Omnicare, Inc. (OCR)

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Omnicare, Inc. (OCR)

Analyst Day Conference Call

December 07, 2012 8:00 AM ET


Patrick Lee - Vice President, Investor Relations

John Workman - Chief Executive Officer

Nitin Sahney - President and Chief Operating Officer

Rocky Kraft - Chief Financial Officer

Gary Erwin – Chief Clinical Officer

Amit Jain - Senior Vice President, Sales and Marketing

David Hileman - Senior Vice President, Specialty Care Group Operations

Denise Von Dohren - Vice President, Access Solutions

Bob Dries - Senior Vice President, Operations Finance

Tim Hopkins - Senior Vice President, Trade Relations

Dan Maloney - Senior Vice President, Purchasing

Randy Carpenter - Chief Information Officer

Al Kayne - Senior Vice President, Secretary and General Counsel


Brendan Strong - Barclays Capital

Bob Jones - Goldman Sachs

Charles Rhyee - Cowen & Co.

Glen Santangelo - Credit Suisse

Steven Valiquette - UBS


Patrick Lee

Okay, we're going to go ahead and get started now. Good morning everyone, I am Patrick Lee, Vice President of Investor Relations for Omnicare. I welcome you to Omnicare's 2012 Analyst Day. We have an exciting event planned, featuring a series of presentations, in addition to a roundtable lunch discussion.

Presentation portion of the event will be available on our website at, where you can also find a copy of our slides. Before we begin I'd like to note that we will make remarks that constitute forward-looking statements. Actual results may differ as a result of a variety of factors including those identified in our various filings with the SEC. You're also cautioned that any forward-looking statements reflect management current views only and that the company undertakes no obligation to update such statements in the future.

With that I'd like to introduce John Workman, Omnicare's Chief Executive Officer.

John Workman

Thanks, Patrick, and I also want to offer my thanks everyone for joining us here today in Boston, we thought we would try Boston having done in New York last year.

You're going to hear from a lot of management presenters today, obviously myself, Nitin Sahney, who is our President and Chief Operating Officer; Rocky Kraft, our Chief Financial Officer; Gary Erwin who is our Chief Clinical Officer; Amit Jain, who is our Senior Vice President moved over to help the Sales Group and Long-Term Care after having run the Specialty Care Sales Group for a while; David Hileman, who is also in the Specialty Care; Denise Von Dohren, who is our Sales Executive in the Specialty Care Group.

We're also pleased, we have one of our Board Members; Sam Leno, Sam is down here on the right, Sam happens to live in Boston and was able to join us today, so we thank him also for joining us. Today, the objectives are to – of the meeting today to intend to provide insight into what Omnicare is doing a strategic directive in our operating objectives, we'll do that over the next few hours.

Just to walk you through those objectives, I'm going to start by talking about the strategic overview of the company, I want to give you some insight into the expected development within healthcare, which is a fairly volatile area right now as well as how Omnicare fits into that and how - why we think that Omnicare can play a key role. We're also going to discuss our three operating priorities for next 12 months.

Nitin then is going to provide an update on the two operating businesses; including the plans designed to support those three operating objectives. During his presentation you're also going to hear from certain key members of the Long-Term Care Group and the Specialty Care Group. Rocky Kraft is then going to provide an overview and discuss our capital allocation strategies. I'm going to close by providing some closing comments including talking about the future and our outlook for the business. Then will open up with the Q&A followed by a luncheon and during the luncheon we have some other executives, I'm going to introduce later from the company they're here and they will be also with the roundtables, you'll have a chance to meet some of them and have a chance to talk to them about the business and I think you hopefully you'll be able to stay around for that.

We're focused on creating value our shareholders that's our goal at Omnicare and we all recognize that. If you think about the way that we look at Omnicare, Omnicare has number of different ways to create value, first as we have a unique collection of assets that are differentiated in the market. I think you're well aware of those clearly and long-term care, we hold a large market position, and we have this great asset in the specialty care growth, which is growing very significantly.

We possess a great deal of scale especially in comparison to our competitors. We have some attractive developments within our core markets that we think also support to underlying business; I'm going to hit on a few of those. And lastly we generate a lot of cash and using that cash effectively and it's been a focus and how we redeploy that cash that Omnicare generates in terms of its operations.

So first I want to talk about, what's going on in healthcare and how we see that great deal of change occurring how we see Omnicare position well to capitalize on some of those changes that are taking place, or that are about to take place.

First is the aging of population, this is not news to anybody, we all know that the population in United States is growing significantly and then especially that age category, we like to focus not only on the over 65 but also that over 85 population, which has a higher growth rate. Because those people are much more likely be in some kind of assisted-living facility, or skilled nursing facility, so it's more relevant to some of our businesses.

The other thing that we want to comment on is regarding the geriatric market that it's important to note that seniors utilize more than three times more pharmaceuticals than the general population, so that's an also important sweet spot in terms of where Omnicare is positioned.

If you look at the overall healthcare trends in the country, obviously with increased utilization, we all realize that costs are also expected to rise rapidly obviously we've got a discussion going on [relative] to that matter right now in Washington DC. Overall we also understand the projected cost is not sustainable, if you – in comparison the economic growth expectations for our country, we realized that's going to pressure on the system.

What we want to talk to you little bit, why we think Omnicare again is positioned even in that environment to flourish. We believe that companies with scale are going to be successful and are going to thrive in the future environment. And again Omnicare is one with a significant amount of scale. We also believe that volume and efficiency, realizations are going to be key to building sustainable growth, for most healthcare industries including ours.

Companies that improve patient outcomes, we think, will see a bigger piece of the reimbursement picture moving forward. And we believe Omnicare is well-positioned in all of those fronts. I mean one of the things you're going to hear today is Gary Erwin, our Chief Clinical Officer is going to talk about that aspect too and I think you'll gain a better appreciation for Omnicare's depth relative to clinical matters.

As CMS and other government entities, demand more connectivity. We believe that we also have the interfaces to drive greater compatibility with our customers. Also as different healthcare providers create network designed to improve coordination, national footprint position, our national footprint positions us well across the country.

As the government also looks to seek more outcome based reimbursement policies, we think our clinical expertise again helps to support those efforts. So again, that we think that even in the changing healthcare landscape, we think Omnicare is well-positioned and that's what our focus is that to make certain that we keep that position and improve upon as we move forward and you'll hear more about those comments as the day progresses.

The other thing obviously is generics, we're a large dispenser of generic drugs, we think that's another element that is consistent with lowering healthcare cost overall, a particularly relating to the pharmaceutical industry that we serve. To put this in perspective the generics that were launched in 2011, have saved Omnicare customers over $450 million in 2012. That's both our skilled nursing facilities, Part D plans and other providers. We believe we're differentiated in the long-term care industry because our skill allows us to buy direct, hence lowering the cost from an Omnicare perspective.

We also have invested in a central distribution network that further benefits our direct purchase of generics, we also have our own repackaging facility. This allows Omnicare to convert generics faster, and as you can see from the chart in the yellow bar looks at the industry average, the blue bar is the Omnicare opportunity to convert generics and you can see we do this very quickly. And by doing that we're able to capture more of the profit in the early stages, where reimbursement is still relatively robust in that generic cycle. So again we think that's a large competitive advantage but it's one that we have developed over number of years in terms of building the infrastructure to support that and to be able to execute on that so quickly.

The generic wave is expected to continue, even though 2012, we will admit remains a largest year in a number of years in terms of the number of generics launched. One of the things that we want to comment on though is that based on the launches of generics in 2012, there is a significant carryover impacting the 2013 that will benefit Omnicare. So I know there's been a lot of discussion about the generic cliff, and the fact that that generics are going to cause a big negative headwind if you will in 2013. That's really not the situation as we look at 2013 right now, we see maybe a slight negative but again [buttress might] effect that we have a lot of introductions of generics in 2012 that will have a carryover impact into 2013.

One other comment because we do hear this from others, when Omnicare looks at our generic dispensing rate, we exclude the over-the-counter drugs. So if you put those in that portfolio, would add about another 200 basis points to our generic dispensing rate.

As a reminder during a multi source period we always have made more profit on the generic drug and we do this throughout the product lifecycle compared to the branded equivalent. This allows us to be fully aligned with our customers and again with the idea of lowering overall healthcare costs. You can see that even after five years, which is what this chart is intended to demonstrate. That Omnicare continues to make more gross profit dollars than it does on the branded equivalent even though you can tell obviously by the slope of the graph. So there is going to be some decline in the rate but overall that still make more gross profit dollars.

Also this is a differentiator to us and some of the competition, it's because we buy direct and you're going to hear from our director of purchasing, who's able to chase down that cost curve if you will, that allows us to maintain us over five years, whereas another competitor that might have to go out and buy from a wholesaler is going to dip down after a period of time and the branded equivalent would have been higher gross profit dollars again a competitive advantage for Omnicare.

In terms of the overall market, the – within the senior care settings, occupancy is nearly recovered from the 2008, fall off in assisted-living and independent living, and you can see that from the chart that's represented in the yellow and green bars. And you can see those peaked ahead a trough and of starting to decline. Skilled nursing hasn't yet made that similar recovery and you can see that is demonstrated in the blue bar on the chart.

Instead what skilled nursing facilities are more focused on is changing the mix of their business to a – to one that say more clinically complex patient that has a benefit to Omnicare, because those patients - since they're more clinically complex are going to typically have higher acuity and as a consequence the number of prescriptions that they need are also going to be higher.

A more and more the skilled nursing facilities are playing in this higher acuity level, a lot of it's in the rehabilitation sector, and they're taking a bigger role with acute care facilities and are trying to become discharge partners in this changing landscape that we face in healthcare.

If you look at again the overall market and talking about the skilled nursing facilities, we think Omnicare's is well-positioned to serve skilled nursing facilities, also to help them meet the expectation of their hospital partners with the more clinically complex patients.

Omnicare's customer facing technology, better prepares skilled nursing facilities at the point of admission, the automation that we have drives faster and more accurate dispensing. The clinical programs and the expertise that we provide improves the quality of patient care, especially in the more complicated circumstances of these higher acuity patients may have.

And lastly our IV programs that we're continuing to expand improve the skilled nursing facilities treatment capabilities, again being aligned with our customer base. If you look at the assisted-living market, it's a little bit different than the skilled nursing facilities. It's also becoming a little bit more acute as patients are as payers are looking for that lower cost structure they're also still driving some acuity or higher acuity in the assisted-living market.

The good news about this industry it is growing and that opportunity for Omnicare is really three pronged in that perspective. First, because the market is growing, we want to be participate and participate in that growth in the market overall. Secondly, we want to increase the number of facilities that we serve in terms of signing up new facilities and new beds. And thirdly, we want to increase the penetration, you're going to see a slide a little bit early and I think a lot of you have covered Omnicare for some time, you know our penetration rates in assisted-living facilities are lower than the skilled nursing facilities. And you're going to hear some more about some of the programs that we're doing to focus on that aspect but that's also an opportunity for us.

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