Transcript Alignment –Formulary Management - Corporate-ir

William Blair 25th Annual
Growth Stock Conference
June 16, 2005
Forward-Looking Statements
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.
2
Our Interests are Aligned with
Clients and Patients:
To make the use of prescription drugs
safer and more affordable
3
Alignment –Formulary Management
We Provide Flexible Management of
the Supply Chain
1. Select number of drugs in therapy class
Therapy Class
More Number of Drugs
# of
drugs
# of
drugs
# of
drugs
Fewer
# of
drugs
4
Alignment –Formulary Management
Therapy Class
More Number of Drugs
1. Select number of drugs in therapy class
2. Determine formulary control
Benefit Options
We Provide Flexible Management of
the Supply Chain
# of
drugs
# of
drugs
# of
drugs
Fewer
# of
drugs
Open
Differential
Co-pay
Closed
5
Alignment –Formulary Management
Therapy Class
More Number of Drugs
1. Select number of drugs in therapy class
2. Determine formulary control
3. Drive towards lowest overall cost
Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
More choice
Lower co payment
More choice
Higher Profit/Rx
More Flexibility
Benefit Options
We Provide Flexible Management of
the Supply Chain
# of
drugs
# of
drugs
Fewer
# of
drugs
# of
drugs
Open
Differential
Co-pay
Closed
Lowest
Overall
Cost
6
Alignment - Retail Network Management
Greater Management
States
Available
Pharmacies
Most
Inclusive
Network
Most
Restrictive
Network
TRICARE
Access
Minimum
CA
5,644
5,071
3,881
283
NY
4,444
4,224
1,829
300
TX
4,236
3,821
1,827
579
FL
4,020
3,670
1,966
469
PA
2,970
2,825
1,687
432
•Impacton
Impact
onClient
Client
•Impacton
Impact
onPatient
Patient
•Impacton
Impact
onESI
ESI
Lower drug
•Lower
drugcost
cost
•More choice
Lower co
•Lower
copayment
payment •Higher
Higher Profit/Rx
Profit/Rx
•More choice
•More Flexibility
7
Alignment – Clinical Programs
Members in Step Therapy Programs
14
12
10
Millions
Plan Designs Encourage Greater Use of
Generics and Preferred Low-cost Brands
13.0
8
6
4
Impact on Client
Lower drug cost
Impact on Patient
Lower co payment
Impact on ESI
Higher Profit/Rx
2
4.5
0
Q1 2003
Q4 2004
Clients using step therapy realize on average a
2 percentage point increase in generic utilization
8
Alignment – Home Delivery
We Offer Highly Efficient, Cost-effective
Home Delivery
Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
Choice
Lower co payment
Choice
Higher profit/Rx
9
Adjusted Claims* (millions)
600
Increased home delivery penetration
500
20.2%
400
300
18.5%
17.2%
200
16.4%
15.8%
100
13.8%
DIVERSIFIED
®
13.1%
0
24.0%
22.6% 23.0%
22.0%
21.0%
20.0%
19.0%
18.0%
17.0%
16.0%
15.0%
14.0%
13.0%
% mail penetration
Alignment – Growing Demand for Mail
1996 1997 1998 1999 2000 2001 2002 2003 2004
Total Adjusted Claims
Mail Penetration
* Represents network claims plus 3 times home delivery claims –home delivery claims are 90 days vs. 30 days in the network.
Excludes UHC claims
Home Delivery Helps Manage the Cost of Maintenance Drugs
10
Alignment – Generic Utilization
Generic Utilization Rate
Express Scripts Leads in
Generic Utilization
Impact on Client
Impact on Patient
Impact on ESI
Lowest drug cost
Lowest co payment
Highest profit/Rx
54%
52%
50%
48%
46%
44%
42%
40%
38%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
02 02 02 02 03 03 03 03 04 04 04 04 05
Source: From public filings
ESI
PBM B
PBM C
11
Alignment – Growing Generic Opportunity
U.S. Sales for Brand Products with Patent Expirations From 2005-2009
$12
$11.3
Represents
over 20%
$ - billions
$11
of 2004
$11
$10.4
$10.3
$10.4
branded
drug sales
$10
$9.8
$10
ESI
Analysis
$9
2005
2006
2007
2008
2009
Our Clients and Members Will Benefit From a Growing Generic Opportunity
12
Alignment – Specialty Pharmacy
Billions
Traditional
Rx Market,
$155B, 82%
Specialty Market
2004
Biotech
Market,
$35B,
18%
Source: ESI Analysis
Clients are Seeking Solutions
for High-cost Specialty Drugs
Oncology
HIV/AIDS
Renal
Hemophilia
Hepatitis C
Transplant
Multiple sclerosis
Rheumatoid arthritis
RSV prophylaxis
Infertility
Growth Hormone
Other
Total
$12.6
3.4
3.2
1.6
1.6
1.5
1.5
1.5
0.6
0.5
0.5
3.5
$35
36%
10%
9%
5%
5%
4%
4%
4%
2%
1%
1%
19%
100%
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
13
Percentage of Plan Costs
CuraScript Penetration into
Express Scripts
100
90
80
82%
73%
70
70%
69%
66%
60
Retail
50
CuraScript
40
30
20
10
0
16%
2%
17%
20%
14%
13%
25%
Mail
9%
13%
11%
Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005
CuraScript Continues to Capture an Increased
Share of Our Client’s Specialty Spend
14
What Are the Savings?
Retail, Clinical.
Paid by
Formulary
Cash Customer And Rebate
at Pharmacy Savings 24% Mail Savings 6%
Retail Pharmacy Cash Price
Express Scripts Client Savings
Express Scripts Client Costs
C
O
S
T
Paid by
Express Scripts
Clients
Total Savings 30%
Availability of Proven PBM Cost Management Tools
Will Produce 20%–25% Savings (CBO)
15
Alignment – A Win-Win-Win Proposition
Increased Savings
Opportunities:
Client
Moving to preferred brands, mail and generics
Member
Moving to preferred brands, mail and generics
Increased
Profit
Opportunities:
Express Scripts
Moving to preferred brands, mail and generics
Retail Non-pref. Retail Pref.
Brand
Brand
Mail
Pharmacy
Generics
We make money by saving clients and members money
16
PBM’s Are Part of the Solution for Medicare
Average Annual Drug Spend
• ESI is well positioned for 2006
• Our 2006 offensive strategy is
to help our managed care and
carrier clients profitably grow
their MA-PDs and PDPs
• We are building the foundation
for 2007
Among Medicare Population
$3,160
$3,500
$3,000
$2,322
$2,500
$2,000
$1,610
$1,500
$1,000
$500
$0
2000
2003
2006E
Source: Actuarial Research Corporation
The Medicare Prescription Drug Act will shape
the direction of our industry for years to come
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Benefits of ePrescribing
Prescription &
Pharmacy Benefit
Information
Point of
Sale
Point of
Care
Benefit / Gain
Clinical
Messages at
pharmacy
Physicians see
clinical issues
Better informed,
safer prescribing
Formulary
Enforcement
after prescribing
Awareness at
prescribing
Better choices,
increased generics
Benefit
Referenced 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
19
Client/Patient Focus
Canada
10%
Public Sector
25%
Commercial
26%
By membership
Why Express Scripts?
• Alignment With Clients
• Generics
• Specialty
Managed Care
39%
Health Plan Sponsors Recognize Express Scripts Single
Focus on Making Prescription Drugs More Affordable
20
2006 Upsell Pipeline is Strong
('000 Lives)
• Significant potential to continue
to manage client trends in key
product categories
• New products continue
to be developed and
rolled out
• Strong track record of success
10,000
9,000
Sold
Weighted Pipeline
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
21
Client Satisfaction Steadily Improving
• Service and satisfaction metrics have increased consistently quarter over
quarter since 2003 with an early spike in 2005
100%
95%
90%
2003
85%
2004
80%
1q05
75%
70%
65%
60%
ESI Performance
Exceed
Expectations
Likelihood to
Recommend
Likelihood to
Renew
22
Our Financial Results
Express Scripts has demonstrated a
proven track record
23
Financial Overview
Q1 2005 Highlights
• 1Q EPS $1.14 — up 28% from last year
• Cash flow from operations of $138.1
million versus $97.8 million last year
• Record adjusted claims of 142 million, up
16% from last year
• Record generic utilization of 54% versus 49%
last year
• Gross profit per adjusted claim of $1.87
versus $1.77 last year (excluding nonrecurring gain last year)
• Increased 2005 EPS guidance
24
Financial Overview
Quality of Earnings
$1.60
$1.40
Per share
$1.20
$1.00
(1)
(2)
$0.80
(3)
$0.60
$0.40
$0.20
$0.00
Q1
'01
Q2
'01
Q3
'01
Q4
'01
Q1
'02
Q2
'02
Q3
'02
EPS
(1)
(2)
(3)
Q4
'02
Q1
'03
Q2
'03
Q3
'03
Q4
'03
Q1
'04
Q2
'04
Q3
'04
Q4
'04
Q1
'05
Free cash flow per share*
Reflects a $70-$75 million reduction in Q2 2003 due to one-time impact of implementing a new wholesale purchase agreement
Excludes a $0.10 per share charge for the early retirement of debt
Excludes a $0.20 charge to increase legal reserves for the cost of defense.
* Reflects a 12-month moving average of free cash flow (cash from operations less CapX)
25
Components of EPS Growth — 2004
25%
20%
6%
15%
10%
5%
7%
8%
0%
Express Scripts*
Rx Growth
EBITDA/Rx Growth
Cap Structure/Other
* Excluding $25 million charge to increase legal reserves for the cost of defense and $5.5 million termination payment received
26
Financial Overview
EBITDA* per adjusted claim
$1.10
$1.03
$1.05
$0.88
$0.90
$0.70
$1.12
$0.80
$0.68
$0.50
1999
2000
2001
2002
2003
2004**
Pricing can be lowered as clients tighten formulary compliance, increase home delivery, utilize
generics and restrict retail networks. These changes result in lower prices to our clients and
greater profits to Express Scripts.
* 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, 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.
Gross Profit/SGA/EBITDA per
Adj. Rx
$1.90
$1.70
$1.50
$1.30
$1.10
$0.90
$0.70
$0.50
1999
2000
2001
Gross Profit per Adj Rx
2002
SGA per Adj Rx
2003
2004*
EBITDA per Adj Rx
Future EBITDA per Adj. Rx Must Come From Gross Profit per Adj. Rx
•* Excluding $25 million charge to increase legal reserves for the cost of
defense and $5.5 million termination payment received.
28
Focus on Return on Invested
Capital (ROIC)
2004**
2003
2002
2000
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2001
Express Scripts ROIC*
* 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
ROIC is our Preferred Performance Metric
29
Why Express Scripts?
Industry-Leading ROIC
Comparison of Peer Group ROIC - 2004
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
Wellpoint
Medco
CVS
Aetna
Caremark
Walgreens
Cigna
Express
Scripts
0%
We Lead Our Peer Group in ROIC Performance
Source: Express Scripts Analysis
30
Our Financial Goals
25%
• 15% + EBITDA
20%
growth
15%
• Increase gross profit
10%
per claim
5%
• Maintain ROIC
0%
leadership
5%-7%
14%-16%
Express Scripts
EBITDA Growth
Cap Structure/Other
31
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
32