Good morning, and welcome to the 2023 Jefferies Global Healthcare Conference. Thank you, everyone, for coming. We really appreciate you being here. I'm Brian Tanquilut, Healthcare Services Analyst, U.S.-based for Jefferies, and with us today is McKesson, and Britt Vitalone, the company's CFO. I don't know if you guys are familiar with McKesson, but Britt, maybe, well, we'll start with the fact that I think, you know, a lot of investors view you guys as a drug distributor, and I think the business has evolved over time, and you do more than that today. Yeah. If we can walk through just an intro and what's going on with McKesson, for the benefit of the audience listening here today. Sure. Well, first of all, thank you for hosting us. Good morning. So McKesson is organized in four segments. We have our U.S. Pharmaceutical segment, which is our traditional U.S. drug distribution segment. We service hospitals, retail national accounts, independents, all full-line wholesaler of all drugs. Within that segment, we also have an oncology platform, which I'm sure you're gonna wanna talk a little bit more about, which we're really proud of. It's a business that we've grown over the last really 10, 12 years. We have a second segment we have is our Medical Surgical Solution segment, which is medical surgical supplies and other capabilities to everything that is alternate site. So everything outside of the hospital, we provide medical surgical supplies, pharmaceuticals, you know, in-office dispensing, all the way out to home care. So we have followed the patient in our Medical Surgical Solutions segment. Our third segment is what we call our Prescription Transactons Solutions segment. This is a more automated segment where we're connecting providers, payers, pharmacies, and biopharma, and providing pharma services, where what we're designing to do is to provide better access, affordability, and adherence solutions for biopharma, for payers, for patients. And then our fourth segment is our International segment, which we have been divesting over the last couple of years. It's the largest part of that was our European business, and we were in 14 countries in Europe where we've had wholesaling and retailing operations. We are down to one segment. We have effectively divested that segment to focus our energies on our growth segments. We also have a Canadian business. Our Canadian business is a very scaled organization that is focused on retail and wholesaling. So those are the four segments. We've been very focused on two growth pillars, the first one being oncology and building out our oncology platform, and the second is our pharma services business within Prescription Technology Solutions. We have differentiated service offerings in each of those segments. They represent for us higher growth and higher margin opportunities, again, outside of just core drug distribution. Now, that's a great intro, Britt. Maybe just for the benefit of the audience, as we think about the growth, because it seems like the two growth pillars that you mentioned, you hosted your investor day back in 2021. I think you gave growth guidance of, you know, long-term EPS growth guidance of 12%-14%. It feels like the business is stronger today, the underlying operating income expectations. So maybe if you can walk us through what's driving the growth for the company and what's driving that improved outlook? Yeah, sure. When we had our investor day back in December of 2021, it feels like forever ago now, but it was just a couple of years ago, we unveiled our strategy, the four key pillars, one, focusing on people and culture. The second was the growth pillars of oncology and pharma services. The third is strengthening the core, our core distribution platform in the U.S., our core medical surgical solutions business. And then the fourth was really focusing the portfolio. I talked about divesting Europe as an example of that. When we gave those targets, we focused in two areas, 12%-14% adjusted EPS growth over the long term, comprised of 6%-8% growth of adjusted operating profit, and then another 6% coming from capital allocation. And so that gets us to the 12%-14% over the long term. The business has performed really well, leading up to that and has performed at or above in each of the segments since that point in time. I think there's a number of things that are going well in the business. Maybe I'll just touch on a few of those. In our U.S. pharmaceutical business, we're seeing stable and growing utilization. Prescription trends are continuing to stabilize and show growth that underpins the traditional U.S. Pharmaceutical business. We're seeing a continued strong generic sourcing program. So we have a scaled sourcing operation based here in London, ClarusONE, that sources as well or as competitively as anybody in the marketplace, focused on stability of supply for our customers and delivering the lowest cost. You know, when we do that, we bring to our customers low-cost stability of supply, and we're very disciplined about how we price that into the sell side of the market. Our focus has been to develop and create spread, and we've done a nice job with that. Then the third piece of that is we've continued to scale our oncology business. We have a scaled oncology distribution business. We have GPO services that we provide to our customers. We've added US Oncology Network, which we acquired several years ago. We've continued to add providers to that network. We have over 2,400 providers within the US Oncology Network. They are all practicing on a single EMR, and that single EMR is providing good data and insights, which we are enriching and providing additional analytics for clinical purposes, for the US Oncology Network, for practice purposes, and then back upstream to manufacturers as they look to develop their pipeline for future drug opportunities. Then finally, we added the Sarah Cannon Research Institute joint venture with HCA, which allows us to continue to expand clinical trials, clinical trial services, data and analytics that go along with clinical trials. That has really broadened out our oncology focus in Prescription Technology Solutions, we're seeing, again, the stable drug prescription utilization, as well as continued new brands launching. And when new brands launch, in many cases, they're selecting our programs to help patients get greater access, to have affordability for the, for the drugs that they're launching, as well as adherence programs. And we're seeing continued adoption of our programs within Prescription Technology Solutions. And then in medical, a long history of continuing to grow the alternate site channel, adding solutions, whether that be private brand, it could be laboratory solutions, it could be a breadth of pharmaceutical products for physician offices or surgery centers. And so all of those pieces have reinforced the business and have allowed us to grow at or above our long-term targeted growth rates. That's awesome. Britt, one of the things that we've seen lately as we talk about RxTS, your Prescription Technology Solutions segment, is the benefit that GLP-1s have brought to McKesson. And I'm sure everyone here is tired of hearing about GLP-1s, but it's hard to not think about it. So how are you benefiting from GLP-1s, and what is your participation in that space? Sure. So we participate in GLP-1s in two ways. First of all, we are distributing the drugs to our customers through our traditional U.S. pharmaceutical channel and in Canada as well. So from a distribution perspective, they are basically a specialty drug, and they've really been a headwind to our margin profile year- over- year. They're dilutive to the overall margin profile within distribution. But on the other side of it, where we're differentiated is in our Prescription Technology Solutions segment, we are providing programs for biopharma. For instance, in many cases, drugs require prior authorization before a patient can be prescribed and begin their treatment program. And we have technology that provides the prior authorization services for biopharma, and many of the brands that have launched these GLP-1s have chosen McKesson for the prior authorization services. And so through that avenue, we have technology solutions where we're seeing good growth from GLP-1s and certainly at a higher margin rate than we would on just pure distribution. Britt, just to that point, I mean, one question that pops up all the time is kind of like the economics around the prior authorization. So is that basically per prescription that is written, does that go through prior authorization, or is that, like, an annual thing? Yeah, it's gonna depend on the payer. So the payer is gonna determine whether a particular patient on a particular program is eligible for that prescription. And so we sign up brands. Traditional biopharma brands will sign up with us to adjudicate the program, and so we'll benefit. As new brands launch and they require prior authorization, that prior authorization will come through our technology solution if it's required by the insurer. And in other cases, if there's a repeat transaction that's required a prior authorization, that will also utilize our services, depending on the biopharma programs that are signed up with us. Maybe last question on GLPs, Britt. So on your last earnings call, you talked about kind of like tempering the growth expectation for GLPs as you get into your fiscal Q4. So maybe just share with us how you guys are thinking about, you know, the trajectory for GLP utilization. Yeah. So what we've seen—what we have seen to this point is tremendous growth in GLP-1s, and we saw an inflection of growth in the fourth quarter of our our last fiscal year, so that would have been the first calendar quarter of 2023. And we've seen continued elevated levels of that volume of GLP-1s, but they've sort of flattened out in terms of the quarter-over-quarter growth that we saw last year. And we anticipate that we'll continue to see elevated levels of GLP-1 prescription transactions, but the growth quarter-over-quarter is beginning to flatten out, and that's the, you know, the best line of sight that we have into that. Obviously, you know, new indications are being approved for GLP-1s, and we'll have to see how that plays out, but that inflection point of growth happened in our fourth quarter last year. All right, we'll shift away from the GLPs then. You know, you touched on oncology earlier in your prepared or in your earlier answer to the question. So as we think about how oncology flows through the whole system, right? I mean, you're doing a joint venture with HCA on research. You've got distribution. So how are you driving growth by having that focus on oncology, and how does that trickle down to the different businesses in McKesson? So oncology is an area that we identified as being one of the fastest-growing areas within biopharma, and we identified this, you know, several years ago, and we started in our core, which is drug distribution. From there, we built out a set of GPO services for the network of providers that were buying drugs from us, and those GPO services continue today. We bought the US Oncology Network, which got us into practice management and gave us additional scale, and that practice management has continued to grow over time as we've continued to add providers over the last several years. Last year, as an example, we added approximately 200 providers to the US Oncology Network by buying 4 practices in 7 different geographies. So continuing to add that scale in practice management, it drives drug distribution volume, it drives data and insights. From that scaled distribution platform, we identified the fact that all of these providers were practicing on one EMR, and that one EMR was providing a certain amount of data that we could then extract and enrich, provide additional insights and analytics, which was great for practice and the clinical capabilities, but we found that biopharma also had a need for that data as they were developing their pipeline. So we have an opportunity to monetize the data that's coming through the EMR through our business called Ontada. And then we continued to build out our oncology platform through clinical trials. We had done clinical trials through the US Oncology Network for a number of years, but an opportunity to expand the reach and expand the access of clinical trials and clinical trial services by partnering with HCA Sarah Cannon Research Institute, and we created a joint venture last year to continue down that path. If you think about oncology, it's very broad-based. It starts with distribution. It builds on a set of practice management capabilities, using the data and insights for better clinical purposes, as well as for the opportunity to monetize that with biopharma, and then expanding the reach, the access, and the insights from clinical trials. That's good to know. Maybe shifting gears, generics. So I know it's probably not as big of a driver of growth as it was years ago. It seems like specialty is the key driver of growth now. But how are you thinking about the, the trend for generic pricing and how that flows through the EBITDA line for you guys? Yeah, so generics is an important part of the program as a full-line distributor. We have a sourcing operation, as I mentioned here in London, ClarusONE, where we bring a lot of scale together, and we use that scale for sourcing power to drive better access to medications, to get stability of supply for our customers, and to drive a lower cost. So on the buy side of it, we're using an efficient sourcing platform and the scale that we have to drive lower cost for our customers. On the sell side, we have a very... It's a very competitive market, but it's one that has stabilized over the last several years. We're very disciplined about how we price these products in, obviously, in a competitive marketplace. Our goal here is stability of supply, low cost for our customers, and to create spread back for the business. And we've been able to do that quite well now for a number of years. So it's an important part of our program for our customers, it's an important part of their economics, and it's an important part of ours. Maybe speaking of customers, I know in some of your earnings releases or earnings calls, you talk about how some of the strength and distribution comes from market share gains that your customers are seeing, right? Or the strength that your key customers are seeing. So how should we be thinking about the... How are you thinking about the U.S. pharmacy market today in terms of market share growth and how that accrues to you guys? Yeah, we've done a nice job of having long-term relationships with our customers. We renew our customers. Roughly one-third of our book renews every year, and we've done a really great job of maintaining those long-lasting relationships. We serve as channels such as the independent channel, the health systems or hospital channel, as well as the mid and large chain channel. And what we've seen over the last few years is that our largest customers have grown the fastest, and they've grown the fastest in specialty drugs. And so to your point earlier, specialty drugs continue to grow faster than any other part of the marketplace, and we've seen that growth go through our large retail national accounts. Gotcha. And then maybe, Britt, shifting gears to biosimilars. It's obviously top of mind for a lot of investors. We haven't really figured out, you know, how to think about economics as a lot of these new drugs kick in. So how are you thinking about the potential or future contribution of biosimilars? So biosimilars have continued to launch into the channel. We have 41 approved in the U.S. and 37 that have launched, and this has happened over really the last 7 or 8 years. So it's been a steady progression of launches. For us, the channel does matter to our economics. So where a biosimilar is launched into a channel where McKesson can provide more services, our economics will be better. So, for example, if there's a biosimilar launched that is an oncology drug, where we have GPO services, where we have a scaled footprint like U.S. Oncology, for example, you know, our economics will be better than a biosimilar that launches into the retail channel, which uses fewer of the services that McKesson can provide. And so what we've seen is that, generally speaking, biosimilars have better economics than branded or specialty drugs, but not the same margin rate that you would see on a generic drug, and the channel does matter. And we believe this is a great opportunity, obviously, for customers and clinicians. You get more choice, better cost availability for customers, and we think that it's a good long-term opportunity for McKesson as well. Britt, if we think about it on an EBITDA per script, it's still better than your branded specialty, though, right? Generally speaking, depending on the channel, that would be true. Yeah. Okay. Maybe shifting to MedSurg. You know, I, I know there's a little bit of movement there. I think this past quarter, it was one of... You know, if we're nitpicking, that's probably the only spot that wasn't, like, as strong as investors would have wanted. I mean, what's going on in MedSurg right now? Yeah. The MedSurg business is where I actually started in McKesson 18 years ago, so I have an affinity for our medical business. It has continued to grow and has continued to add capabilities. It's a very scaled business serving all alternate sites of care. We've continued to follow the patient outside of the hospital. So we serve all sites of care except for the hospital. And as you know, the care has continued to migrate, our services have continued to build. We have added pharmaceuticals, the breadth of the portfolio that we have for in-office dispensing, for surgery centers. You know, our portfolio of pharmaceuticals is vast. And we've continued to add solutions like lab solutions, which we found are certainly helpful for physician offices, for primary care generally, as well as surgery centers. We've continued to grow our private brand portfolio, which has great economics for the- for our customers, as well as McKesson. Now, we don't manufacture any of these products ourselves. We partner with a large set of manufacturing partners to do that. And so that's a key distinction, that of our medical business, is we do not manufacture those. But it's a very scaled and broad set of product categories within our McKesson brand portfolio. It's a business that has grown very consistently over a long period of time. You know, the margin rates have been very attractive and accretive to the overall business, the overall portfolio of McKesson, and it's one that we feel like we're very well-positioned to continue to grow longer term. Gotcha. Britt, maybe moving to capital deployment and internal investments, you know, I give you guys props. You guys have done a good job building businesses in-house. I remember, what was that? December of 2020, I think, was you had an Investor Day or Analyst Day, right, where you talked about the investments and development of product lines and services within McKesson. So as we think about your success in RxTS, how should we be thinking about the remaining opportunities or areas of focus to build new capabilities within McKesson? So in McKesson, I'll just talk a little bit about capital deployment broadly. There's really three pillars that I think about when capital deployment. The first is we want to grow the business. Our priority is to grow the business, and now we could do that either organically or inorganically. So to your question, we have continued to invest in the business. We built internally our Ontada business. Within oncology, our research, insights, and analytics business, we built through internal investments. Within RxTS, we have delivered some technology solutions that have taken manual processes historically, whether that be hub services or other call center-type capabilities, and we have invested internally on a consistent basis to build out more technology solutions from that perspective. So growing the business is our number one priority. We've certainly have done that, organically. Inorganically, we're gonna be very disciplined to look for opportunities that are on our growth pillars, whether that be in oncology or pharma services. We made two acquisitions here recently, the JV that I talked about with HCA for our oncology business, and then our Rx Savings Solutions within our pharma services business, which added a capability, with, you know, for access, purposes within, the pharma services business. So growing the business organically or inorganically, being very disciplined about that. Secondly is capital deployment. We're gonna consistently redeploy capital back to our shareholders. We have a modest dividend, but it's one that we've grown 15% annually now for the last two years, and one that we're very committed to growing, and I've talked about growing it in line, in relation to the growth of the business, the earnings growth of the business. So we, we did increase it 15% in July, and we've done share repurchases. And when we think about share repurchases, we wanna do this on a consistent basis, returning capital, but also making sure that we're doing it below intrinsic value. We wanna be very disciplined about that as well. And then the third aspect, really foundationally, is maintaining our investment-grade credit rating, which we think has been very helpful to us to support the business and its capital structure and provide us great flexibility and liquidity. Gotcha. Britt, we've got a little bit of time, so, I'll open it up to the audience if there are any questions. Can I just ask about Amazon and the risk of disruption to existing networks and what barriers are you against that? So the question is Amazon and how it could disrupt the supply chain. Yeah, so we've, you know, we've dealt with this question now for a number of years. Amazon certainly has healthcare aspirations. You know, we think that there might actually be opportunities to work with Amazon, given the breadth of services that we have, particularly on the medical surgical side. So, you know, we don't look at them as necessarily as a disruptor today. It's one certainly that we watch, and we're certainly looking for their innovations and where they're going. But, you know, we think that there might be actually opportunities to work with Amazon. Do you think that the past opioid litigations with the U.S. has been or there's anything in it? The question is opioid litigations, are we past that? Yeah, we've disclosed that pretty well in our 10-Qs and 10-Ks. We've got all the states in one arrangement that we've ring-fenced the risk from there. And so I think from that perspective, you can, if you look at our 10-K, we've ring-fenced the risk with the state opioid litigation. Are you looking at other spaces besides the oncology? I come across you reading whether it's neurology space, especially with Alzheimer's. Focusing on that, seeing growth in that? The question is, are you looking beyond oncology in terms of areas of growth, neurology being the key focus? Yeah. So we think that that oncology has had a lot of, obviously, drug growth. And so when we, when we built our oncology business, we started with drug distribution because there was a lot of drug development and drug opportunities there. We have looked at other areas like neurology, retinopathy as an example, and we think that the drug development is, is not there to develop a practice management type of ecosystem. Certainly there we have customers in both of those areas. Our specialty provider business is, is quite strong, and so there might be opportunities in the future. The oncology business, just given the size of drugs that go through that business, the opportunities for clinical research and data insights, that's the one that we've focused on, but there may be others as drug development pipelines continue to build. To share some of your M&A strategy, does it include any brand acquisitions? M&A strategy. Brand acquisitions? Yeah, legacy brands, for instance. Our focus is really developing the capabilities that we have in oncology and in pharma services. So adding in pharma services, adding technology capabilities to help with access, adherence, and affordability. In oncology, you know, we've focused on adding providers to our network and adding capabilities like clinical trials. That's really where our focus has been, and what that does is it just continues to leverage the differentiating capabilities that we already have. Britt, we've I think we're at the end of our time, so just curious, is there anything you want to leave the audience with as we think about McKesson going forward? Yeah, we've been a very focused organization. We have a clear strategy on the four pillars that I talked about. Our performance has been consistent, and our capital deployment, I think, has been very disciplined, and, you know, I feel that the future is bright for the company. Awesome. Thank you so much. Yeah. Thank you. Thank you, everyone.