Pharmerica Corporation (PMC)

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PharMerica Corporation (PMC)

Q4 2013 Earnings Conference Call

February 28, 2014 10:00 AM ET


Cynthia Archer - Manager, Treasury and Risk

Gregory Weishar - CEO

David Froesel, Jr. - EVP, CFO and Treasurer


Steven Valiquette - UBS

Brendan Strong - Barclays Capital

Robert Willoughby - Bank of America Merrill Lynch

Diego Hernandez - Credit Suisse



Good day ladies and gentlemen and welcome to the Fourth Quarter 2013 PharMerica Corporation Earnings Conference Call. My name is Dominique, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions].

I would now like to turn the conference over to Ms. Cynthia Archer, Manager of Treasury and Risk. Please proceed.

Cynthia Archer

Good morning and thank you for joining us for the fourth quarter and 2013 year end conference call. On the call with me today are Greg Weishar, Chief Executive Officer; and David Froesel, Executive Vice President, Chief Financial Officer and Treasurer.

Before beginning our remarks regarding the fourth quarter and 2013 year-end results, I would like to make a cautionary statement. During the call today, we will make forward-looking statements about our business prospects and financial expectations. We want to remind you that there are many risks and uncertainties that could cause our actual results to differ materially from our current expectations.

In addition to the risks and uncertainties discussed on this morning's press release and in the comments made during this conference call, more detailed information about the additional risks and uncertainties may be found in our annual reports on Form 10-K. Copies of our annual report on Form 10-K may be obtained from the SEC or by visiting the Investor Relations section of our website. PharMerica assumes no obligation to update the matters discussed on this call.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release and in our annual report on Form 10-K. We have made available to you our press release and our annual report on Form 10-K filed with the SEC. In addition, this webcast will be on our website along with the transcript from this call.

And now at this time, I would like to turn the presentation over to Greg.

Gregory Weishar

Thank you, Cynthia and thank you all for attending. We appreciate your interest in PharMerica. As you saw this morning's earnings release, we reported strong results across the board. Revenue, adjusted diluted earnings per share and cash flow from operations all exceeded expectations. Furthermore, with respect to earnings and cash flow from operations, 2013 was a record year for the company. Dave will provide additional details regarding the fourth quarter, and the full year's financial performance.

Let me summarize the highlights. We strengthened our competitive position in the core long term care segment growing both organically and through acquisitions. We made a strategic investment in Onco360. Onco360 gives us market entry into the large and fast growing oncology pharmacy market. We met our first year business goals with Amerita, a specialty home infusion company we purchased in December of 2012. We developed a strategic partnership with Innovatix, to lower the cost of goods sold and to help us position for changes that are occurring in the healthcare delivery system, and we successfully implemented a direct generic drug purchasing program, and this will provide ongoing buy side benefits over the next several years.

In the institutional pharmacy business, excluding Golden Living and Kindred, we achieved organic bed growth in the fourth quarter. Moreover, we anticipate excluding the impacts from Golden Living in 2014, we will achieve in net organic bed growth in 2014 as well. We are generating sales and retention momentum, as the organizational and product changes we put in place over the past several years, are getting increased traction.

Today, we have the best client solutions in the industry, we have superior cost containment programs, best in class core pharmacy services and an industry-leading generic dispensing rate. We are doing all we can to save our clients' money, and help them better compete in their markets.

Generics play a big role in our strategy to save clients' money and drive margins. Generics have been and will continue to be a big win for our clients and the company. The improvement we saw in the fourth quarter, where in the generic dispensing rate improved from 83.3% in the third quarter to 83.7%, as a prelude to further improvements that will distance us from the competition.

Looking towards the end of 2014, and 2015, given scheduled brand patent expirations, we estimate the generic dispensing rate will likely surpass 85% of all prescriptions dispensed, and could go as high as 88%. Drugs such as Namenda, Abilify, Procrit and others are all slated to lose patent protection. So driving generics is a central go-to-market strategy for us.

Finally, we completed several acquisitions in 2013 that will partially offset client losses. I will talk more on acquisitions later. The strategic investment in Onco360 gives us market access to the rapidly growing pharmacy oncology market. With Onco360, we are creating a unique national oncology pharmacy and care management platform. We believe Onco360's revenues will grow rapidly over the next several years.

Let me give you an example; Onco360 recently announced it is participating in an exclusive distribution network for Pharmacyclics' recently approved drug Imbruvica. As one of only five specialty pharmacy distributors in the United States, we believe Onco360 can gain its fair share of a blockbuster size market that could exceed $1 billion by 2016. This is just one of many drugs Onco360 has limited distribution rights to. The investment in Onco360 and last year's acquisition of Amerita reflects our focus on pursuing diversified growth opportunities and closely related pharmacy markets.

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