1. Paul Julian
President
McKesson Supply Solutions
June 7, 2002

2. Agenda
Business Overview
l
Financial Performance
l
Strategy
l
McKesson Health Solutions
l
Summary
l
2

3. Supply Solutions Organization
Paul Julian
President
McKesson Supply Solutions
Brian Tyler Heidi Yodowitz Ted Ramlet
Senior Vice President CFO Senior Vice President
Business Development & Strategy Business Process Redesign
3

4. Supply Solutions Business
Health Medication Medical
Health Medication Medical
Pharmaceutical Automation
Pharmaceutical Automation Solutions Management Surgical
Solutions Management Surgical
n Distribution n Retail Pharmacy n Medical n Pharmacy and n Primary Care
Management Medication
n Repackaging n Hospital / n Extended Care
Software and Management
Institutional
n Informatics n Acute Care
Services Services
n International
n Specialty
Pharmaceutical
Services
End to End Continuum of Services
Multiple Points of Leverage
Comprehensive North American Distribution
4

5. Supply Solutions Business
Health Medication Medical
Pharmaceutical Automation
Pharmaceutical Solutions Management Surgical
n Growth Outside Channel
n 3 year OPS / IT plans
n Six Sigma
n Verispan Joint Venture
n Strong Canadian Growth
5

6. Supply Solutions Business
Health Medication Medical
Pharmaceutical Automation
Automation Solutions Management Surgical
n #1 in Retail Automation
n Eight New Product
Introductions
n Alaris Partnership
n Solutions for Medication
Safety
n Expand into Supply Segment
n Retail Small Chain Cross-Sell
6

7. Supply Solutions Business
Health Medication Medical
Health
Pharmaceutical Automation
Solutions Management Surgical
Solutions
n VitaRx Acquisition
n Together -Rx Card
n PEG-Intron Program
n Focus on Payor Services
7

8. Supply Solutions Business
Health Medication Medical
Medication
Pharmaceutical Automation
Solutions Management Surgical
Management
n Grew in excess of market
n Best demonstrated practice
n McKesson manages
purchasing
n Addresses pharmacist
shortage
n Pull-through pharmaceutical
distribution
8

9. Supply Solutions Business
Health Medication Medical
Medical
Pharmaceutical Automation
Solutions Management Surgical
Surgical
n Largest Customer Base
n Leading Share in Alternate
Care
n Closed Loop Supply
n Focus on McKesson Brand
n DC Network Optimization
9

10. Supply Solutions
Significant Positive Momentum
l
– Strong Revenue Growth and Operating Margin
Expansion
– Largest North American Distribution Footprint
– Expanded Business Portfolio
– Cross Business Unit Synergies
Sustaining Momentum
l
– Execute on Business Unit plans
– Specialty Pharmaceutical Services
10

11. Positive Momentum - Financial Performance
Supply Solutions Revenue Supply Solutions Operating Profit
$ Billions $ Millions
32.0% CAGR
16.7% CAGR
$803
$33.1
$27.6 $594
$24.3 $461
FY00 FY01 FY02
FY00 FY01 FY02
Excellent Performance
Note: Excludes Medical-Surgical results and warehouse sales
11

12. Positive Momentum - Operating Margin
Supply Solutions
Operating Margin
53 bps1
Expansion
2.43%
7 Consecutive Quarters
of Operating Margin
2.15%
Expansion
1.90%
FY00 FY01 FY02
Note: 1. FY02 includes 3 bps from discontinuation of goodwill
amortization
12

13. North America Leads Global Pharmaceutical
Growth
2001 Global Pharmaceutical Sales
US $ Billions
CAGR
Sales % Share % Growth
97-00
North America 181.8 49.9% 17.0% 13.1%
Europe 88.0 24.2% 10.0% 6.3%
Japan 47.6 13.1% 4.4% 2.1%
Asia/Africa/Australia 27.9 7.7% 8.7% 9.8%
Latin America 18.9 5.2% 0.1% 4.2%
Total Global Market 364.2 100% 11.9% 8.4%
Source: IMS Health 2002
13

14. Aging Demographics Drives Utilization
• 75% of All Rx
85
• 65% of Hospital Million
Bed / Days
75 > 50 Years
Million Old
• 42% of Physician
> 50 Years Visits
Old
2001 2005
14

15. McKesson Health Solutions
McKesson Supply Solutions
McKesson Health Solutions
Specialty Pharmaceutical Medical Management
Specialty Pharmaceutical Medical Management
Services (SPS) Software & Services
Services (SPS) Software & Services
Pharma / Biotech Payors
15

16. Multiple Constituents with Specific Needs
SPS Constituent Specific Need
Payor Control over drug spend
n
Payor
Pharma // Biotech Access to patients
n
Pharma Biotech
Provider One-stop shop for SPS products
n
Provider
Patient Easy access to latest drugs
n
Patient
Pharmacies Ability to participate in market
n
Pharmacies
16

17. Established Base & Large Growth
Opportunity
McKesson Today: Strategy:
Leverage McKesson capabilities &
n 40 million covered lives Leverage McKesson capabilities &
n 40 million covered lives
relationships:
relationships:
n Access to majority of SPS products
n Access to majority of SPS products
l Structured payor programs
l Structured payor programs
n Physician office presence
n Physician office presence
l Integrated pharmaceutical // biotech
l Integrated pharmaceutical biotech
n Extensive retail pharmacy
n Extensive retail pharmacy channel solutions
channel solutions
relationships
relationships l MD Office & Retail “Pull-Through”
l MD Office & Retail “Pull-
“Pull-Through”
Sizeable & growing opportunity
Sizeable & growing opportunity
Proven & scaleable capabilities
Proven & scaleable capabilities
Established McKesson relationships
Established McKesson relationships
Focused business unit
Focused business unit
17

18. Supply Solutions: Expand Operating
Margins in FY03
Product Sourcing
l
3 Year Operations / IT Plans
l
Six Sigma
l
Expand Generics Program: “OneStop”
l
Grow Packaging Capabilities
l
Specialty Pharmaceutical Services
l
Automation Market Expansion
l
Significant Momentum
Moving into FY03
18

19. Summary
Favorable External Fundamentals
l
Strong Market Position Throughout North America
l
Many Points of Leverage
l
Continue Growth Momentum
l
Execute to Drive
Operating Margin Improvement
19

20. Paul Julian
Interim President
Medical-Surgical Solutions

21. Agenda
Business and Financial Overview
l
Strategy
l
Medical-Surgical Summary
l
21

22. Medical-Surgical Today
Largest Customer Base-Continuum of Care
l
Leading Alternate Site Supplier
l
Provide Integrated Technology Solutions
l
Favorable External Trends
l
Flat Operating Performance
l
22

23. Financial Performance
Medical-Surgical Revenue Medical Surgical Operating Profit
$ Billions $ Millions (pro-forma)
$2.73
$2.72 $110.7
$95.1
$2.63
$92.4
FY00 FY01 FY02
FY00 FY01 FY02
Note: FY02 includes $19 million of operating profit from discontinuation of
goodwill amortization
23

24. Operating Margin
Medical-Surgical Operating Margin
4.22%
3.40% 3.49%
FY00 FY01 FY02
Note: FY02 includes 70 bps from discontinuation of goodwill amortization
24

25. Medical-Surgical Plan
Recognize Business Performance Issues
l
Regain Revenue Growth and Operating Margin
l
Expansion
– Perform at Market Growth Rates
– Drive Operation Margin Expansion
Execution
l
– Operational Improvements
– Extend Leading Alternate Site Position
– Penetrate McKesson Brand Products
– Utilize Cross Business Unit Solutions
25

26. Medical-Surgical: Continuum of Care
Primary Care Extended Care Acute Care
• Market Leader • Strong #1 Position • Major GPO
Relationships
• Physician Offices • Long-Term Care
-HPG
• Clinics • HomeCare Sites -Premier
-Novation
• Comprehensive
Solutions Provider
57,000 Active Customers
Integrated Supply Chain Technology
Solutions Provider
26

27. Care is Shifting to Alternate Site
Primary Care Extended Care Acute Care
• Aging Population
• Shift from Acute • Integrated Supply
Model Chain Technology
• Strong Home Care
Solutions
-Outpatient Care Growth
• Consolidation /
-Surgery Center
Margin Pressures
Well Positioned in Growth Segments
27

28. FY03 Key Initiatives
Leverage Operational Penetrate Primary and
Improvements Extended Care
Integrated Technology
McKesson Brand
Solutions
Productivity Improvement; Alternate Site Growth;
Higher Margins
28

29. Leverage Operational Improvements
l DC Network Optimization
– Consolidated Number of Sites
– Standardized Layout and Processes
– Reduced Inventory and Operating Expenses
l ERP System Integration Underway
l Formulary
29

30. Integrated Technology Solutions
l Sales Force Automation
– Supply Management Online
– Further Enhancements with ERP Deployment
l Closed Loop Supply (Intelligent Distribution)
– Supply Scan
– Pathways Materials Manager
30

31. McKesson Brand
l Expanding Product Portfolio
l Increasing Customer Awareness
– Overall Value to Our Customers
l Penetrating Major GPO Contracts
– Leverage GPO Relationships
l All Business Segments
Increasing Profitability
31

32. Alternate Site Penetration
l Primary Care
– Strong Revenue Growth in Surgery Centers
– Supply Management Online
l Extended Care
– Significant Revenue Growth in Home Care
– Horizon Clinical Home Care Integration
32

33. Summary
Regain Operating Momentum
l
Infrastructure Improvements Underway
l
Closed Loop Supply Management
l
Favorable Demographics
l
Well Positioned in Growth Segments
l
Execution
33

34. Patrick Blake Heidi Yodowitz
President CFO
Customer Operations
McKesson Pharmaceutical
June 7, 2002

35. McKesson Pharmaceutical Review
Operating Performance
l
Business Overview
l
Strategy
l
Summary
l
35

36. FY02 Business Successes
Strong Pharmaceutical Performance
20%+ Y/Y Revenue Growth
l
Strong Operating Profit Growth
l
New Business Wins
New Contracts (OTN, Randall’s, Caremark)
l
Automation Cross-Sell
l
Secure Major Contracts
Extended Wal-Mart Agreement
l
Renewed Target
l
36

37. Balanced Segment Mix
Retail Retail
Institutional
National Independent (36%)
(36%)
(42%) (22%)
(42%) (22%)
• Strong Independent and • All Major GPOs
• Strong Y/Y Growth
Rate Small Chain Position • HCA / HPG
• Chain Stores • Buying Group • Omnicare
Partnerships
• Food / Drug Stores • Specialty Logistics
• Mass Merchandise (OTN)
• Mail Order
37

38. Pharmaceutical Industry Drivers
Aging Population
l
Increasing Pharmaceutical Utilization
l
Generics Opportunity
l
Emerging Biotech Drug Pipeline
l
Strong Pricing Environment
l
Excellent External Fundamentals
38

39. 50+ Age Group Continues to Grow
Percent of Population Age 50 or Over
30.0%
29.5%
29.0%
28.5%
28.0%
27.5%
27.0%
26.5%
26.0%
2000 2001 2002 2003 2004 2005 2006
Source: IMS Health, Census Bureau Estimates and Forecasts, 2001
39

40. US Rx Spend Continues to Increase
US Pharmaceutical Market Spend
$ Billion
Projected CAGR
13.8%
289
Historic CAGR 254
16% 223
196
172
147
128
1999 2000 2001 2002E 2003E 2004E 2005E
Source: IMS Health 2002
40

41. Favorable Industry Segment Trends
Retail National Retail Independent Institutional
Retail National Retail Independent Institutional
• Store Growth • Store Count Stabilized • Improving Financial
Condition
• Mail Order / Food are • Service, Value, and
Fastest Growing Relationships • Integrated Supply
Segments Chain Solutions
41

42. FY03 Pharmaceutical Key Initiatives
Operational Cross Business Unit
Performance Synergies
• Retail Small Chain -
• Six Sigma
Automation
• 3 year Operations / IT Plan
• Canadian Market –
• Carrollton Customer &
Automation
Financial Services
Generics New Initiatives
• “OneStop” Program • Verispan
• Together-Rx Card
Execute to Drive
Margin Improvement
42

43. Six Sigma Operational Excellence
Pharmaceutical FY02 Continue Operating
Accomplishments Excellence in FY03
$30MM Expense Expanding Six Sigma
l l
Reduction DC Delivery and Order
l
60 Blackbelts Process
l
70 Projects Completed Marketing - Generics
l l
85 Active Projects Back-Office Operations
l l
An Integral Part of Our
Operating Culture
43

44. Operations / IT Plan Drives Margins
Investment Returns
Investment Returns
Buying Processes
Buying Processes
Generics Credit Process
Generics Credit Process
OPS / IT
3 Year
Plan
Supplier Sales
Supplier Sales
Profitability Re-Engineering
Profitability Re-Engineering
Inventory Profitability
Inventory Profitability
Management Models
Management Models
44

45. Continued Back-Office Improvements
Improving Contract
Administration / Excellent Results
Chargeback Process
Further Automation and Reduced working capital by
l l
Refinement of Processes $88MM in FY02
Reducing Working Capital Reduced expenses by $3MM
l l
in FY02
Lowering Overhead Costs
l
Targeting World Class
l
Supplier Scorecard Drives
l
Operating Metrics
Operational Excellence
Highest Service Levels in
l
Past 18 Months
45

46. Significant Generics Opportunity
Branded Pharmaceuticals
Going Off Patent1
$35B
Drives Generics Volume
and Expands Margins
Generic Rx GP% and GP$
l
are Higher than Branded Rx
<$10B
McKesson “ OneStop”
l
Generics Program
2000-2001 2002-2005
(Projected)
Note: 1) In 2001 Sales dollars
Source: IMS Health, Analysts reports, Internal McKesson analysis 46

47. Increasing Value for Our Customers
l Enhances “Select” Program
l Increases Operational Efficiency
– Program Simplicity / Technology
– Comprehensive Drug Portfolio
l Improves Quality of Service
– Higher Service Levels Positive
l Lowers Cost to Serve Customer Feedback
– Real -Time Competitive Pricing
Drive Greater Generics Volume and
Expand McKesson Operating Margins
47

48. Cross Business Unit Synergies
Retail Small Chain / Canadian Market /
Automation Automation
48

49. New Business Initiatives
Verispan Together-Rx Card
Together-Rx
Pharmacy Informatics Business Administer Innovative Solution
• Lower Cost, Easier Access
• De-Identified Patient Level,
• Seven Major Pharmaceutical
Longitudinal Data
Companies
• Solutions for Manufacturers
• Retail Pharmacy (Wal-Mart,
and Retail Drug Chains
RiteAid, CVS, Walgreens, etc.)
• $100MM First Year Sales
Cross Business Unit Synergy
• McKesson Health Solutions
Will Administer Program
49

50. Pharmaceutical Summary
Favorable External Fundamentals
l
Strong Market Position
l
Many Points of Leverage
l
Continuing Growth Momentum
l
Execute to Drive
Operating Margin Improvement
50

51. Rich Lunak
President
McKesson Automation

52. Agenda
McKesson Automation Overview
l
Inpatient Automation
l
Retail / Outpatient Automation
l
Summary
l
52

53. Customer Segments
Inpatient Retail
Broadest Footprint
Continuous Commercialization of New Products
Fully-Integrated Product Offering
Scaleable Solutions
Over 10,000 Customers
53

54. Inpatient Automation
54

55. Inpatient Customer Needs
Better Quality of Care
l
Cost Reduction Initiatives
l
Retention of Valuable Nursing and Pharmacy Staff
l
Better Management of the Supply Distribution Process
l
Reduction of Medical and Medication Errors
l
Re-Direct Professional Time to Clinical Roles
l
Requires Automation
55

56. Measuring the Impact of Error
n Overwhelming Cost to Human Life
7,000 Deaths per Year
l
770,000 ADEs
l
n ASHP Survey: “Hospitalized
Patients Are Fearful” of
Medication Errors
n Staggering Financial Impact
$2 Billion Annually for Inpatient
l
Preventable ADEs
56

57. Solutions at Every Point of Care
Product Analysis
fulfillment Process
Usage Management
analysis Programs
DISTRIBUTION: CONSULTING:
MONITORING:
PRESCRIBING: TRANSCRIBING: DISPENSING: ADMINISTERING:
39% of errors 12% of errors 11% of errors 38% of errors
Quality &
Improved Pharmacist Bar Coding Point of Care
Outcomes
Physician Verification Robotics Check “5”
Workflow Clinical Alerts
Intervention Rights
Centralized &
Clinical tracking Longitudinal
Decentralized Care Team
Screening Dispensing Communication Record

58. Inpatient History of Innovation
1992 1998 1999 2000 2001 2002
MedCarousel ™
ROBOT-Rx® AcuDose-Rx™ PakPlus-Rx® Bulk Packager MedDirect™
SurePak ™
Admin-Rx™ DataStation™ NarcStation™ NarcStation™
Cartless Delivery SupplyScan™ Vault Alaris
System™
58

59. SupplyScan
Large Unpenetrated Market
l
Over 160 Live Hospitals in Less
l
Than 2 Years
Integrated with MIS and MMS
l
Solutions
Diversified product offering
l
Open solution
l
Closed solution
l
Procedure-based application
l
59

60. Inpatient Penetration
Large University Hospitals
Large University Hospitals
Coverage
Integrated
Integrated
Health Networks (IHNs)
Health Networks (IHNs)
Smallest: 80-patient hospital
Smallest: 80-patient hospital
Multi-Site
Multi-Site Largest: > 1,500-patient IHN
Largest: > 1,500-patient IHN
Facilities
Facilities
Community United States
Community United States
Hospitals Canada
Hospitals Canada
Australia
Australia
Hospitals Serving
Hospitals Serving
Long-Term Care
Long-Term Care
VA Hospitals
VA Hospitals
Over 500 Customers
60

61. FY03 Inpatient Strategy
n Continued Introduction of ROI and Safety Based
Solutions
n Continuous Product Innovation
n Closed-Loop Strategies
n Fully Utilize All McKesson Sales Channels (Cross-Sell)
Leading Provider of Integrated Medication and
Supply Automation Solutions
61

62. Retail / Outpatient Automation
62

63. Retail Customer Need
Script Count Outpacing Pharmacist Entry
l
Sharp Rise in the Number of Complex
l
Therapeutic Drugs
Efficiency and Quality
l
Scaleable Solutions
l
Requires Automation
Demand Reflects Aging Population, 3/99
David Mott, Asst. Prof. of Pharmacy, University of Wisconsin, Pharmacist
Pharmacist
63

64. Retail Rx Trends Are Favorable For Automation
1998 2005E Growth
Number of Rxs 2.8 4.0 43%
Billions
Number of Pharmacists 129 137 6.2%
Thousands
Number of Rxs / Pharmacist 93 125 34%
Requires Automation
Source: NACDS
64

65. Retail History of Innovation
1999
1998
1995 2001 2002
Pharmacy 2000 AutoScript III Productivity Station Baker Universal 2010 Rx-Port
SuperFill Serverless Two New
Solution Products
Three New Product Releases
Positioned in Next 6 – 18 Months
65

66. Retail Integration
n Baker Universal (all size pharmacies)
n Dial Rx IVR (all size pharmacies)
n Cells and Cassettes (>100 script/day)
n Productivity Station™ (>180 script/day)
n Pharmacy 2000 (>300 script/day)
n AutoScript III (>500 script/day)
n SI / Baker Central Fill (scaleable)
Scaleable, Integrated Products
66

67. Retail Penetration
Small Chain / Large Government /
Independents Chain Institutional
• Peltons • Walgreens • Dept. of Defense
• Causey’s • Kroger • VA System
• Grandview • Eckerd • NYU
• Bi-Rite • Longs • North Carolina Medical
• Savoy • Safeway • LA County
10,000+ Total Installs
#1 Position in Each Customer Segment
67

68. FY03 Retail Strategy
n Ongoing Product Innovation
n Further Penetrate Existing Base
n Continue to Expand Out-of-Store Models
n Fully Utilize All McKesson Sales Channels (Cross-Sell)
Leading Provider of Integrated
Medication Dispensing Solutions
68

69. McKesson Automation Summary
Broadest Footprint
l
Continuous Commercialization of Innovative Products
l
Fully-Integrated Product Offering
l
Expansion into Supply
l
Fully-Scaleable Solution
l
Large, Under-Penetrated Retail Customer Opportunity
l
Powerful Growth Drivers
l
Strong Selling Channels with McKesson Divisions
l
Continued Leadership Position
69