Goldman Sachs 26th Annual

1
Goldman Sachs 26th Annual Global Healthcare
Conference
June 16, 2005
2
Forward-Looking Statements

• Statements included in this presentation or in
  the oral comments made as part of this
  presentation may contain forward-looking
  statements, including but not limited to
  statements of the Companys plans, objectives,
  expectations or intentions, that involve risk and
  uncertainties.
• The Companys actual results may differ
  significantly from those projected or suggested
  in any forward-looking statement due to a variety
  of factors, which are discussed in detail in the
  Companys filings with the Securities and
  Exchange Commission.

3
Our Interests are Aligned with Clients and
Patients

• To make the use of prescription drugs safer and
  more affordable

4
Alignment Formulary Management
Therapy Class
We Provide Flexible Management of the Supply
Chain 1. Select number of drugs in therapy
class




of drugs
of drugs
of drugs
of drugs
5
Alignment Formulary Management
Therapy Class
We Provide Flexible Management of the Supply
Chain 1. Select number of drugs in therapy
class 2. Determine formulary control




of drugs
of drugs
of drugs
of drugs
Open
Differential Co-pay
Closed
6
Alignment Formulary Management
Therapy Class
We Provide Flexible Management of the Supply
Chain 1. Select number of drugs in therapy
class 2. Determine formulary control 3.
Drive towards lowest overall cost




of drugs
of drugs
of drugs
of drugs
Open
Differential Co-pay
Impact on Client Impact on Patient Impact on ESI
Lower drug cost More choice Lower co payment More choice Higher Profit/Rx More Flexibility
Lowest Overall Cost
Closed
7
Alignment - Retail Network Management
Greater Management
States Available Pharmacies Most Inclusive Network Most Restrictive Network TRICARE Access Minimum
CA 5,644 5,071 3,881 283
NY 4,444 4,224 1,829 300
TX 4,236 3,821 1,827 579
FL 4,020 3,670 1,966 469
PA 2,970 2,825 1,687 432
8
Alignment Clinical Programs
Plan Designs Encourage Greater Use of Generics
and Preferred Low-cost Brands
Impact on Client Impact on Patient Impact on ESI
Lower drug cost Lower co payment Higher Profit/Rx
Clients using step therapy realize on average a
2 percentage point increase in generic
utilization
9
Alignment Home Delivery
We Offer Highly Efficient, Cost-effective Home
Delivery
Impact on Client Impact on Patient Impact on ESI
Lower drug cost Choice Lower co payment Choice Higher profit/Rx
10
Alignment Growing Demand for Mail
Increased home delivery penetration
Represents network claims plus 3 times home
delivery claims home delivery claims are 90 days
vs. 30 days in the network. Excludes UHC claims
Home Delivery Helps Manage the Cost of
Maintenance Drugs
11
Alignment Generic Utilization
Express Scripts Leads in
Generic Utilization
Impact on Client Impact on Patient Impact on ESI
Lowest drug cost Lowest co payment Highest profit/Rx
Source From public filings
12
Alignment Growing Generic Opportunity
Represents over 20 of 2004 branded drug sales
ESI Analysis
Our Clients and Members Will Benefit From a
Growing Generic Opportunity
13
Alignment Specialty Pharmacy
Billions
Specialty Market 2004
Source ESI Analysis
Impact on Client Impact on Patient Impact on ESI
Lower drug cost Lower co payment Higher profit/Rx
Improved reporting Improved quality of care Higher client satisfaction
Clients are Seeking Solutions for High-cost
Specialty Drugs
14
CuraScript Penetration intoExpress Scripts
100 90 80 70 60 50 40 30 20 10 0
82
73
70
69
66
Retail
Percentage of Plan Costs
CuraScript
25
20
17
Mail
16
14
9
2
13
13
11
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
CuraScript Continues to Capture an Increased
Share of Our Clients Specialty Spend
15
What Are the Savings?
Retail, Clinical. Formulary And Rebate Savings 24
Paid by Cash Customer at Pharmacy
Retail Pharmacy Cash Price
Mail Savings 6
Express Scripts Client Savings
Express Scripts Client Costs
C O S T
Paid by Express Scripts Clients Total Savings 30
Availability of Proven PBM Cost Management Tools
Will Produce 2025 Savings (CBO)
16
Alignment A Win-Win-Win Proposition
We make money by saving clients and members money
17
PBMs Are Part of the Solution for Medicare

• ESI is well positioned for 2006
• Our 2006 offensive strategy is to help our
  managed care and carrier clients profitably grow
  their MA-PDs and PDPs
• We are building the foundation for 2007

The Medicare Prescription Drug Act will shape
the direction of our industry for years to come
18
Benefits of ePrescribing
Prescription Pharmacy Benefit Information Point of Sale Point of Care Benefit / Gain
Clinical Messages at pharmacy Physicians see clinical issues Better informed, safer prescribing
Formulary Enforcement after prescribing Awareness at prescribing Better choices, increased generics
Benefit Referenced at pharmacy Real-time guidance Cost-effectiveness, fewer callbacks
Medication History Partially known History while prescribing Patient safety
Prescription Carried, faxed, called, mailed Convenience at pharmacy More efficient, patient safety
Medicare Part D Will Advance Important
Initiatives Including e- Prescribing
19
We Deliver Against Client and Patient
Expectations

• To make the use of prescription drugs safer and
  more affordable

20
Client/Patient Focus

• Why Express Scripts?
• Alignment With Clients
• Generics
• Specialty

By membership
Health Plan Sponsors Recognize Express Scripts
Single Focus on Making Prescription Drugs More
Affordable
21
2006 Upsell Pipeline is Strong
10,000

• Significant potential to continue to manage
  client trends in key product categories
• New products continue
• to be developed and
• rolled out
• Strong track record of success

Sold
Weighted Pipeline
9,000
8,000
7,000
6,000
('000 Lives)
5,000
4,000
3,000
2,000
1,000
0
Home Delivery
Three Tier
Generic Enforcement
Specialty/CuraScript
New Clinical Products
Narrowing Formularies
22
Client Satisfaction Steadily Improving

• Service and satisfaction metrics have increased
  consistently quarter over quarter since 2003 with
  an early spike in 2005

100
95
2003
90
85
2004
80
1q05
75
70
65
60
Exceed
ESI Performance
Likelihood to
Likelihood to
Expectations
Recommend
Renew
23
Our Financial Results

• Express Scripts has demonstrated a proven track
  record

24
Financial Overview
Q1 2005 Highlights

• 1Q EPS 1.14 up 28 from last year
• Cash flow from operations of 138.1 million
  versus 97.8 million last year
• Record adjusted claims of 142 million, up 16
  from last year
• Record generic utilization of 54 versus 49 last
  year
• Gross profit per adjusted claim of 1.87 versus
  1.77 last year (excluding non-recurring gain
  last year)
• Increased 2005 EPS guidance

25
Financial Overview
Quality of Earnings
(1)
(3)
(2)

1. Reflects a 70-75 million reduction in Q2 2003
   due to one-time impact of implementing a new
   wholesale purchase agreement
2. Excludes a 0.10 per share charge for the early
   retirement of debt
3. Excludes a 0.20 charge to increase legal
   reserves for the cost of defense.

• Reflects a 12-month moving average of free cash
  flow (cash from operations less CapX)

26
Components of EPS Growth 2004
6
7
8
Excluding 25 million charge to increase
legal reserves for the cost of defense and 5.5
million termination payment received
27
Financial Overview
EBITDA per adjusted claim

10.5 CAGR
Pricing can be lowered as clients tighten
formulary compliance, increase home delivery,
utilize generics and restrict retail networks.
These changes result in lower prices to our
clients and greater profits to Express Scripts.
A reconciliation of EBITDA to net income and
to net cash provided by operating activities can
be found in the Investor Relations section of
Express Scripts Web site, www.express-scripts.com
under Presentations. Excluding 25 million
charge to increase legal reserves for the cost of
defense and 5.5 million termination payment
received.
28
Gross Profit/SGA/EBITDA per Adj. Rx
Future EBITDA per Adj. Rx Must Come From Gross
Profit per Adj. Rx

• Excluding 25 million charge to increase legal
  reserves for the cost of
• defense and 5.5 million termination payment
  received.

29
Focus on Return on Invested Capital (ROIC)
Reflects operating income less tax divided by
average invested capital, which consists of
stockholders equity, plus interest bearing
liabilities plus long-term deferred income taxes,
net. Excludes 25 million charge to increase
legal reserves for the cost of defense and 5.5
million termination payment received
ROIC is our Preferred Performance Metric
30
Why Express Scripts? Industry-Leading ROIC
We Lead Our Peer Group in ROIC Performance
Source Express Scripts Analysis
31
Our Financial Goals

• 15 EBITDA growth
• Increase gross profit per claim
• Maintain ROIC leadership

5-7
14-16
32
Our Value Proposition Will Continue to Drive
Growth

• Making the use of drugs safer and more
  affordable is more
• important than ever
• Plan sponsors will increasingly deploy our tools
• Express Scripts is well-positioned for
  sustainable growth
• Strong market fundamentals/new business
  opportunities
• Increased use of home delivery and generic drugs
• Growth in management of specialty pharmacy
• Productivity and capital structure improvements
• We have taken a different approach
• Alignment -- we make money by saving our clients
  money
• Strategic acquisitions have enhanced our value
  proposition

33
(No Transcript)