McKesson 2016 Annual Report Download - page 19

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McKESSON CORPORATION
These and other risks and uncertainties are described herein and in other information contained in our
publicly available SEC filings and press releases. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date such statements were first made. Except to the
extent required by federal securities laws, we undertake no obligation to publicly release the result of any
revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect
the occurrence of unanticipated events.
Item 1A. Risk Factors
The risks described below could have a material adverse impact on our financial position, results of
operations, liquidity and cash flows. Although it is not possible to predict or identify all such risks and
uncertainties, they may include, but are not limited to, the factors discussed below. Our business operations could
also be affected by additional factors that are not presently known to us or that we currently consider not to be
material. The reader should not consider this list to be a complete statement of all risks and uncertainties.
Changes in the United States healthcare industry and regulatory environment could have a material adverse
impact on our results of operations.
Many of our products and services are 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 enhance efficiencies, reduce costs and improve patient
outcomes. These changes have included cuts in Medicare and Medicaid reimbursement levels, changes in the
basis for payments, shifting away from fee-for-service and towards value-based payments and risk-sharing
models, increases in the use of managed care, 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. Certain distribution business agreements we entered into with manufacturers continue to
have pharmaceutical price inflation as a component of our compensation. Consequently, our results of operations
could be adversely affected if the frequency or magnitude of pharmaceutical price increases declines, which we
do not control. In addition, we distribute generic pharmaceuticals, which can be subject to both price deflation
and price inflation. During 2016, our Distribution Solutions segment experienced weaker generic pharmaceutical
pricing trends, which are expected to continue in 2017. Continued volatility in the availability, pricing trends or
reimbursement of these generic drugs, or significant fluctuations in the nature, frequency and magnitude of
generic pharmaceutical launches, could have a material adverse impact on our results of operations. Additionally,
any future changes in branded and generics drug pricing could be significantly different than our projections.
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 of its legal
challenge over the branded product’s patent. To the extent we source, contract manufacture, and distribute such
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