McKesson 2012 Annual Report Download - page 16

McKESSON CORPORATION
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The outcome of litigation and other legal matters is always uncertain and outcomes that are not justified by the
evidence or existing law can occur. The Company believes that it has valid defenses to the legal matters pending
against it and is defending itself vigorously. Nevertheless, it is possible that resolution of one or any combination of
more than one legal matter could result in a material adverse impact on our financial position or results of
operations. For example, we are involved in a number of legal proceedings described in Financial Note 19, “Other
Commitments and Contingent Liabilities,” to the accompanying consolidated financial statements that could have
such an impact, including legal proceedings alleging that we engaged in illegal conduct that caused average
wholesale prices to rise for certain prescription drugs during specified periods.
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 19, “Other Commitments
and Contingent Liabilities,” to the accompanying consolidated financial statements.
Changes in the United States healthcare industry and regulatory environment could have a material adverse
impact on our results of operations.
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 in the
United States has changed significantly in an effort to reduce costs. These changes have included 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 in the United States to
continue to change and for healthcare delivery models to evolve in the future.
Changes in the healthcare industry’s or our pharmaceutical suppliers’ pricing, selling, inventory, distribution or
supply policies or practices could 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 a material 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 a material adverse impact on our
results of operations. In addition, branded pharmaceutical price inflation can be the partial economic basis of some
of our distribution business agreements with pharmaceutical manufacturers. If the frequency or rate of branded
price increases slows, it could have a material adverse impact on our results of operations.
In addition, we distribute generic pharmaceuticals, which can be subject to both price deflation and price
inflation. Healthcare and public policy trends indicate that the number of generic drugs will increase next year as a
result of the expiration of certain drug patents. In recent years, our financial results have improved from our generic
drug offerings combined with an increase in the number of generic drug formularies available in the marketplace.
Changes in the availability, pricing trends or reimbursement of these generic drugs, or changes in the rate of increase
in the number of generic drugs, could have a material adverse impact on our results of operations.
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 source, contract manufacture, and distribute such generic
products, 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.