MCK
#Well, you may recall that when we talked about generic inflation in the past, we've talked about the fact that it is driven by a small number of molecules from a small number of manufacturers that have inflated to a very high degree.
I'd say our current experience is that some of those outlier increases have diminished significantly.
But overall, if you think about the portfolio over time, it has been in more of a deflationary mode.
When we talk about inflation, we're really talking about the net effect of inflation on our business driven by those molecules, not the overall portfolio inflating or deflating, because that typically deflates.
We think that it's ---+ we're in a period now where we are going to have modest inflation.
That's what we have been experiencing.
That's what we talked about on July ---+ excuse me, January 11.
That's what we anticipate for the rest of this fiscal year and into next fiscal year, is modest generic inflation.
Well, clearly we have made significant progress in helping our customers secure generics more effectively, and use our distribution channel to bring them to their stores in a more cost-effective way as well.
I think we have seen progress.
You mentioned Ahold and Albertson's-Safeway.
Many of our independent customers have continued to join us in the generic procurement side, and have become more and more reliant on McKesson's ability to help them reduce their cost and improve their performance.
Our Health Mart stores are now above 4,500 stores.
That program has been extremely successful in driving generics.
Our proprietary generics programs are still growing in healthy double-digit ranges.
Overall, I think we continue to make progress.
Some of our largest customers still procure some or all their generics on their own, through their own distribution network, and do their own sourcing activities.
We continue to have conversations with those customers about the value of using McKesson's combined power with theirs to do an even better job.
Those conversations obviously are important to us as we think about the relationship with these customers.
It would be premature for me to talk about specifically which customers we think might provide the most opportunity, but I don't think ---+ the table isn't run yet relative to opportunity for us.
I would say the opportunity is not insignificant.
Many of you have talked to us about specific customers that you know are continuing to procure a large majority of their generics on their own.
I think it's not an immaterial impact in front of us, if we're able to persuade these customers with the data we have that our procurement activity would be beneficial to them.
I'm hesitant to describe it in innings.
Clearly in customer count, we've got a lot of customers using us today; but in customer value based on the size of their generic spend, there's significant opportunity left for us.
Our initial expectation was that the regulatory process would be extended and follow a pattern that we've seen before in these countries.
I think we remain extremely optimistic that when these transactions are examined through their process that we will stand a very good chance of accomplishing the acquisitions in largely the form that we had expected when we announced them.
In answer to your earlier question, also, <UNK> relative to procurement, I might also point out that the opportunities for us extend beyond just the US.
Many times customers look ---+ or you look at customers that you know of in the US that are buying on their own but there are also customers buying on their own in other important markets for us, where we and they are able to dispense a generic that we sourc3ed together and we remain optimistic that our global activity and our procurement programs will continue to grow.
Well, it's difficult to ever comment on pricing, because it's in the lens of where we are currently doing business, or where we're competing for business.
I would say that overall the business remains competitive but stable.
I don't see a lot of customer changes that would drive one to believe that there's something going on materially different from a pricing perspective out in the market place.
I can speak for McKesson's strategy, and that is that we continue to focus heavily on our selling efforts within our existing customer base, trying to find ways to add more value to those relationships.
Through that value-added, create a relationship that has more stability, but it also provides better profit for our customers and better profit for McKesson as we evolve these partnerships.
I think our principal focus is in the area of expanding our footprint with existing customers, and helping them perform better.
First of all, we own around 76% of Celesio.
For the other 24 points or so of the ownership, they have a put to us where we do not have a call on those shares outstanding.
As to the news these past few days related to a suit that Magnetar had brought that we had previously seen dismissed at the local court level, if you will, back in December of 2014, that decision was appealed by Magnetar.
It did get overturned just a few days ago.
We're planning to appeal that decision.
I would expect that process to play out over a year or more.
Given the issues specific to this case, I think it is unlikely that McKesson will be required to pay what some have been extrapolating as a potential liability.
The case at hand related quite narrowly to a few shares that had been put to us.
The court decision related to around EUR260,000 total.
We see in extrapolations from that figure up into the EUR370-million range.
I would not expect, given the specifics of the case and the process around German law, that we would be looking at that sort of payment.
I might also point out that this obviously, has no effect on the operating control we've already established with Celesio, and really no effect on our financial statements, other than this potential cash liability.
But we've consolidated the earnings.
We operate the Company, and to <UNK>' point, these outstanding shares remain outstanding, and can be put to us when they decide they want to put them to us.
First off, I would remind folks that on ---+ in early January I made a comment about this business we believe will be retained by McKesson in its current form through late in our FY17 numbers.
With the guidance we've given you for FY17, that range includes that we would ---+ or assumes we would continue to enjoy the Rite Aid business in relative, the same relative form through the end of that period.
Obviously, we could be off plus or minus depending on what your view is of the process by which Walgreens will complete the transaction and how that may actually take shape.
I would say that we're reluctant to ever comment on what a customer might do when the decision is in their hands.
I would say, however, that you've seen certain customers of ours value the incumbent relationship, and continue to enjoy a relationship with McKesson going forward like you do at Target and Omnicare, where the relationship changed from a mix perspective, but we were able to retain at least a portion of the business.
I would not take that speculation and apply it necessarily to Walgreens, but I'd just point that out as certainly an alternative that has some possibility.
Other than that, not much else I can say on it, <UNK>.
Well, I have been pleased with the operating margin trends in Technology Solutions in recent quarters.
I think it very much reflects the work that the team there has been doing to re-orient our focus to specific businesses around our payer solutions, around our transactional-type offerings, and also our imaging business, as well as our revenue cycle management businesses.
We've really shifted the focus to those areas where we think we have nice growth opportunities and we have solid margins.
That has flowed through in combination with good cost control to allow us to record much stronger margins, with the comment that we think for the full year we'll be in the low 20%s.
About one point of that margin benefit, of course, remember comes from the sale of our care management business a couple of quarters or so ago.
That's really the story on the technology margins.
Overall, in constant currency, the margin number itself is 20.5%.
I don't think we would be interested in buying the stores.
To the extent stores are divested, we would not be interested in buying them.
That's not the business we're in, in the US.
Well, I read the whole thing several times and highlighted the areas of most interest to me.
Obviously, it's still very early to understand all of the implications and to understand the ability of the states to implement this rule.
I think that it's likely to be pretty limited in the states that have already largely moved to a managed Medicaid program in recent years.
This really is a state Medicaid fee-for-service kind of an application.
I guess our initial assessment is that we expect it to have a fairly limited impact in the supply chain as we see it today.
Well, I'm reluctant to make an industry call.
You guys are, and others, are well positioned to do that.
Clearly, part of what you have to look at is the amount of generic launches that come out, what kind of price inflation you're going to get on the branded launches, what kind of specialty drugs might hit and when.
There's lots of complexity.
I guess what I was attempting to describe was that the relative higher rate that we had in advance of this quarter was driven by some specific customer wins that happened to flow through our P&L.
That lapping effect of that success by that customer is the comparative that we're chatting about.
That make sense to you, <UNK>.
No, we really haven't seen any change of any significance in the branded side.
I'd say that the results are in line with our expectations.
Well, also it's difficult to speculate on what the drivers are when we are not the ones making the decision on the generic or the branded side relative to inflation.
I would say that political discourse that's taking place, and the Congressional inquiries relative to pricing practices, I think are obviously, going to have people at least pausing perhaps to consider whether now is the right time to take a price increase.
There obviously are other circumstances related to pricing associated with a supply disruption availability, new product launches.
There's all kinds of things that probably play into the calculus there.
I would say that I think the political discussion certainly clearly, and the media discussion probably has some impact; but to speculate on how much would be difficult.
Well, I believe that performance of branded pharmaceutical companies is probably easier to forecast given that it has been less volatile in the last decade than perhaps the generic industry, where we've seen more volatility.
That volatility certainly is partially driven by supply and disruption.
I would say that if you could forecast what supply disruptions might occur in the future, then you might have the ability to at least have some inclination as to what happens with branded price, or generic price inflation.
But I'm really reluctant to speculate on how things may play out.
We clearly have given you guidance for the rest of this fiscal year on that dimension of inflation, both branded and generic.
We've given you our thoughts relative to FY17 guidance on those two dimensions.
I think we stand by our current speculation on that; but those views are amongst other views we have to take every year on what might happen throughout the year.
We just want to be transparent with you about what we're thinking.
I think that's probably the most I can say about it.
You're welcome.
I understand we don't have any additional questions in the queue.
I know we hit a lot of these subjects in early January, and I appreciate all of the attention you've paid to these matters and others, and for your time on the call today.
As we enter the final few months of our fiscal year, and I look to the future, I'm excited about the opportunities I see for us to continue our lead from an innovation perspective, and how we can help our customers meet the many challenges that they face.
The fundamental strength of McKesson has long been our ability to constantly adapt and grow during times of change, and by staying focused on our customers, and true to our core values.
I'll hand the call over to <UNK> for her to review upcoming events for the financial community.
<UNK>.
Thank you, <UNK>.
On February 10 we will present at the Leerink Partners Global Health Care Conference in New York.
We will release our fourth-quarter earnings results in May.
Thank you, and have a good evening.
