McKesson 2006 Annual Report Download - page 50

Download and view the complete annual report

Please find page 50 of the 2006 McKesson annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 115

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
We believe this accrual is adequate to address our remaining potential exposure with respect to all of the Securities Litigation matters.
However, in view of the number of remaining cases, the uncertainties of the timing and outcome of this type of litigation, and the substantial
amounts involved, it is possible that the ultimate costs of these matters could impact our earnings, either negatively or positively, in the quarter
of their resolution. We do not believe that the resolution of these matters will have a material adverse effect on our results of operations,
liquidity or financial position taken as a whole.
Changes in the United States healthcare environment could have a material negative impact on our revenues and net income.
Our products and services are primarily intended to function within the structure of the healthcare financing and reimbursement system
currently being used in the United States. In recent years, the healthcare industry has changed significantly in an effort to reduce costs. These
changes include increased use of managed care, cuts in Medicare and Medicaid reimbursement levels, consolidation of pharmaceutical and
medical-surgical supply distributors, and the development of large, sophisticated purchasing groups.
We expect the healthcare industry to continue to change significantly in the future. Some of these changes, such as adverse changes in
government funding of healthcare services, legislation or regulations governing the privacy of patient information, or the delivery or pricing of
pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to greatly reduce the amount of our
products and services they purchase or the price they are willing to pay for our products and services.
Changes in the healthcare industry’s pricing, selling, inventory, distribution or supply policies or practices, or changes in our customer mix
could also significantly reduce our revenues and net income. Due to the diverse range of healthcare supply management and healthcare
information technology products and services that we offer, such changes may adversely impact us, while not affecting some of our
competitors who offer a narrower range of products and services.
There have been increasing efforts by pharmaceutical manufacturers to limit the product availability in the supply channel, which
consequently impacts the ways in which distributors are being compensated by manufacturers. We have restructured the majority of our
distribution agreements with the manufacturers to ensure that we are appropriately and predictably compensated for the services we provide,
however, if we fail to negotiate favorable terms in other distribution agreements, or if we fail to successfully renew these contracts in a timely
and favorable manner, as we anticipate, such efforts by certain pharmaceutical manufacturers could have an adverse impact on our profitability.
Healthcare and public policy trends indicate that the number of generic drugs will increase over the next few years as a result of the
expiration of certain drug patents. In recent years, our revenues and gross margins have increased from our generic drug offering programs. An
increase or a decrease in the availability or changes in pricing or reimbursement of these generic drugs could have a material impact on our net
income.
There have been increasing efforts by various levels of government including state boards and comparable agencies to regulate the
pharmaceutical distribution system in order to prevent the introduction of counterfeit, adulterated, and/or mislabeled drugs into the
pharmaceutical distribution system. Certain states, such as Florida, have already adopted laws and regulations that are intended to protect the
integrity of the pharmaceutical distribution system while other government agencies are currently evaluating their recommendations. These
laws and regulations could increase the overall regulatory burden and costs associated with our pharmaceutical distribution business, and may
negatively impact our operating results.
46