Pharmerica Corporation (PMC)

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PharMerica Corporation (PMC)

Barclays Global Healthcare Conference

March 14, 2013 10:45 am ET

Executives

Michael J. Culotta - Chief Financial Officer and Executive Vice President

Analysts

Brendan Strong - Barclays Capital, Research Division

Presentation

Brendan Strong - Barclays Capital, Research Division

Through a list of questions, and then we'll have a breakout session after that we can use for other folks to ask questions as well. So with that, I'll just start firing away unless there was anything you want in particular...

Michael J. Culotta

Well, I want to thank you very, very much for having us and all the folks at Barclays also that worked very hard for the conference.

Brendan Strong - Barclays Capital, Research Division

Great. Thank you, Michael, very

[Audio Gap]

Michael J. Culotta

Much.

Question-and-Answer Session

Brendan Strong - Barclays Capital, Research Division

So I wanted to start off just by talking a little bit about the long-term care pharmacy business at a high level, some of the external forces impacting it. At a high level, I get questions on this, too. You think about your primary customer being nursing homes. Right now, the industry isn't growing, and it's a competitive market on top of that within the institutional pharmacies, so it certainly produces challenges when -- as you think about that growth and script growth. And just curious, at what point do you think we -- you guys are able to hit a point where you're delivering organic growth? And what do you think the -- maybe the bigger driver of that's going to be? Is it going to be improved retention? Is it going to be your ability to win some additional customers? Or are customers going to be consuming more drugs? Just take us through that.

Michael J. Culotta

Okay. I think it's a combination of things. I think 1 -- you've keyed in on a couple of items, is -- but I think we need to really step back and take a look at the industry in and of itself. I think both the largest 2 players have historically had -- maybe 1 quarter or 2 here and there where there's been "natural organic bed growth" in a particular quarter. So some of the outside forces going on that you have is -- let's remember there's quite a number of smaller players that are in the market. And those smaller players predominantly only have 1,000 to 1,500 beds. The other item that you have is the big 3, which are the distributors, are doing quite a number of programs to put people in the business. So it makes it easier for the smaller player to get started and get involved in this space. So from the standpoint, when you take a look at the larger player, the 2 larger players in this industry, it's not predominantly that we're losing it and gaining it so much from each other, but it's predominantly going to either the smaller institutional pharmacy business or somebody is bringing it in-house in terms of that nature, which you see that occasionally take place over a period of time. Usually, they turn around and sell it a few years later, but that's what you normally see. So I think to answer the question, you also have to take a look at other factors within the industry. You're correct, the industry is not growing. When you take a look at skilled nursing facilities, it's not like there's a whole lot of new beds coming into the market. The assisted living facility is -- could be a very good market. The issue has historically been penetration, in that when you're going to a home, you have such -- or to an assisted living facility, you have such a spectrum, a wide spectrum, of a patient. You have -- or a resident, I should say. Not really a patient, but a resident. And you could have a resident that could easily get in their own car and drive to CVS or Walgreens. Then you've got another resident who basically needs a walker and a wheelchair to get around. So I think it's -- that's the hard part, is penetrating, getting the number of scripts running through assisted living facilities. There are 1 or 2 states that they're a little bit more regulated with the assisted living facility, and you see penetration higher in that type of market than you do the other, so I think the concept here is how do we in this space really grow into that bigger market or that big market, the assisted living facility space. So -- because when you take a look at it, I think roughly about 80% to 82% of our beds served are roughly SNFs. I think there's about 8%, 9%, 10%, somewhere in there, assisted living facilities, and then the rest of it is mostly like mental homes, things of that nature, so.

Brendan Strong - Barclays Capital, Research Division

Okay. Just to follow up on that, I mean, what's the -- just going back to the distributors trying to help smaller guys get into the business, why do they want to do that?

Michael J. Culotta

I think for them, it's revenues. And I can understand that. I mean, if I'm working for one of the big 3, I can see it. It's -- basically, they're putting seminars together for the pharmacists and the local pharmacists. And from there, they're able to drive more revenue. And obviously, they're probably -- well, they are, they're a cost to them. They're making more profit off of them on a per drug basis than they would be for one of the -- or ourselves or on me, for example.

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