Drug Spending as a % of Healthcare
Source: CMS
17
Investor Day 2006
20. Increased Generics Sales Leads to
Margin Expansion
Generic Scripts as a % to Total
70%
66%
65%
62%
59%
57%
53%
50%
48%
47% 47% 47%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IMS and Express Scripts
20
Investor Day 2006
21. Focus on Healthcare Quality
Drives Use of
Information Technology
21
Investor Day 2006
22. 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
Pay-for-Performance
22
Investor Day 2006
23. Increasing Use of the Internet
by 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 Medicine
23
Investor Day 2006
24. … Encourages More Use of the
Internet by Physicians …
64.8% 2000-01
2004-05
52.9%
50.4%
50.1%
40.6%
36.6%
29.3%
23.6%
21.9%
11.4%
Obtain Guidelines Exchange Clinical Access Patient Notes Generate Reminders Write Prescriptions
Data
Source: Community Tracking Study Physician Survey
24
Investor Day 2006
25. … And Increasing Use
of Clinical IT in Their Practices
IT in None IT in One IT in Two IT in Three IT in Four or Five
2000-01 25.8% 24.8% 22.5% 15.8% 11.1%
2004-05 16.8% 20.2% 22.0% 20.1% 20.9%
Source: Community Tracking Study Physician Survey
25
Investor Day 2006
27. Escalating Costs of Healthcare
Create Demand for Disease
Management
27
Investor Day 2006
28. Most Healthcare Resources Are
Spent on Chronic Diseases …
Distribution of healthcare spending in the US Increases in chronic disease prevalence
Distribution of healthcare spending in the US Increases in chronic disease prevalence
––acute vs. chronic - - (1990-2000)
acute vs. chronic (1990-2000)
80%
70%
Acute Care
Chronic Care
72%
$0.4 Trillion
$1 Trillion 60%
50%
57%
40%
30%
35%
20%
12.5%
10%
85% of all hospital costs and 69% of all
physician costs go to treat chronic 0%
diseases Diabetes Asthma Hypertension Population
Source: Centers for Disease Control, 2003 Data
28
Investor Day 2006
29. … Driving Rapid Growth of Disease
Management
$ Millions $ Millions
Historical growth Projected growth
479
500 8,000 7,528
%
39 7,287
7,018
R
7,000 6,697
AG
359
400
C
6,000
%
52
R
AG
5,000
300 263 4,350
C
4,000
203
200
3,000 2,540
124
2,000 1,543
100
60 744
1,000
0
0
2003 2004 2005 2006 2007 2008 2009 2010
1997 1998 1999 2000 2001 2002
Disease management stands to become a $20 Billion a year industry in the US
Disease management stands to become a $20 Billion a year industry in the US
–– The Wall Street Journal
The Wall Street Journal
Source: 1987-2002 Disease Management Purchasing Consortium.
Source: McKesson Management Team
2003-2010 McKesson Internal Data
29
Investor Day 2006
30. Increasing Amount of Healthcare
Focus and Spending Is Outside
the Hospital
30
Investor Day 2006
31. Alternate Site Spending Is
Growing Significantly …
$1,500 $ Millions
Includes Physician Offices, Clinics,
Nursing Homes
$1,200
$900
$600
$300
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: CMS
31
Investor Day 2006
32. … As Is Spending on Home
Healthcare
$120 $ Millions
Home Healthcare
$100
$80
$60
$40
$20
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: CMS
32
Investor Day 2006
34. Are We Serving the Needs of Our
Customers?
34
Investor Day 2006
35. 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-term Introduce
relationships based Sell McKesson’s innovations that
on custom solutions comprehensive address emerging
that deliver offering healthcare
ROI & quality challenges
35
Investor Day 2006
38. One McKesson
Pharmaceutical Prime Vendor since May 2004
Daily 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
38
Investor Day 2006
39. One McKesson
Strategic Business Partner – Relationship since 1989
Pharmaceutical 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
39
Investor Day 2006
40. One McKesson
Relationship since 1988
Pharmaceutical 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
40
Investor Day 2006
41. One McKesson
Relationship since 1994
100% 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
41
Investor Day 2006
42. One McKesson
Strategic Business Partner – Relationship since late 80s
Pharmaceutical 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 2001
More 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
42
Investor Day 2006
43. One McKesson
Relationship since 1996
Pharmaceutical 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
43
Investor Day 2006
44. One McKesson
Relationship since 2001
500 bed community hospital
An acute care site, 300 bed long term care facility and regional cancer
centre
One McKesson Canada:
McKesson Information Solutions:
1.
Outsourced site
Most advanced Horizon site in Canada
Development partner for Horizon Patient Portal
2. McKesson Automation:
Robot-Rx plus 16 AcuDose cabinets
3. McKesson Distribution:
Participant in Prime Vendor Program
44
Investor Day 2006
45. Strong Market Growth and
Strong Customer Relationships
Drive Strong Financial
Performance
45
Investor Day 2006
46. Jeff Campbell
Executive Vice President
Chief Financial Officer
46
Investor Day 2006
47. 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 strong
balance sheet and solid cash flow enables disciplined and
opportunistic portfolio approach to shareholder value creation
Experienced and deep management team
Sustained Value Creation
47
Investor Day 2006
48. Track Record of Improving
Financial Performance
48
Investor Day 2006
49. Six Years of Strong Growth …
$ Billions
Warehouse Sales
Direct Revenues es) $88.1
l sal
(tota
R
CAG
$80.1
6%
1 $69.2
$57.1
$50.0
$42.0
$36.7
FY00 FY01 FY02 FY03 FY04 FY05 FY06
49
Investor Day 2006
50. …Leveraged into Higher EPS …
(continuing operations)*
CAG R
25%
$2.44
$2.18 $2.18
$1.89
$1.43
$0.65
($0.15)
FY00 FY01 FY02 FY03 FY04 FY05 FY06
* EPS from continuing operations, excluding securities litigation charges.
50
Investor Day 2006
51. ... Through Operating Leverage ...
6%
Operating Expenses* % of Revenues
5%
5.73%
4%
4.16%
3% 3.92%
3.73%
3.26%
2% 3.05% 3.07%
1%
0%
FY00 FY01 FY02 FY03 FY04 FY05 FY06
* Excludes the impact of Securities Litigation
51
Investor Day 2006
52. ... And Productivity Gains
$ thousands
Annual Gross Profit/Employee
$146
$137
$132
$126
$116
$105
$104
FY00 FY01 FY02 FY03 FY04 FY05 FY06
Note: Total company Gross Profit and employees
52
Investor Day 2006
57. Provider Technologies
Target:
Low to mid-teens
Revenues Op. Margins %
Operating Profit
(in billions) (in millions)
$143
9.27%
$1.5
$107
$1.3
8.22%
FY05 FY06
FY05 FY06 FY05 FY06
57
Investor Day 2006
58. 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
58
Investor Day 2006
59. Strong Balance Sheet and
Portfolio Approach to Capital
Deployment
59
Investor Day 2006
60. DSI/DSP Trends Favorable …
50
# of days Decrease of 13 days DSI
Increase of 2 days DSP
45
40
35
30
25
Q4-00 Q4-01 Q4-02 Q4-03 Q4-04 Q4-05 Q4-06
Total Company DSI Total Company DSP
60
Investor Day 2006
61. … DSO Improvement of 5 Days
with $50B in Additional Sales …
30
# of days
25
20
15
Q4-00 Q4-01 Q4-02 Q4-03 Q4-04 Q4-05 Q4-06
Total Company DSO
61
Investor Day 2006
62. … Producing Strong Cash Flow
from Operations …
$ Billions
w
h Flo
e C as
ulativ
Cum
f
lion o
il
5.7 B
$
$2.7
$1.5
$0.8
$0.6
$0.3 $0.2
($0.4)
FY00 FY01 FY02 FY03 FY04 FY05 FY06
62
Investor Day 2006
63. … All of Which Provides A Strong
Balance Sheet …
Gross Debt to Capital Ratio
29.4%
29.2% 29.2%
25.0%
22.3%
18.7%
14.4%
FY00 FY01 FY02 FY03 FY04 FY05 FY06
63
Investor Day 2006
64. … Which Enables Portfolio
Approach to Capital Deployment
Acquisitions
Synergistic opportunities
Accretive/Value add in line with long term strategy
Measured share repurchase over time
Solid dividend policy periodically reviewed
Internal investment
Increased financial flexibility to continue to
execute our strategy
64
Investor Day 2006
65. Significant Capital Deployment in
Fiscal 2006 …
McKesson deployed almost $2 billion to create additional shareholder
value in FY06
17%
$327M
4%
$73M
49%
$958M
$603M
30%
Share Repurchase Acquisitions Dividends Capital Expenditures
65
Investor Day 2006
66. … With Significant Financial
Flexibility to Create Further Value
Target
$1.1 B $1+ B
30-40%
Significant
Capital for
Future
Deployment
$1.0 B
Req’d 14.4%
Ops
Debt Op Cash
Cash
Capacity Flow
66
Investor Day 2006
67. Commitment
to Clear
Communication
67
Investor Day 2006
68. 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
68
Investor Day 2006
70. Earnings Guidance
Fiscal 2007 earnings per diluted
share from continuing operations of
$2.55 to $2.70
excluding Securities Litigation
charges or credits
70
Investor Day 2006
71. 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
71
Investor Day 2006
72. John Hammergren
Chairman and
Chief Executive Officer
72
Investor Day 2006
74. Business Metrics Drive Results
Financial Success
To achieve the best financial
performance in the industry,
as measured by EBIT and ROIC
Employee Satisfaction
Customer Satisfaction Metric-Driven
Execution To provide an environment
To have the most satisfied
that attracts and retains
customers in the industry
outstanding talent
Business Process Success
To fulfill our commitments to
our customers and to
each other
74
Investor Day 2006
75. Focused Priorities to Achieve
FY07 Results
Pharmaceutical Solutions
Further expand generics business
Continue to grow Payor disease management and software
business
Medical-Surgical Solutions
Resolve strategy for acute care sector
Restructure for enhanced focus on alternate site sector
Provider Technologies
Take advantage of current clinical wave
Establish leadership in ambulatory & patient sectors
Corporate
Capital deployment to accelerate shareholder value creation
75
Investor Day 2006
76. 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
76
Investor Day 2006
77. Experienced Management Team
Leads Strategy and Execution
John H. Hammergren
Chairman and CEO
Paul C. Julian
Jeffrey C. Campbell EVP and Group President
EVP and CFO
Pamela J. Pure
Paul E. Kirincic EVP and President MPT
EVP Human Resources
Marc E. Owen
Randall N. Spratt EVP Strategy and Bus Development
EVP and CIO
Laureen E. Seeger
EVP General Counsel
77
Investor Day 2006
78. 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 strong
balance sheet and solid cash flow enables disciplined and
opportunistic portfolio approach to shareholder value creation
Experienced and deep management team
Sustained Value Creation
78
Investor Day 2006
79. Why Invest in Healthcare Services?
Why Invest in McKesson?
Why Now?
79
Investor Day 2006
81. Paul Julian
Executive Vice President
Group President
81
Investor Day 2006
82. Agenda
Introduction
Pharmaceutical Solutions
Business Overview
FY06/07 Update
Medical-Surgical Solutions
Business Overview
FY06/07 Update
82
Investor Day 2006
83. Profile of Business Units
Pharmaceutical Solutions Medical Surgical Solutions
US Pharmaceutical Canada Primary Care
Distribution Pharmacy Extended Care
Retail Automation (Parata) Outsourcing Acute Care
Specialty Pharmaceutical Packaging Home Care
Services Verispan JV Moore Medical
Health Solutions (Payor) NADRO Zee Medical
Comprehensive North American Distribution
Significant Share to all Channels
$87B in Revenues
83
Investor Day 2006
85. U.S. Pharmaceutical
Broad Customer Solution Set
Retail Pharmacy National Chain Pharmacy
Distribution Excellence
Distribution Excellence
Generics
Re-Distribution Center
Managed Care Contracting
Central Fill
Automation
Six Sigma
Pharmacy Systems
Verispan
Private Brand
Automation
Health Mart Franchise
Specialty
Generics
Regional Chain Pharmacy Health Systems
Distribution Excellence Distribution Excellence
Generics Patient Safety Solutions
Central Fill Clinical IT Solutions
Automation Pharmacy Systems
Pharmacy Systems Packaging Services
Verispan Outpatient Pharmacy
OneMcKesson
85
Investor Day 2006
86. U.S. Pharmaceutical Environment
Industry Public Policy
$252B market growing estimated Federal
5-8% Medicare Modernization Act
Public health preparedness
Increased focus on generics with Patient Safety issues
higher generic penetration and
>$50B in brand revenue going State
off-patent by 2008 Pedigree
Medicaid Reform
Channels shifting – mail order
Methamphetamine controls
growth outpaces that of retail
Public policy influence –
Medicare & Medicaid reforms
86
Investor Day 2006
87. U.S. Pharmaceutical Solid Growth
U.S. Market Pharmaceutical Sales Components of Growth
$ Billions (CY 2003-2009)
Upward
CAGR = 8%
$347 Potential blockbusters in pipeline
Under-treated disease states
Medicare benefit
CAGR = Direct to Consumer (DTC) spending
11% increasing
$194
Demographics
Downward
Delayed branded launches
Branded pipeline weakness
More aggressive generics
Stronger OTC impact
2002 2003 2004 2005 2006E 2007E 2008E 2009E
Price pressures
Note: All references are calendar years, not fiscal. Source: IMS Health, IMS National
87
Investor Day 2006
88. 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
88
Investor Day 2006
89. Six Sigma Drives Industry Leading
Performance Metrics
Fully integrated Distribution Center Network
National Redistribution Center & 30 U.S. DCs
50,000 Rx & OTC SKUs
24,000 daily deliveries via 52 couriers
Tremendous volume of transactions processed
2.1M customer orders and invoices processed monthly
$375M of pharmaceuticals & OTC product purchased daily
Superior service levels and pricing accuracy
93+% raw service level – industry leading
99.96% picking accuracy
0.14% invoice pricing discrepancy rate vs. 0.44% industry average
Centralized ServiceFirst call centers
Over 8.5M calls handled annually
Most accessible Support Center in the Industry*
* Based on Purdue University’s Benchmark Portal Research
89
Investor Day 2006
90. 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 system
Decommissioning legacy systems
Continued investment in internet technologies (SMO)
Distribution Network
Distribution Center optimization
Significant capacity upgrades
Leverage re-distribution center
Develop central fill capabilities
Integration of D&K distribution centers
90
Investor Day 2006
91. U.S. Pharmaceutical Continues
Focus on Core Priorities
FY07 Priorities
FY06 Priorities FY07 Priorities
FY06 Priorities
Buy Side / Fee for Service
Buy Side / Fee For Service
Segment-specific sell side
Sell-Side Strategy
strategies
Generics
Margin expansion via
Operational Excellence
focus on generics
Information Technology
Operational Excellence
Medicare Modernization
Information Technology
Act
Public Policy
91
Investor Day 2006
92. Four Profit Levers
+ -
Sell
Sell Operating
Generics
Generics Margin
Margin margin has
fluctuated
very little
over the past
35 years
Mfr.
Mfr. Operating
Operating (150-200bp)
Expenses
Comp. Expenses
Comp.
92
Investor Day 2006
93. Buy Side
Fee for service agreements
99% of suppliers successfully converted
Significant reduction in working capital
Reduced seasonality of earnings
Better relationship with manufacturers
93
Investor Day 2006
94. Sell Side
Stable competitive environment and margins
Compete primarily on service and value
Customer retention
Sell value-added services
Execute segment-specific strategies
Independents
Retail National Accounts / Mail Order
McKesson Health Systems
94
Investor Day 2006
95. McKesson is Well Positioned for
Generics Wave
Annual Patent Expirations
McKesson is the largest
$ Billions
distributor of generics
International generics
$20
sourcing program
$16
$15
New GenericsConnect
$14
telemarketing program
$11
enhances relationships with
$9
existing customers
Offer generics programs to
meet needs of all customer
segments
2003 2004 2005 2006 2007 2008
Source: Merrill Lynch; IMS; McKesson analysis
95
Investor Day 2006
96. McKesson Generics Are a
Win-Win for Everyone
Manufacturer McKesson Customer
Economies of scale Proprietary generics
Volume purchasing
program offerings for
power
Auto-substitution
all segments
feature Competitive vendor bid
Generics utilization
process
Consistent demand
diagnostic Tool
Expanded margin
Single point of delivery
Auto-substitution
opportunities
New product launch
Feature
Distribution efficiencies
auto-ship program
Online ordering and
supply management
New product launch
auto-ship program
96
Investor Day 2006
97. Opportunity to Increase Proprietary
Program Penetration
Segment Sales Penetration
+++++
Independent 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
97
Investor Day 2006
98. Brand to Generic Conversion
Drives Profitability
Direct Price Top Line
+ =
Direct Price Top Line
Deflation Contraction
Buying Deflation Contraction
Buying
Increased
Increased
+ =
Expanded Bottom Line
Expanded Bottom Line
Purchasing
Purchasing Sell Margin Growth
Sell Margin Growth
Power
Power
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%
98
Investor Day 2006
100. 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 Payor
focus
Require unique distribution support
100
Investor Day 2006
101. McKesson Specialty Poised to
Compete
McKesson Specialty offers unique programs that meet
customer needs
Marketing/ LoyaltyScript; Amgen, Genentech,
Reimbursement
Serono reimbursement
Services
NOA, Avastin, Herceptin, Sutent,
Distribution
Orencia
Pharmacy UHC, Regence
101
Investor Day 2006
103. McKesson Canada Leads Market
Solid Rx industry growth parallels US market
Stable business with leading market share position for 10+ years
35% of total Rx market
Over 75% of hospital segment
60%+ 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
103
Investor Day 2006
104. Nadro Investment Performing Well
Increased stake in NADRO from 22% to 49%
Leading market share in growing market
~25% market share
Projected 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
104
Investor Day 2006
106. Health Solutions (Payor)
Environment
Industry Public Policy
Disease management growing at Federal/State Funding of
20-30% disease management
Software market growing at 8- Medicare Modernization Act
10%
State regulation for prompt pay
Payor consolidation and contracting standards
Two key customer segments Driving Payor and Providor
Government connectivity
Commercial
Market is demanding integrated
approach/ solution
106
Investor Day 2006
107. Health Solutions Well Positioned
in Growing Payor Market
Market leading position with payors
75% 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
107
Investor Day 2006
109. Medical-Surgical Solutions
Broad Customer Solution Set
Long Term Care / Home Care
Acute Care
Distribution Excellence
Distribution Excellence Supplies & Equipment,
Supplies & Equipment, in- Vaccines, and Respiratory
Office Rx & Vaccines McKesson Brand Products
McKesson Brand Products Inventory & Budget
Practice Management & EMR Management Tools
Inventory Management Tools Direct to Patient Services
Charge Capture &
Reimbursement Services
Primary Care
Surgery Center
Distribution Excellence
Supplies & Equipment, in-
Distribution Excellence
Office Rx & Vaccines
McKesson Brand Products
McKesson Brand Products
Inventory Management Tools
Practice Management & EMR
Cost Savings Services
Inventory Management Tools
Rx
109
Investor Day 2006
110. Medical-Surgical Solutions
Environment
Industry Public Policy
Highly fragmented alternate site Medicare Modernization Act-
market Reimbursement
Solid organic growth of Durable Medical Equipment
6-8% Reform
Cost, technology, demographics, Telehealth
and consumerism driving care to
non-acute sites Pedigree
More services being performed
in physician office
110
Investor Day 2006
111. Medical-Surgical Solutions
FY06 Key Accomplishments
Strong results in non-acute care segments
Alternate site revenue growth of 9%
Zee Medical revenue growth of 9%
McKesson brand sales growth of 20%
Record flu season sales
Successful Acquisitions
Sterling – Entered Direct-to-Patient HC Market
Moore Medical Expansion - Telemarketing
111
Investor Day 2006
112. 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
112
Investor Day 2006
113. Key Takeaways
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 care
Private label product offerings
Rapid growth in physician office pharmaceuticals and equipment
113
Investor Day 2006
114. Pam Pure
Executive Vice President
President,
McKesson Provider Technologies
114
Investor Day 2006
115. McKesson Provider Technologies
COMPANY PROFILE – “Largest HCIT Company”
• $1.5B+ revenue • 7,000+ employees
• 15% to R&D • 300+ clinicians
SOLUTIONS PORTFOLIO – “Most Comprehensive Offering”
Software and Automation Products Services
• Clinical and Medication Management • Technology
• Resource/Supply Chain Management • Consulting
• Revenue Cycle Management • Outsourcing
CUSTOMER BASE – “Our Most Valuable Asset”
• Hospitals: 36% of total; 54% > 200 beds • Homecare: 24% > 50K visits
• Physicians: 18% >100 MDs • EDI: 400M+ transactions/yr
115
Investor Day 2006
116. MPT – We Are On A Roll…
Strong momentum with Horizon Clinicals
Unique 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
116
Investor Day 2006
117. Shift in Market Dynamics – From
Hospital to Other Settings of Care
Hospitals Other
Focus on
60% 10%
Healthcare
30%
Ambulatory
117
Investor Day 2006
118. Healthcare Leadership Strategy
Portals
Hospital Physician Office Community
Inpatient Ambulatory Revenue Cycle Patient
Payor
Inpatient Ambulatory Revenue Cycle Patient
Payor
Clinicals EHR Management Connectivity
Connectivity
Clinicals EHR Management Connectivity
Connectivity
Patient Record
Interoperability with Non-McKesson Products
118
Investor Day 2006
119. Why Do We Win?
In the Hospital
In the Physician’s Office
In the Home
119
Investor Day 2006
122. Why Do We Win?
Leadership in the Hospital
Power of the Solution
Medication Safety
Clinical Decision Support and Physician Order Entry
Medical Imaging
Clinical Analytics
Revenue Cycle
No. 1 Solution for Small Community Hospitals
122
Investor Day 2006
123. Why Do We Win?
Medication Safety - More than Software
Full Medication Safety Solution
Fulfill-Rx connects to distribution center
MedCarousel and high-speed packaging to
manage medications
Horizon Meds Manager automates pharmacy
ROBOT-Rx dispenses one-half BILLION unit
doses virtually error-free each year
IntelliShelf-Rx for RF-based dispensing
Bar-coding to prevent 200K medication
errors per week
Innovation
CarePoint-RN increased nursing
direct patient care by 28%
4 patents issued and 2 filed
123
Investor Day 2006
124. Why Do We Win?
Medication Safety - More than Software
Full Medication Safety Solution
Fulfill-Rx connects to distribution center
MedCarousel and high-speed packaging to
manage medications
Horizon Meds Manager automates pharmacy
ROBOT-Rx dispenses one-half BILLION unit
AcuDose-Rx automated cabinets
AcuDose-Rx
doses virtually error-free each year
displaced competitors in
IntelliShelf-Rx for RF-based dispensing
Bar-coding to prevent hospitals last year
50 200K medication
errors per week
Innovation
CarePoint-RN increased nursing
direct patient care by 28%
4 patents issued and 2 filed
124
Investor Day 2006
125. 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
125
Investor Day 2006
126. Why Do We Win?
Medication Safety Results
Presbyterian Healthcare Services
Albuquerque, NM
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/yr
Mortality index dropped from 1.2 to 0.9
Harm rate* has continued to decline to current low of 0.48, within
top 10th percentile nationally
*Number of adverse drug events per 1,000 doses
126
Investor Day 2006
127. Why Do We Win?
Physician Order Entry
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
127
Investor Day 2006
128. Why Do We Win?
Physician Order Entry Results
Vanderbilt University
Medical Center
Nashville, TN
Live on commercial version of
Horizon Expert Orders
18,000+ orders entered
Horizon Meds Manager
by physicians
Horizon Expert Documentation
each day
4,000+ med orders
Coming soon: point-of-care bar-
processed daily by
code medication administration
pharmacists
128
Investor Day 2006
129. Why Do We Win?
Medical Imaging
U.S.
Radiology/Cardiology
# 2 market share PACS Market Share
750+ live sites 2005/FY06
82% increase in customers GE
MCK
in FY06
Philips
Fuji
PACS market ~ 35% penetrated, Siemens
growing 8-10% Agfa
All Others
Accelerated adoption in community
Accelerated adoption in community
Emageon
segment where McKesson is strong
segment where McKesson is strong
Amicas
Early adopters replacing legacy
Early adopters replacing legacy
Merge
PACS systems
PACS systems
DR
Source: Company 10k filings, NEMA reports, McKesson estimates
129
Investor Day 2006
131. Why Do We Win?
Medical Imaging Results
Roper St. Francis Healthcare
Charleston, SC
13 facilities
2 groups of radiologists
215,000 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
131
Investor Day 2006
132. Why Do We Win?
Clinical Analytics
The addition of daily scorecards results in superior performance
100
Barcoding Compliance %
90
80
70
60
50
Jan Feb Mar Apr May Jun Jul Aug
Daily presentation of
scorecard results
Scorecard
132
Investor Day 2006
135. Why Do We Win?
Leadership in the Hospital
Power of the Solution
Customer Focus
Volume Adoption
Accelerated Time to Value
World Class Support
135
Investor Day 2006
136. 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% physicians
More than 200K medical errors prevented weekly
136
Investor Day 2006
137. Why Do We Win?
Accelerated Time to Value
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Traditional Pharmacy Automation
Packaging/Bar coding
Medication Admin at Bedside
Solution Suite Medication Safety Suite
The Model Results
Concurrent/Stacked 30-50% faster time to
implementations value
Pre-staged hardware and 30-50% lower
application with shrink- implementation costs
wrapped clinical content 20-40% lower hardware
Linux costs
137
Investor Day 2006
138. Why Do We Win?
World-Class Support
Productivity
Customer View
Customer Loyalty Index
Customer Loyalty Index
Cases per FTE/Mo.
Cases per FTE/Mo.
FY03
80% FY03
65
FY04
83% FY04
47.1
FY05
85% FY05
FY06
FY06
84%
42.3
Satisfaction with Support
Satisfaction with Support
39.7
FY03
94% FY03
FY04
96% FY04
98% FY05 0
FY05 0
96% FY06
FY06 FY03 FY04 FY05 FY06
FY03 FY04 FY05 FY06
138
Investor Day 2006
139. Why Do We Win?
In the Hospital
In the Physician’s Office
In the Home
139
Investor Day 2006
140. Why Do We Win?
Leadership In Ambulatory
Unique “Hospital Out” Strategy
The Only Complete Solution
Strategy Roadmap
140
Investor Day 2006
141. Why Do We Win?
Unique “Hospital Out” Strategy
Hospital
Physician
Benefits
• Automate workflow
• Extend patient information from the hospital
• Cultivate physician relationships
• Promote care team collaboration
• Enable chronic disease management
141
Investor Day 2006
142. Why Do We Win?
Unique “Hospital Out” Strategy
Triad Hospitals Inc.
Plano, Texas
6 months later…
Ambulatory EHR initiative inked
33 practices representing 195 physician locations
Tulsa, Oklahoma - Revenue cycle outsourcing pilot
142
Investor Day 2006
