Transcript 1 - Corporate-ir

Bear Stearns
18th Annual Healthcare Conference
Sept 13, 2005
1
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
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
Fewer
# of
drugs
# of
drugs
Open
Differential
Co-pay
Closed
Lowest
Overall
Cost
4
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
5
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
6
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
7
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
8
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 Q2
02 02 02 02 03 03 03 03 04 04 04 04 05 05
Source: From public filings
ESI
PBM B
PBM C
9
Alignment – Growing Generic Opportunity
U.S. Sales for Brand Products with Patent Expirations From 2005-2009
$12
Represents
$11.3
over 20%
$ - billions
$11
$10.4
$10.3
$10.4
$10
of 2004
$9.8
branded
drug sales
$9
$8
ESI
Analysis
$7
2005
2006
2007
2008
2009
Our Clients and Members Will Benefit From a Growing Generic Opportunity
10
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
11
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
12
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)
13
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
14
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
15
Our Financial Results
Express Scripts has demonstrated a
proven track record
16
Financial Overview
Q2 2005 Highlights
– Adjusted EPS of $0.60*, up 30% from $0.46* last year
– Cash flow from operations of $178.3 M vs. $55.5 M
last year
– Generic drugs were 54% of total prescriptions vs.
50% last year
– Gross profit of $276.7 M, up 24%
• Gross profit per adjusted claim was $1.96, up 10%
• EBITDA per adjusted claim was $1.19, up 4%
– Raised EPS guidance for 2005
*Excludes prior period tax benefit of $0.08 in Q2 2005 and non recurring charge
of $0.04for early retirement of debt in Q2 2004 – reconciliation of reported EPS to
adjusted EPS is included in Table 4 of the 2Q 2005 earnings release
17
Financial Overview
Quality of Earnings
$1.00
Per share
$0.80
$0.60
(1)
(2)
$0.40
(4)
(3)
$0.20
$0.00
Q1
'01
Q2
'01
Q3
'01
Q4
'01
Q1
'02
Q2
'02
Q3
'02
EPS
(1)
(2)
(3)
(4)
Q4
'02
Q1
'03
Q2
'03
Q3
'03
Q4
'03
Q1
'04
Q2
'04
Q3
'04
Q4
'04
Q1
'05
Q2
'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 $0.04 per share charge for the early retirement of debt
Excludes a $0.10 charge to increase legal reserves for the cost of defense.
Excludes an $0.08 prior period benefit related to state tax planning strategies
* Reflects a 12-month moving average of free cash flow (cash from operations less CapX)
18
Financial Overview
EBITDA* per adjusted claim
$1.20
$1.19
$1.12
$1.03
$1.05
$1.00
$0.88
$0.81
$0.80
$0.60
2000
2001
2002
2003
2004**
2005***
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.
*** 2Q ‘05
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Express Scripts’ Value Proposition
Providing a Cost-Effective
Solution for Specialty Drugs
Dom Meffe
President and CEO, CuraScript
Senior Vice President, Specialty Pharmacy
20
Specialty Pharmacy — The
Storm
Gathering
Payers’ Dilemma: Looming Costs for
Chronic Conditions
Biotechnology Healthcare, April 2005
Biologics’ Looming Price Tag Has Payers
Retooling Pharmacy Coverage
Biotechnology Healthcare, April 2005
21
What are Specialty Medications?
• High-cost oral, injectable, infused
or inhaled medications
• Self-administered or administered
by a healthcare provider
• Outpatient or a home setting
22
Characteristics of Specialty
Medications
• Frequent dosage adjustments
• More severe side-effects than traditional drugs
• Specialized storage, handling and distribution
requirements
• Narrow therapeutic range
• Require periodic laboratory or
diagnostic testing
• Cost in excess of $1,300
per 30 day supply
23
National Specialty Product Mix
RSV
10%
IVIG 1%
Hemophilia 3%
Growth Hormone
Deficiency 3%
Chemotherapy 32%
Hepatitis C 7%
$12.53
PMPM
Psoriasis 12%
Chemotherapy
Supportive Care 15%
Rheumatoid Arthritis 8%
Multiple Sclerosis 9%
24
Biotech - Rapid Growth
Traditional Spend
$210 Billion
Specialty Spend
2004 Total
$35 Billion
Outpatient
Pharmacy
18%
Spend $190
Billion
Specialty Spend
$73 Billion
2008 Projected
Outpatient
Pharmacy Spend
$283 Billion
Traditional Spend
$155 Billion
Number of Drugs
Sources:
IMS Data through November 2004
Wall Street Equity Research, 2004
CMS National Healthcare Expenditure
Projection: 2003 – 2013
Data on file: CuraScript.
600
600
500
300
240
200
0
Biotech Drugs in Development
Biotech Drugs on the Market
369
400
100
26%
100
10
1990
29
1995
197
92
2000
2005
Estimated
Source:
PhRMA, International Federation of Pharmaceutical
Wholesalers & Biotech Industry Organization
25
Routes of Administration
Specialty Drug Pipeline
Oncology
46
17
• Late-stage development;
Phase II or later
• Majority are injectable
26
15*
4**
Rheumatoid Arthritis
20
5
8
7
5
Hepatitis C
9
5
8
1
Crohn’s Disease
Oral
10
2
1
Injectable
7
Psoriasis
IV
SQ
8
2
3
1
2
Multiple Sclerosis
IM
Unknown
2
7
7
5
2
Source: Express Scripts data
26
Current Distribution Channels
Today’s Wild, Wild West
Typical Payer Injectable Spend
Retail
Pharmacy
15%-20%
Mail Order
Pharmacy
5%-10%
Specialty
Pharmacy
5%-25%
Unmanaged injectables result in:
• Inappropriate utilization
• Inconsistent clinical management
• Variable reimbursement
Physician
Office
40%-60%
•
•
•
•
•
Outpatient
Hospital
15%-20%
Home Care
& Infusion
5%-10%
Higher cost for payer
Reduced effectiveness of treatment
Reduced patient care
Reduced member satisfaction
Physician panel frustration
27
Our Specialty Solution
CARE
The CuraScript
Difference
Making specialty
drug therapy more
effective and
affordable,
one patient at a time
COST SAVINGS
CONVENIENCE
28
CuraScript Value Proposition:
A Legacy of Results
Current
cost
100%
29
CuraScript Value Proposition:
A Legacy of Results
Lower unit
costs
Current
cost
100%
7.2%
savings
30
CuraScript Value Proposition:
A Legacy of Results
Lower unit
costs
Clinical based
utilization
savings
Current
cost
100%
7.2%
8.2%
savings
savings
31
CuraScript Value Proposition:
A Legacy of Results
Lower unit
costs
Clinical-based
utilization
savings
Lower
administrative
costs
Current
cost
100%
7.2%
8.2%
5.9%
savings
savings
savings
32
CuraScript Value Proposition:
A Legacy of Results
Lower unit
costs
Clinical based
utilization
savings
Lower
administrative
costs
Current
cost
100%
7.2%
8.2%
5.9%
savings
savings
savings
21.3%
savings
overall
33
CARELogic™ Patient Care Management
Care management programs designed to
specifically manage a disease state and the
related drug therapy
Tools of the program include:
•
•
•
•
•
•
•
•
•
•
Patient assessment and risk stratification
Integration of diagnostic and medical data
Dedicated clinical patient support team
Critical pathway management
Intense patient education
Adherence support for medication regimen compliance
Psychosocial assessment and counseling
Utilization and dose management
Delivery coordination of medication
Outcomes reporting
34
CARELogic™ Clinical Management
Patient Admission
High risk Clinical
assessment and ongoing interventions
Initial Clinical
Assessment
Three follow-up
interventions in
the first six
months
Disease Specific
Clinical Pathway
Initiated
Patient Care Coordination
Ongoing Clinical
Assessment and
Interventions
35
01/11/05
Proven Clinical Outcomes ...
CuraScript’s MSLogic™ Case Study
Clinical Management Strategies
Goal: Reduce number and severity of relapses by improving patient
compliance with their drug therapy
Interventions: Patient assessment, education, utilization management,
side effect management, physician consultation
Translates into substantial impact on patient's quality of life and
medical costs savings
Average
Exacerbations Per
Patient
Rate of Compliance
CuraScript
National
0.67
1.0
2004 Client Savings
Avoided Exacerbation Expenses:
92.2%
54%
$ 719,175.53
2004 Results of a 410,000 Life Health plan managed by CuraScript
Marks, A.S., Johnson, KE; Value in Health, 2002;5.
O'Brien et al, BMC Health Services Research, Sept. 2003
36
01/11/05
Implementation Expertise
• Program and Benefit Design Consultation
• Communication Strategy
• Ongoing Account Management
Ongoing Account Management
Patient satisfaction
• Implement new
programs
•
• Support to the client’s
 Client satisfaction
initiatives
• Continuous communication
strategies
37
CuraScript Client Network Mix
Mix 7%
Preferred
10%
Exclusive
40%
Open 43%
As Percent of Total Revenue
Source: Data on file
38
CuraScript Penetration into
Express Scripts
Percentage of Plan Costs
90%
82%
80%
73%
70%
69%
70%
66%
62%
60%
50%
40%
30%
25%
30%
20%
10%
Retail
CuraScript
Home Delivery
16%
14%
17%
2%
13%
13%
Q1 2004
Q2 2004
Q3 2004
20%
11%
9%
8%
Q4 2004
Q1 2005
Q2 2005
0%
Source: Express Scripts Analysis.
Express Scripts’ specialty penetration has increased from 2% to 30%
in the first 5.5 quarters of our CuraScript acquisition.
39
Priority Acquisition - Strategic Rationale
 Creates one of the largest specialty franchises in the U.S.
– $3+ billion annual specialty revenues
– One of the fastest growing sectors in healthcare
– Sector remains fragmented and market structure continues to emerge (greenfield
opportunities)
 Fills key therapy classes within CuraScript portfolio – “one-stop shopping for clients”
– Infertility (number one fertility franchise)
– Pulmonary Fibrosis
– Pulmonary Hypertension
– Home Infusion
 Offers additional capabilities
– Specialty distribution capabilities
– Supply chain services
 Leverages PBM core competencies (payor and manufacturer relationships, mail order pharmacies,
clinical and trend management expertise)
– Synergy potential
– Increased value proposition for clients (single vendor, integrated reporting)
40
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
41
42