McKesson 2008 Annual Report Download - page 57

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
50
Litigation is costly, time-consuming and disruptive to normal business operations. The defense of these matters
could also result in continued diversion of our management’ s time and attention away from business operations,
which could also harm our business. Even if these matters are not resolved against us, the uncertainty and expense
associated with unresolved legal proceedings could harm our business and reputation. For additional information
regarding certain of the legal proceedings in which we are involved, see Financial Note 17, “Other Commitments
and Contingent Liabilities,” contained in the accompanying consolidated financial statements.
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, or any of our individual or collective group of pharmaceutical suppliers’ ,
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 could have an adverse impact
on our results of operations, while not affecting some of our competitors who offer a narrower range of products and
services.
The majority of our U.S. pharmaceutical distribution business’ agreements with manufacturers are structured to
ensure that we are appropriately and predictably compensated for the services we provide; however, failure to
successfully renew these contracts in a timely and favorable manner could have an adverse impact on our results of
operations.
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 profit 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 an adverse impact on our results of operations.
“At-Risk” Launches. Generic drug manufacturers are increasingly challenging the validity or enforceability of
patents on branded pharmaceutical products. During the pendency of these legal challenges, a generics
manufacturer may begin manufacturing and selling a generic version of the branded product prior to the final
resolution to its legal challenge over the branded product’ s patent. To the extent we distribute such generic products
launched “at risk,” the brand-name company could assert infringement claims against us. While we generally obtain
indemnification against such claims from generic manufacturers as a condition of distributing their products, there
can be no assurances that these rights will be adequate or sufficient to protect us.
International Sourcing. We may experience difficulties and delays inherent in sourcing products and contract
manufacturing from foreign countries, including, but not limited to, (i) difficulties in complying with the
requirements of applicable federal, state and local governmental authorities in the United States and of foreign
regulatory authorities, (ii) inability to increase production capacity commensurate with demand or the failure to
predict market demand, and (iii) other manufacturing or distribution problems including changes in types of
products produced, limits to manufacturing capacity due to regulatory requirements, or physical limitations that
could impact continuous supply. Manufacturing difficulties could result in manufacturing shutdowns, product
shortages and delays in product manufacturing.