Omnicare Inc. (OCR)
December 09, 2011 8:00 am ET
Nitin Sahney - Executive Vice President and President of Specialty Care Group
Unknown Executive -
John G. Figueroa - Chief Executive Officer and Director
Jeffrey M. Stamps - Executive Vice President and President of Long-Term Care Operations
John L. Workman - President and Chief Financial Officer
Adam T. Feinstein - Barclays Capital, Research Division
Brendan Strong - Barclays Capital, Research Division
Albert J. Rice - Susquehanna Financial Group, LLLP, Research Division
Charles Rhyee - Cowen and Company, LLC, Research Division
Lisa C Gill - JP Morgan Chase & Co, Research Division
John G. Figueroa
Previous Statements by OCR
» Omnicare CEO Discusses Q3 2011 Results - Earnings Call Transcript
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» Omnicare, Inc. Q3 2009 Earnings Call Transcript
Let me start off the conversation by talking about creating value. When we are in Cincinnati talking about this business, it always starts with value creation and how we are focused on growth and creating value for our constituencies and it starts with our 2 core businesses: Making sure that we are growing those businesses in every aspect, whether it's the top line, our profitability or efficiencies. We have to create value in every category of those businesses. The last 2 pieces of this slide, I think, are extremely important and I thank as the day continues, you'll begin to see and understand why we are excited about those things. The cash flow generation of this company is fantastic. And as we went into the year, we knew we had a good cash flow platform, but as we become better operators, the cash flow opportunity certainly became better through the year and it's something that we continue to be focused on. And then, of course, allocating our capital in the right places to ensure that this company not only creates immediate value but the long-term growth as well.
Let me take a second to talk about the 30-year evolution of our company. This is our 30th year in business, our 30-year anniversary. Very exciting for us to kind of look back and see how this company has grown, but more importantly, I think, plant that flag and talk about how we evolve over the next 30 years. So quick 5-minute discussion about our history, and I think it's important to understand how we move forward.
When this company started 30 years ago, the focus was on acute care facilities, actually providing us some pharmaceutical services in the hospital marketplace. That quickly evolved into a number of other strategies, mainly the institutional setting or the long-term care setting. Since then, we've had a number of acquisitions and a number of businesses that we moved into that began to serve, not only the long-term-care patient, but other services within long-term care and other services within healthcare. I think if you look at the business today, you would see that we touched manufacturers in a big way. Physicians, nurses, caregivers, patients, we have a wider breadth of services that we are providing and I think that's a key component to our growth moving forward. Here's the timeline of the 30 years, there certainly had been some changes, some major acquisitions to give us the footprint that we have today. I guess what I would tell you is 2010, 2011 were years of transition, years of looking at the tremendous assets that we have, structuring the company in a way that we believe will continue to foster growth. And then, of course, if you look at the purple box with 2012 to 2015, looking forward over the next 3 years, we will continue to be focused on the long-term care group and the growth that, that business brings us but the specialty care group growth, I think, is a new factor moving forward that we anticipate will be growth that's exceeding market which will certainly be great for Omnicare.
Okay, so if you look at where we're at today, this is the third quarter year-to-date numbers. So it's not a year forecast, these are actual numbers after 3 quarters of the year. You can see how the business is divided. The long-term care business still representing the core piece of our business moving forward but as you'll learn today, the growth projections from a revenue perspective, much, much higher on the specialty side. We like the spaces that we're in. You have all been following our long-term care business for quite some time. I think, as you see there and see in specialty, you'll get a good feel for why we're excited about that business.
Okay, so what has been the foundation of our success for the last 30 years and certainly over the last 12 months? We have a differentiated offering with clinical expertise in the areas that we function in. We have localized services. One of the things that we have learned in this business is as large as you may get, at the end of the day, it's a very local business. And you have to compete at a local level and you have to demonstrate on that local level that you can service that customer with their particular needs. It's one of the things that Omnicare has done over the past year and certainly one of the effects of that has been improving our retention. We've also talked a lot this year about reinvesting into our employees, not only from a pay structure and a benefit structure, but certainly reinvesting in their training, reinvesting in technology to help make their jobs easier. And a lot of that investment that went in this year, we'll begin to see some of the fruits of those investments over the next couple of years. I think in order to change the culture, you also have to identify around some core principles and some shared principles that are lived by the executives all the way throughout the organization to every employee that we have. And we have transformed that culture around 4 concepts: excellence in everything that we do; integrity in everything that we do; ensuring that service is key to our business and key to the constituents that we serve; and of course, compassion. What's amazing about these 4 categories is that we did a survey of our employees, over 15,000 employees to talk about what is it about Omnicare that keeps you here. What is it about Omnicare the gets you excited to wake up every morning and these were the 4 words that our employees came back to us on to express who we are and how we move forward. I say that because that compassion piece is key. When you look at the 15,000 employees that we have, the majority of those employees are actually doing services that touch a patient. And we're extremely proud of the fact that we have that responsibility within healthcare and showing compassion for those patients we serve is a key element of our culture.
So let may change to the industry growth dynamics quickly. As you've seen before, if you look at the aging demographics of our country, it certainly is a slide that gets me excited, that as Americans get older and get into the health care system, we believe that there's going to be a stronger need for the services that we provide in the long-term care area. And certainly, the disease states that we are currently in with specialty, you're also seeing as the population gets older, they're more susceptible to some of the disease states that we service. So as the years continue, you will definitely see a spike in needs. I think the other thing that's exciting, no matter what you look at in healthcare, there are 2 components of healthcare that people get excited about. And they're excited because it is a growth pattern that is undeniable. The first one is the generic drug market. We certainly have understood that over the last few years as more and more brands have gotten off of patent and the generic wave continues. If you look at 2012 and beyond, we're seeing an even greater increase in generics coming to market. And you can see by 2015, we estimate that generic market share will be, I think that's says 86.8% on that slide. We're excited to be one of the most efficient companies when it comes to generics in healthcare, and certainly the unique platform that we have in our space. We are the only company in long-term care that buys generics directly and that certainly gives us, we believe, a buying advantage, again, in one of the fastest-growing areas in healthcare.
The second one is specialty drugs and again, I think you're going to get excited to hear what our operators have to say about their businesses, but when you look at the specialty drug utilization and total prescriptions, again by 2015, you see a pretty large escalation of those prescriptions and being in that business, we think, is certainly an advantage.
Here's a slide that kind of shows the rise in new generic introductions by year. So as I talk about the fact that we have a good 2012 ahead of us, we certainly also continue to see a projected generic dispensing rate continue over the next 3 years. A benefit to everybody in the supply chain except maybe the brand name manufacturer. I think the other thing that's important to note when we talk about generics and generics being an important part of our business, and the unique part of our business because we buy directly, this slide is extremely important. We always, from the very first day of the generic is launched, make better gross profit margin and gross profit dollars with the generic compared to the brand. Not only the first day it's launched but throughout the life of that generic drug, that is true. Now if not buying generics directly, it's very difficult, if impossible, to make that statement. So we feel very good as we look at the dynamics of the generic market moving forward.
Okay, so let's talk about transitioning to an operations-driven company. You heard me say that, I think the first week that I was on the job. That the key to the success of this company is making sure that we are operationally driven, that we are creating efficiencies with our platform, with our network. And if we could do that, we could keep our business and do that, we would certainly be a growth company. So we focused on 3 core operating objectives: to establish consistent organic growth within long-term care. That means we keep our business and we build a sales and marketing team that brings new business to our platform and we've been pretty successful this year in doing that. Repositioning specialty care group for elevated growth. You're going to see some numbers there that I know excite me about what we have done this year and the projection of what we believe we can do in this space. And of course, creating more standardization across the company. You've also heard me say that as I walk through our 160 facilities or so, if I walked into my facility in Maine, it seems to operate a heck of a lot differently than if I walked in the facility in Sacramento. And as an operator myself, it was difficult for me to understand that. And we have worked very hard this year and we've got a lot of work to continue to do to make sure that the operations are standardized. That they are, in my opinion, 60% to 70% of what we do and every one of those facilities should be exactly the same and maybe 20%, 30%, some unique services that we provide in that local area. And we're getting there and every time we create something of standardization, it improves our cost, it creates efficiencies and it makes us a better company and I'm excited about what we've accomplished this last year.
Okay, we talked about customer retention. Our goal at the beginning of this year was to retain 95% of our customers. I think the last statistic that we've shown you, it's somewhere like 93.7%. We're excited about the momentum that we have created over this last year. We'll see how the fourth quarter goes but I will tell you we continue to project good things regarding this goal and certainly great to see that we've made some headway with our customers and they're staying with us. And investments made to accelerate our sales. We put new sales people out in the field. I think we have something like 40 people selling across the country now at the beginning of the year, I think it was 12 people. We've hired a new Chief Marketing Officer and marketing team and what's key about this is telling the Omnicare story. When you tell the Omnicare story, when you talk about our unique value propositions, you know we normally do pretty darn well from a competitive standpoint. Putting all that together, again, we're starting to see some great momentum in bringing new business to our company.
Operating efficiencies, we have become extremely disciplined about benchmarking everything, Insourcing key functions with our company. We've established a corporate HR team for the first time, corporate legal team, corporate tax team. All stuff that was outsourced prior to this team coming together, we brought all of that in and it has been a tremendous success year one. We're also talking about quality at the Six Sigma level in that area. Technology improvements and John and Jeff will talk a lot about some of our proprietary technology and our investments that we're making here, but we've made some great headway this year in that area. And as we continue to deploy this automation, it is not only great for the customer, it certainly creates efficiencies in our network that gets us excited as well.