Filed by Medco Health Solutions, Inc. pursuant to Rule 425
under the Securities Act of 1933 and deemed filed pursuant
to Rule 14a-12 under the Securities Exchange Act of 1934
Subject Company: Accredo Health, Incorporated
Subject Company’s Exchange Act File No.: 0-25769
Medco Health Solutions, Inc. SG Cowen & Co.
March 16, 2005
Forward looking statements
This presentation contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Forward-looking statements in this presentation should be evaluated together with the many uncertainties that affect our business, particularly those mentioned in the risk factors section of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.
2
Medco strategy drives financial success
Undisputed Brand of Choice
The Transparent PBM
The Empowering PBM
Customer Intimate
Innovation Stage
World Class Member/
Mail Experience
Medicare Product Leadership
Specialty
Pharmacy
Clinical Strategy
Technology Innovation
Power of Information
Proven Drug Trend Reduction
Stabilize Legal, Media Climate
World-Class Service and Reliability
Foundation Stage
Strong Financial Performance
Client- Facing Organization
Independence
3
In 2004 Medco delivered: unparalleled service, safety, patient care
Taking the lead on the Medicare Discount Card
Nearly 1 million enrollees
Ranked #1 in customer service for four years
Wilson Rx
First PBM to win national award for reducing medication errors
Ernest A. Codman Award
Joint Commission on Accreditation of Healthcare Organizations (JCAHO)
Medco’s network of pharmacies earn perfect score on accreditation application
Medco.com Website ranked #5 of the Fortune 100
Customer Respect Group
No.4 Healthcare Company of Fortune’s America’s Most Admired Companies
February 2005
4
Medco delivered: strong financial results
2004
vs 2003
Net Revenue
$35.4 BN
+ 3%
Mail Order Rx’s
87.7 MM
+ 12%
Net Income
$481.6 MM
+ 13%
EBITDA
$1.2 BN
+ 20%
EBITDA/Adj. Rx
$1.83
+ 22%
Diluted EPS
$2.14
+ 21%
(adj. for intangible amort.)
Please see the reconciliation of non-GAAP measures and most comparable GAAP measures attached.
EBITDA represents earnings before interest income/expense, taxes, depreciation and amortization.
5
Medco: investment considerations
With $21 BN in record renewals in 2004, focus on top line growth in 2005
Significant growth opportunities in mail, generics and specialty pharmacy
Well positioned to participate in Medicare Part D
Financial strength – strong balance sheet, cash-flow from operations and track record
6
Medco delivered: increased profitability and efficiency
Gross Margin %
4.9%
2004
4.4%
vs 2003
4.4%
46.3%
3.9%
Generic utilization 46.3% +2.5 pts
Mail penetration 38.8% +4.8 pts
Total rebates $3.0BN +1.2%
Productivity and efficiency
43.8%
40.5%
38.8%
38.5%
34.4%
34.0%
32.6%
2003
2002
2001
2004
Generic Fill Rate %
% Adj. Mail
7
Medco delivered: increased generic utilization
Brand Drug Spend Coming off Patent
($ BN)
Generic Dispensing Rates
(Percent)
11.0
46.3%
9.6
43.8%
Zocor®
6.4
Zoloft®
Norvasc®
40.5%
Pravachol®
38.5%
Ambien®
36.0%
Fosamax®
Nexium®
1.9
Effexor®
Duragesic®
2004
2003
2002
2001
2000
2005
2006
2007
2008
On average, for every $100 million of Brand Drug Spend coming off patent, Medco’s client and members are estimated to save $45 million and Medco will gain an estimated incremental $9 million in margin
Source: IMS Health data and company estimates based on current patent expiration dates.
Changes may occur due to litigation, patent challenges etc.
8
Medco delivered: record mail volume
Members in Retail Refill Allowance Programs
(MM Lives)
Mail Order Rxs
(Unadjusted, MM Rx’s)
88
~86
86
6.4
FEHBP
78
47
5.2
Caremark
2.2
Express Scripts
39
2003A
2005E
2004A
2004A
Q1 2005
2004
2003
Source: Company reports. Caremark results proforma for AdvancePCS acquisition.
9
Our clients delivered: powerful vote of confidence
Record number 2004 renewals $21 BN
Impressive 2005 new client wins $2.2 BN
Improved client satisfaction scores + 20%
Focus on top-line growth in 2005
10
Medco delivers: Medicare solutions and opportunity
2004:
Nearly one million Medicare members
Average Discount off AWP:
14% Brand
56% Generic
2005 focus:
Estimated Drug Spend > $500 million*
Over 10 million annualized prescriptions
Retail to mail conversion
Generic substitution
2006:
Preparing to play
Consulting with clients
$57.5
$42.8
904
$40.1
$41.5
734
629
665
823
779
$24.7
$18.7
323
$1.5
Nov
Oct
Sept
Aug
July
June
Dec
Drug Spend $MM *
Members (000)
*Medco records as revenues mail service drug spend and enrollment fees – which is only a small portion of the Medicare spend. We do not record retail drug spend.
11
Medco delivers: notice of intent on 2/18
May ‘05
Prelim. formulary approval
PDP Contract determination
Fallback plans negotiation
January ‘05
Final rule released
Solicitation issued
August ‘05
PDP premium & Medicare Advantage benchmarks released
November ‘05
PDP enrollment begins
March ‘05
Applications due
Bid training
3Q05
1Q05
2Q05
4Q05
June ‘05
PDPs submit bids
February ‘05
PDPs must file Notice of Intent
Bidders conference
July ‘05
Preliminary bid approval
CMS establishes secondary standards
December ‘05
Medicaid dual eligible program ends
April ‘05
Risk rates for Medicare Advantage plans
Formulary submission
Fallback applicants present to CMS
September ‘05
Acceptable bids -Employer subsidy applications due
Fallback plans announced
12
Medco delivers: multiple Medicare channels & offerings
Support Medco health plan clients through their Medicare Advantage programs and other clients applying to become a Medicare Part D sponsor by serving as the pharmacy benefit manager using CMS approved tools and infrastructure
Health Plans
Assist employer clients in continuing to offer a traditional retiree prescription drug benefit that qualifies for the federal subsidy, and offer alternative approaches for employers to save under the Medicare Modernization Act
Employer Clients
13
Medco delivers: specialty pharmacy growth
Medco Specialty Pharmacy
(MM of lives covered)
576 customers representing 29.3 MM lives
Drug Trend for specialty pharmaceuticals growing 2x traditional drugs
Therapeutic classes include:
Cancer
Growth Hormone
Hemophilia
Hepatitis
Immune Deficiency
29.3
Anemia
Infertility
MS
Pulmonary Hypertension
Rheumatoid Arthritis
11.6
6.5
1.7
0.2
Jan 2005
Jun 2004
Jan 2004
Jul 2003
Feb 2003
Over 125 drugs covering 23 therapeutic classes
Source: Medco data
14
Definitive agreement to acquire Accredo Health
Value equivalent to $43.33 per Accredo share
$22 cash and .49107 shares of Medco stock
$2.2 billion equity value; $2.4 billion enterprise value
Tax-free reorganization, excluding cash component
Accredo stockholder approval
Customary regulatory approvals
Mid-2005
Per share consideration:
Consideration mix:
Transaction value:
Transaction structure:
Conditions to closing:
Timing:
15
Acquisition creates largest specialty pharmacy
Specialty Revenues
For the 12 months ended 12/2004 (millions)
4,200*
$4,500
~3,500
2,600
$3,000
1,700
~$1,500
700
~745
$0
Priority
Accredo
Medco
Caremark
Medco +
Express
*Combined revenue excludes dual-counted scripts estimates
Accredo
Source: Company reports and Wall Street Equity Research
16
Accredo company overview
Therapeutic Mix
A leading pure-play specialty pharmacy
Niche product offering (21 drugs) with specialized services to patients and manufacturers - product launch, patient education and reimbursement services
Medications provided through 36 branch pharmacies, or overnight from 4 centralized pharmacies to patient homes, MD offices or hospital outpatient departments
Contracts with more than 1,000 third-party payors
6 months ending 12/31/04
Revenues of $923 MM
Hemophilia
Other, 12%
Respiratory
A/1 &
Syncytial Virus
Primary
(RSV), 6%
Immuno-
Deficiency,
36%
Gaucher
Disease, 6%
Growth
Hormone
Multiple
Disorders, 9%
Pulmonary
Sclerosis,
Arterial
16%
Hypertension,
15%
17
Accredo operates under three brands
One product line
Hybrid dispensing
HTC, DTC & MC sales
Nurse/Pharmacist team
High service model
Differentiate with service model
Six product lines
Local dispensing
Physician & MC sales
Hands on nursing
Highest service model
Differentiate with service model & restricted access
Fourteen product lines
Centralized dispensing
Manufacturer sales
Pharmacist team
Lower service model
Differentiate with service & restricted access
18
Accredo distribution capabilities
Seattle
Minneapolis
Boston
Detroit
New York
Iowa City
Salt Lake City
Newark & Totowa
Chicago
Pittsburgh (2)
San Francisco
Omaha
Cincinnati
Philadelphia
Las Vegas
Denver
Washington, DC
Kansas City (2)
Louisville
St. Louis
Nashville
Los Angeles
Greensboro (2)
Memphis
Oklahoma City
Charlotte
Albuquerque
Birmingham
Phoenix
Atlanta
Dallas/Ft. Worth
Jacksonville
New Orleans
Nova Factor
Charlotte
Memphis
Houston
Hemophilia Health Services
Albuquerque
Kansas City
Nashville
Pittsburgh
Newark
Greensboro
Cincinnati
Ft. Lauderdale
Primary office
Satellite pharmacy
19
Combination leverages strengths of each entity
Medco
Accredo
Limited access
Reimbursement Expertise
Access to Physicians
Manufacturer Solutions
Niche Focus
Broad access
Dispensing Automation
Access to Payors & Patients
Client Solutions
Scale
20
Enhanced product and service offering
Distribution Rights for Select Specialty Drugs
Source: SEC Reports, Company Websites and Wall Street Analyst Reports
Products
Provider
Status
Medco
Accredo
Medco
+
Accredo
Caremark
ESI /
CuraScript
Priority
Actimmune
Adagen
exclusive
Aldurazyme
restricted
Apokyn
restricted
Aralast
restricted
Avonex
Botox
Cerezyme
Clotting Factor
Enbrel
Fabrazyme
restricted
Flolan
restricted
Growth Hormone
IVIG
Orfadin
exclusive
Prolastin
exclusive
Raptiva
Remodulin
restricted
Synagis
restricted
Tracleer
restricted
Xolair
Zavesca
exclusive
Zemaira
exclusive
21
Attractive financial characteristics
Top line growth opportunity, high margin business
Upside potential due to robust pipeline of new biotech drugs requiring specialty distribution
Continued growth of Medco specialty business — potential to expand into additional disease states
Expected to be accretive to Medco in 2006, excluding one-time merger related expenses
Over $40 million in expected annual pre-tax synergies, with a majority coming through operational leverage and cross-selling opportunities
Enhances future growth opportunities
22
Selected financial information
Medco
For the twelve months
ended 12/25/04
Accredo
For the twelve months
ended 12/31/04
(unaudited)
Net Revenue
EBITDA
Net Income
Debt/EBITDA
Debt/Total Capitalization
$35.4 BN $1.7 BN
$1.2 BN $154.6 MM
$481.6 MM $76.1 MM
12/25/04 Pro Forma 2004
0.78 x 1.45 x
15 % <25 %
Medco Proposed Capitalization
23
medco
Additional Information on Accredo Transaction
In connection with the proposed transaction, Medco intends to file a registration statement, including a proxy statement of Accredo Health, Incorporated and other materials with the Securities and Exchange Commission (SEC). Investors are urged to read the registration statement and other materials when they are available because they contain important information. Investors will be able to obtain free copies of the registration statement and proxy statement, when they become available, as well as other filings containing information about Medco and Accredo, at the SEC’s Internet site (http://www.sec.gov). These documents also may be accessed and downloaded for free from Medco’s Investor Relations Web site, www.medco.com, or obtained for free by directing a request to Medco Health Solutions, Inc. Investor Relations Department, 100 Parson Pond Drive, F1-6, Franklin Lakes, NJ, 07417. Copies of Accredo’s filings may be accessed and downloaded for free at Accredo’s Investor Relations Web site, www.accredohealth.net, or obtained for free by directing a request to Accredo Health, Incorporated Investor Relations, 1640 Century Center Parkway, Memphis, TN, 38134.
Medco, Accredo and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from Accredo stockholders in respect of the proposed transaction. Information regarding Medco’s directors and executive officers is available in Medco’s proxy statement for its 2004 annual meeting of stockholders, dated March 19, 2004, and information regarding Accredo’s directors and executive officers is available in Accredo’s proxy statement, dated Oct. 19, 2004, for its 2004 annual meeting of stockholders. Additional information regarding the interests of such potential participants will be included in the registration and proxy statement and the other relevant documents filed with the SEC when they become available.
25
Use of Non-GAAP Measures
Medco calculates and uses EBITDA and EBITDA per adjusted prescription as indicators of its ability to generate cash from reported operating results. These measurements are used in concert with net income, and cash flows from operations, which measures actual cash generated in the period. In addition, the company believes that EBITDA and EBITDA per adjusted prescription are supplemental measurement tools used by analysts and investors to help evaluate overall operating performance and the ability to incur and service debt and make capital expenditures. EBITDA does not represent funds available for our discretionary use and is not intended to represent or to be used as a substitute for net income or cash flows from operations data as measured under U.S. generally accepted accounting principles. The items excluded from EBITDA but included in the calculation of the company’s reported net income are significant components of the statements of income, and must be considered in performing a comprehensive assessment of overall financial performance. EBITDA, and the associated year-to-year trends, should not be considered in isolation. Medco’s calculation of EBITDA may not be consistent with calculations of EBITDA used by other companies.
Medco uses earnings per share excluding amortization expense as a supplemental measure of operating performance. The amortization is associated with intangible assets that substantially arose in connection with the acquisition of Medco by Merck & Co., Inc. in 1993 that were pushed down to Medco’s balance sheet. The company believes that earnings per share excluding amortization of intangibles is a useful measure because of the significance of this non-cash item and to enhance comparability with its peers.
26
Reconciliation Tables
Earnings per Share Reconciliation
Quarters Ended
Twelve Months Ended
Dec 27, 2003
Dec 27, 2003
Dec 25, 2004
Dec 25, 2004
Net Income per Diluted Share
$0.48
$0.43
$1.75
$1.57
0.05
0.39
0.20
Adjustment for the Amortization of Intangible Assets
0.10
Adjusted Net Income per Diluted Share
$0.58
$0.48
$2.14
$1.77
27
Reconciliation Tables
Quarters Ended
Twelve Months Ended
Dec 25, 2004
Dec 27, 2003
Dec 25, 2004
Dec 27, 2003
EBITDA Reconciliation
Net income
$132.8
$118.3
$481.6
$425.8
Add (deduct):
Interest and other (income) expense, net
12.0
16.1
59.9(1)
23.7(2)
Provision for income taxes
89.0
84.1
324.7
302.9
Depreciation expense
39.9
49.9
197.6
189.0
Amortization expense
45.0
23.6
179.9
94.3
EBITDA
$318.7
$292.0
$1,243.7
$1,035.7
Claims Detail
Prescriptions administered:
Mail order
22.3
19.7
87.7
78.1
Retail
103.6
118.0
415.2
453.9
Total
125.9
137.7
502.9
532.0
Adjusted prescriptions(3)
170.5
177.1
678.3
688.2
EBITDA Per Adjusted Prescription
$1.87
$1.65
$1.83
$1.50
1) Includes a one-time write-off of deferred debt issuance costs amounting to $5.5 MM in the first quarter of 2004 associated with the debt refinancing.
2) Excludes a one-time gain of $11 MM from the sale in the first quarter of 2003 of a minority equity investment in a nonpublic company.
3) Estimated adjusted prescription volume equals mail order prescriptions multiplied by 3, plus retail prescriptions. The mail order prescriptions are multiplied by 3 to adjust for the fact that mail order prescriptions include approximately 3 times the amount of product days supplied compared with retail prescriptions.
28
SG Cowen & Co. 25th Annual Health Care Conference Panel Discussion
Dr. Robert Epstein
Medco Health Solutions, Inc.
March 16, 2005
Forward looking statements
This presentation contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Forward-looking statements in this presentation should be evaluated together with the many uncertainties that affect our business, particularly those mentioned in the risk factors section of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.
2
Overview of US Drug Rx Spending
2004 U.S. Rx Spending
>50% spending captured by top three independent PBMs
100% $200 BN
Medco’s Scale advantage
~ 60 million members
2004 Net Revenues of $35 BN
Clients include BCBS plans, MCOs, TPAs, employers and state and local governments
Rebate agreements with over 80 brand-name drug manufacturers
Network of ~ 60,000 retail pharmacies
Purchase and dispense through mail 8% of the total U.S. volume of generic drugs dispensed (not including in-patient settings)
Medco
Medicaid/ Medicare and Cash Market
Other PBMs including retail
Caremark
Express Scripts
Captive PBMs
Source: centers for Medicare & Medicaid Services (CMS), Morgan Stanley
3
Plan Designs 2005 New twists on old themes
Member cost share approaching 30% for many employers
Deductibles – separate for pharmacy
Coinsurance – split in various ways
Tiering – 4 tier getting more common
Networks – customized
Mail service – copay differentials
Generics – Member Pays Difference
Source: Medco Data on file
4
Plan Designs 2005 Newer ideas – not much traction yet
Reverse copays
Reference pricing
Evidence-based formulary tiering
OTC coverage
Consumer directed health plan products – drug alone or combined
5
Medco strength: Scale at mail
Members in Retail Refill Allowance Programs
(MM Lives)
Mail Order Rxs
(Unadjusted, MM Rx’s)
88
~86
86
6.4
FEHBP
78
47
5.2
Caremark
2.2
Express Scripts
39
2003A
2005E
2004A
2004A
Q1 2005
2004
2003
Source: Company reports. Caremark results proforma for AdvancePCS acquisition.
6
Generic opportunity
Brand Drug Spend Coming off Patent
($ BN)
Generic Dispensing Rates
(Percent)
11.0
46.3%
9.6
43.8%
Zocor®
6.4
Zoloft®
Norvasc®
40.5%
Pravachol®
38.5%
Ambien®
36.0%
Fosamax®
1.9
Nexium®
Effexor®
Duragesic®
2004
2003
2002
2001
2000
2005
2006
2007
2008
~ $30 BN in branded products projected to go generic in next 4 years
Source: IMS Health data and company estimates based on current patent expiration dates.
Changes may occur due to litigation, patent challenges etc.
7
Medicare vs. Commercial Formulary- some initial thoughts
Drugs excluded
anorexia, weight loss, weight gain, fertility, cosmetic purposes, hair growth, coughs/cold symptoms, prescription vitamins, barbiturates, benzodiazepines
Drugs included
all non self-administered injectibles when not covered by Part B
chemotherapies
gamma globulins
vaccines
total parenteral nutrition
Off-label uses
American Hospital Formulary Service Drug Information
United States Pharmacopeia-Drug Information
DRUGDEX Information System
American Medical Association Drug Evaluations
8
Significant pipeline drugs 2005-2006
Entereg™
Certican®
Dacogen™
Pulminiq™
lasofoxifene
Alvesco™
Seasonique™
Exubera™
Acomplia™
Preos®
Myozyme®
indiplon
Symlin®
exenatide
BiDil®
Calmactin™
nebivolol
First Half 2006
Second Half 2005
First Half 2005
Boniva®
Zarnestra™
Retaane®
Revatio™ (sildenafil)
Levemir®
Revlimid®
Thelin™
bazedoxifene
Nuvigil™
dapoxetine
muraglitazar
febuxostat
Xinlay™
Ariflo®
abatacept (CTLA4Ig)
Source: NDA Pipeline Online, FDC Reports 2004
9
Full biotech pipeline will accelerate growth in the specialty category
Specialty drug agents under investigation, 2005-2006
satraplatin
Dacogen™
Xinlay™
Bay 43-9006
Tirazone™
ZD6474
Beraprost
Revatio™
sitaxsentan
Lucentis™
Retanne™
Myozyme™
Preos™
CDP 870
Abatacept
Rituxan®
Remicade®
Humira®
Revlimid™
Arylsulfatase
Age-related macular degeneration
Pulmonary hyper- tension
Rheumatoid arthritis
Pompe isease
multiple myeloma
Type VI mucopoly
saccharidosis
Cancer
Psoriasis
Osteoporosis
1-2
Million
orphan drug
1 in 40,000 live births
1-1.5 Million
>7 Million
~10 Million
15,000
~2.1
Million
1-2 cases per Million
Estimated number of cases in U.S. population affected*
*Source for disease statistics: PhRMA 2002; Genentech; U.S. Organ Procurement & Transplantation Network 2002
10
medco
Additional Information on Accredo Transaction
In connection with the proposed transaction, Medco intends to file a registration statement, including a proxy statement of Accredo Health, Incorporated and other materials with the Securities and Exchange Commission (SEC). Investors are urged to read the registration statement and other materials when they are available because they contain important information. Investors will be able to obtain free copies of the registration statement and proxy statement, when they become available, as well as other filings containing information about Medco and Accredo, at the SEC’s Internet site (http://www.sec.gov). These documents also may be accessed and downloaded for free from Medco’s Investor Relations Web site, www.medco.com, or obtained for free by directing a request to Medco Health Solutions, Inc. Investor Relations Department, 100 Parson Pond Drive, F1-6, Franklin Lakes, NJ, 07417. Copies of Accredo’s filings may be accessed and downloaded for free at Accredo’s Investor Relations Web site, www.accredohealth.net, or obtained for free by directing a request to Accredo Health, Incorporated Investor Relations, 1640 Century Center Parkway, Memphis, TN, 38134.
Medco, Accredo and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from Accredo stockholders in respect of the proposed transaction. Information regarding Medco’s directors and executive officers is available in Medco’s proxy statement for its 2004 annual meeting of stockholders, dated March 19, 2004, and information regarding Accredo’s directors and executive officers is available in Accredo’s proxy statement, dated Oct. 19, 2004, for its 2004 annual meeting of stockholders. Additional information regarding the interests of such potential participants will be included in the registration and proxy statement and the other relevant documents filed with the SEC when they become available.
12