1 bear stearns 18 th annual healthcare conference sept 13, 2005
TRANSCRIPT
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
3
Our Interests are Aligned with Clients and Patients:
To make the use of prescription drugs safer and
more affordable
4
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 –Formulary 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
Open
DifferentialCo-pay
ClosedLowestOverall
Cost
5
Alignment - Retail Network Management
States
Available Pharmaci
es
Most Inclusive Network
Most Restrictiv
e Network
TRICARE Access
Minimum
CA 5,644 5,071 3,881 283NY 4,444 4,224 1,829 300TX 4,236 3,821 1,827 579FL 4,020 3,670 1,966 469PA 2,970 2,825 1,687 432
Greater Management
•Higher Profit/Rx•More Flexibility
•Lower co payment•More choice
•Lower drug cost•More choice
•Impact on ESI•Impact on Patient•Impact on Client
Higher Profit/RxLower co paymentLower drug cost
Impact on ESIImpact on PatientImpact on Client
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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
13.0
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
7
Alignment – Home Delivery
Impact on Client
Impact on Patient
Impact on ESI
Lower drug cost
Choice
Lower co paymentChoice
Higher profit/Rx
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 home delivery claims –home delivery claims are 90 days vs. 30 days in the network.
Excludes UHC claims
D IVERSIFIED®
Increased home delivery 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
Q105
Q205
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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$10.3
$11.3
$10.4 $10.4
$9.8
$7
$8
$9
$10
$11
$12
$ -
bil
lio
ns
2005 2006 2007 2008 2009
U.S. Sales for Brand Products with Patent Expirations From 2005-2009
ESI Analysis
Represents
over 20%
of 2004
branded
drug sales
Our Clients and Members Will Benefit From a Growing Generic Opportunity
Alignment – Growing Generic Opportunity
11
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, 18%
Traditional Rx Market,
$155B, 82%
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
12
2006 Upsell Pipeline is Strong
• 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
('000
Liv
es)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Hom
e Del
iver
y
Gener
ic E
nfor
cem
ent
Nar
rowin
g Fo
rmul
arie
s
New
Clin
ical
Pro
duct
s
Spec
ialty
/Cur
aScr
ipt
Thre
e Ti
er
Sold Weighted Pipeline
13
What Are the Savings?
Availability of Proven PBM Cost Management Tools Will Produce 20%–25% Savings (CBO)
Paid byCash Customer
at Pharmacy
Retail, Clinical.Formulary
And RebateSavings 24% Mail Savings
6%
Paid byExpress ScriptsClients
Total Savings 30%
COST
Retail Pharmacy Cash Price
Express Scripts Client Savings
Express Scripts Client Costs
14
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
15
Client Satisfaction Steadily Improving
• Service and satisfaction metrics have increased consistently quarter over quarter since 2003 with an early spike in 2005
Exceed60%
65%
70%
75%
80%
85%
90%
95%
100%
ESI PerformanceExpectations
Likelihood toRecommend
Likelihood toRenew
2003
2004
1q05
17
Financial OverviewQ2 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
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Financial Overview
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
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
Q1'05
Q2'05
Pe
r s
ha
re
EPS Free cash flow per share*
(1) Reflects a $70-$75 million reduction in Q2 2003 due to one-time impact of implementing a new wholesale purchase agreement
(2) Excludes a $0.04 per share charge for the early retirement of debt(3) Excludes a $0.10 charge to increase legal reserves for the cost of defense.(4) Excludes an $0.08 prior period benefit related to state tax planning strategies
Quality of Earnings
(1)(1)
(2)(2)
* Reflects a 12-month moving average of free cash flow (cash from operations less CapX)
(3)(3)(4)(4)
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Financial Overview
$0.81
$0.88
$1.03 $1.05
$1.19
$1.12
$0.60
$0.80
$1.00
$1.20
2000 2001 2002 2003 2004** 2005***
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, 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
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.
9% CAGR
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Dom MeffePresident and CEO, CuraScript
Senior Vice President, Specialty Pharmacy
Express Scripts’ Value Proposition
Providing a Cost-EffectiveSolution for Specialty Drugs
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Specialty Pharmacy — The Gathering Storm
Payers’ Dilemma: Looming Costs for Chronic Conditions
Biotechnology Healthcare, April 2005
Biologics’ Looming Price Tag Has Payers Retooling Pharmacy Coverage
Biotechnology Healthcare, April 2005
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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
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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
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Chemotherapy 32%
ChemotherapySupportive Care 15%
Multiple Sclerosis 9%
Rheumatoid Arthritis 8%
Psoriasis 12%
Hepatitis C 7%
Growth Hormone Deficiency 3%
RSV10%
IVIG 1% Hemophilia 3%
National Specialty Product Mix
$12.53 PMPM
25
Biotech - Rapid Growth
Sources:IMS Data through November 2004Wall Street Equity Research, 2004CMS National Healthcare Expenditure Projection: 2003 – 2013Data on file: CuraScript.
2004 Total Outpatient Pharmacy Spend $190 Billion
2008 Projected Outpatient Pharmacy Spend $283 Billion
Source:PhRMA, International Federation of Pharmaceutical Wholesalers & Biotech Industry Organization
26%26%18%18%
Traditional SpendTraditional Spend$210 Billion$210 Billion
Specialty SpendSpecialty Spend$73 Billion$73 Billion
Specialty SpendSpecialty Spend$35 Billion$35 Billion
Traditional SpendTraditional Spend$155 Billion$155 Billion
Biotech Drugs in DevelopmentBiotech Drugs on the Market
2005Estimated
200019951990
600
500
400
300
200
100
0
600
197
369
92
240
29100
10
Nu
mb
er
of
Dru
gs
26
Routes of Administration Specialty Drug Pipeline
• Late-stage development; Phase II or later
• Majority are injectable
Oncology
1746
26 15* 4**
Rheumatoid Arthritis
520
8 7 5
Hepatitis C
59
8 1
Crohn’s Disease
210
1 7 2
Psoriasis8
2 3 1 2
Multiple Sclerosis
77
5 2
Oral
Injectable
IV
SQ
IM
Unknown
Source: Express Scripts data
27
Current Distribution ChannelsToday’s Wild, Wild West
Typical Payer Injectable SpendTypical Payer Injectable Spend
Retail Pharmacy15%-20%
Retail Pharmacy15%-20%
Mail Order Pharmacy5%-10%
Mail Order Pharmacy5%-10%
Specialty Pharmacy5%-25%
Specialty Pharmacy5%-25%
PhysicianOffice
40%-60%
PhysicianOffice
40%-60%
OutpatientHospital15%-20%
OutpatientHospital15%-20%
Home Care& Infusion5%-10%
Home Care& Infusion5%-10%
Unmanaged injectables result in:
• Inappropriate utilization• Inconsistent clinical
management• Variable reimbursement
Unmanaged injectables result in:
• Inappropriate utilization• Inconsistent clinical
management• Variable reimbursement
• Higher cost for payer• Reduced effectiveness of
treatment• Reduced patient care• Reduced member satisfaction• Physician panel frustration
• Higher cost for payer• Reduced effectiveness of
treatment• Reduced patient care• Reduced member satisfaction• Physician panel frustration
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Our Specialty Solution
CARE
COST SAVINGS
CONVENIENCE
The CuraScript Difference
Making specialtydrug therapy
more effective and affordable,
one patient at a time
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Current cost
Lower unit costs
7.2% savings
100%
CuraScript Value Proposition: A Legacy of Results
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Current cost
Lower unit costs
7.2% savings
Clinical based
utilization savings
8.2% savings
100%
CuraScript Value Proposition: A Legacy of Results
32
Current cost
Lower unit costs
7.2% savings
Clinical-based
utilization savings
8.2% savings
5.9% savings
100%
CuraScript Value Proposition: A Legacy of Results
Lower administrati
ve costs
33
Current cost
Lower unit costs
7.2% savings
Clinical based
utilization savings
8.2% savings
5.9% savings
100%
21.3%
savings
overall
CuraScript Value Proposition: A Legacy of Results
Lower administrati
ve costs
34
CARELogic™ Patient Care Management
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
Care management programs designed to specifically manage a disease state and the related drug therapy
35
CARELogic™ Clinical Management
Initial Clinical Assessment
Initial Clinical Assessment
Disease Specific Clinical Pathway
Initiated
Disease Specific Clinical Pathway
Initiated
Ongoing Clinical Assessment and
Interventions
Ongoing Clinical Assessment and
Interventions
Patient Care CoordinationPatient Care Coordination
Three follow-up
interventions in the first six
months
High risk Clinical assessment and on-going interventions
Patient AdmissionPatient Admission
01/11/05
36
Proven Clinical Outcomes ...CuraScript’s MSLogic™ Case Study
2004 Client Savings Avoided Exacerbation
Expenses:
$ 719,175.53
01/11/05
Average CuraScript
National
Exacerbations Per Patient
0.67 1.0
Rate of Compliance
92.2% 54%2004 Results of a 410,000 Life Health plan managed by CuraScriptMarks, A.S., Johnson, KE; Value in Health, 2002;5.O'Brien et al, BMC Health Services Research, Sept. 2003
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
37
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 initiatives• Continuous communication strategies
Client satisfaction
38
CuraScript Client Network Mix
Preferred10%
Mix 7%
Open 43%
Exclusive40%
As Percent of Total Revenue
Source: Data on file
39
Express Scripts’ specialty penetration has increased from 2% to 30%
in the first 5.5 quarters of our CuraScript acquisition.
Per
cent
age
of P
lan
Cos
ts
Source: Express Scripts Analysis.
82%
73%70% 69%
66%62%
2%
17%20%
25%30%
16%14%
8%9%11%13%13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005
RetailCuraScriptHome Delivery
CuraScript Penetration intoExpress Scripts
40
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)
41
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