Thanks for joining us for the Cardinal Health Fireside Chat here at Citi's Global Healthcare Conference. My name is Daniel Grosslight. For those of you who don't know me, I'm the Health Tech and Distribution Analyst here at Citi. I'm very pleased to welcome Aaron Alt, Cardinal CFO, and Matt Sims, Cardinal's Head of IR. I'm sure you all are familiar with them. I guess maybe we'll kick it off with a question about politics. I was told not to talk about politics at the Thanksgiving table, but I feel that we're in a safe space here. We have a new administration, obviously, we're a month out now or so from the election.
I think most of President-elect Trump's picks to run the healthcare bureaucracy at the high level have now been announced. We'll see if they're confirmed. But I'd like to ask about really just how this new administration might impact your business. And I guess really on two fronts. The first front, I think, is the most visible tariffs, right? We've got some saber rattling around not just the Chinese tariffs, which we're all familiar with, but also potential tariffs on Mexico and Canada now that BRICS as well. So I'd like to focus on that first. And then after that, we can tackle kind of how this administration might impact your pharma business first.
Sure. Before I comment on anything political or forward-looking for that matter, Matt's got a few words to say.
Yeah, perfect. And again, Daniel, thanks for hosting us today. It's really great to be here. So before we begin, let me remind that we will be making forward-looking statements today, which are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. For a description of these factors, please review our SEC filings, which can be found on our Investor Relations website.
Great. With that said, look, the fact of life is that the world is changing around us. Our industry, along with all industries, will need to appropriately reflect and react as proposals become specifics, legislation, executive orders, or what have you. The practical reality is that we believe we're in a good position to influence the final state of any executive orders or new legislation that may come down the path. We have a long history of bipartisan engagement with Congress. With the first Trump administration, indeed, we intend to continue that positive, productive engagement with them as they outline their proposals as we carry forward. It is the case that as we think about tariffs, the press and indeed some of the pronouncements on social media would say that tariffs are a reality currently, and they'll be changing as the new administration comes into place.
We are being very purposeful in planning for how do we react to that. Pardon me, a couple of thoughts. First, the existing tariffs, because there are existing tariffs, are already built into our guidance for fiscal year 2025. And so there's nothing new in that respect. And indeed, as you think about how we react to the tariff environment, I want to go back and highlight for you what we've been saying now for the last couple of years, which is we are in such a better place from a supply chain resiliency perspective, from a supply chain flexibility perspective, and indeed from an ability to react to any increase in costs, including tariffs, that we're in a very different place from a portfolio perspective, whether we're talking about GMPD or other parts of our portfolio than where we were.
The practical reality is, as folks talk about China a lot, and as a primary target for many of the tariffs, less than 10% of our sourced product is made in China. And we have no owned manufacturing in China as well. And so our exposure to tariffs on China is really quite narrow before you even get to how could we react. And it's also the case that about half of our own brand product is sourced in North America, right? It gives you a sense of the overall distribution of our portfolio. And keep in mind that two-thirds of our GMPD business is actually distribution, not manufactured products. And so again, we're paid on a fee-for-service basis in that respect. And so it's not the tariffs don't really impact two-thirds of our GMPD business.
Yeah, that's a good point, the difference between the manufactured and the non-Cardinal brand products. So of that two-thirds that you're just being paid a fee-for-service, that's just cost plus, right? So that gets passed directly on to the end customer.
Generally, that's the case.
Okay. Okay, and you're obviously making changes to how you're manufacturing or partnering with OEMs to manufacture syringes. Have you thought outside of syringes if there is a need to nearshore some more production of that one-third of proprietary product?
Yeah, it's a great question. And thank you for asking it. We are being very purposeful in assessing the overall resiliency and flexibility of our supply chain. That's a key part. And by the way, this isn't something that's new. This has been a key part of what Steve Mason and our GMPD business have been assessing for the last couple of years as the regulatory environment changes, as supply and demand evolves, where are we currently producing? What are our alternate sources of supply? Do we need to manufacture, or can we source the goods ourselves? And there is a multi-year body of work which is already underway, which is we are now benefiting from.
You cited a great example of the output of that, which is we've in the last couple of quarters, we've talked about the fact that we've actually started production of syringes in the U.S. and in our locations in no small part as a result of us seeing government regulation being imposed on Chinese manufacturers of syringes, right? There was a market need, and we were able to rapidly react because we had already done the work around our supply chain resiliency.
Got it. Okay. Let's turn to the pharma side and how this new administration may impact that. And here, I guess it's a little less impactful, or maybe the impacts are more secondary in nature. But we'd love to get your thoughts on how on the pharma side, a new administration, a new pricing dynamic, who knows what ultimately happens with the IRA, how all that impacts you guys?
You kind of answered the question from where you said, who knows what happens with the IRA. We are being very watchful relative to any regulatory changes that come out. Certainly, the IRA is what it is, but also there's a multi-year step plan there. There's one thing that has been true for decades, which we believe will continue to be true, which is we will be compensated for the value of the services we provide. Our role in the industry is to safely, securely, and efficiently move the goods from one point to another to get to be the intermediary between the manufacturer and the end user and their patients. We have proven time and time again that as the paradigm evolves, right, we will be compensated for that.
Okay. So let's just assume that the IRA is upheld. It's not repealed, or maybe it becomes a little more draconian. Who knows? But I'd like to focus on that and how that might impact your business in two ways. One, I think you alluded to on that core distribution business and being paid fairly for that. And then two, on the newer businesses that you've entered into on the MSO side. So let's start with the core distribution side. IRA comes into effect, it's already in effect in Part D, it becomes in Part B in 2028. How do you think that impacts wholesale acquisition prices, costs? And what can you do to offset some of that pressure?
I think, as I said, the legislation is a fact of life. How it evolves in the new administration remains to be seen in that way. But the practical reality is that we are a 1% operating margin business that we have an essential role in the industry. And so we're going to have to be compensated for the services that we provide. And we will do what we've always done, which is on a case-by-case, supplier-by-supplier basis, have the discussion with them of how are we getting the right economic return, right? We are not a capital-light enterprise overall, and there aren't many that want to enter into this business. And so the facts of life are that we'll be compensated for the services that we're providing.
Now, with respect to your question on the specialty pieces of it and the other business models we have in place, and indeed, even more broadly, I guess I would emphasize the following. If you take a step back, we have a strong strategic focus on expanding our distribution of specialty pharmaceuticals, right? We said that in our June 2023 Investor Day. That was a core strategic focus for us. And I hope you've been able to see every quarter we've advanced the ball against increasing our focus on and our exposure to the specialty pharmaceutical areas. That comes in a number of different ways, and with anticipated, I think it's $36 billion of revenue in the year in specialty, it's coming from just the core distribution itself.
It's also coming from manufacturer services and now also as a result of Navista and some of our MSO acquisitions, the fact that we have other business models out there. The IRA isn't going to change our focus on the MSOs because that is a new source of revenue. It's a different part of our business. We aren't buying those companies for purposes of getting distribution, right? Distribution may be an opportunity there, but that's not why we're doing the deals, right? And so as we look at the regulatory framework around that, while we need to be mindful of IRA and other legislation
The MSOs are in part to allow doctors to do what they do best, which is practice medicine, allow us to support them with our scale, with our experience, and indeed the scale and experience and the leadership of the teams that we've acquired as well to do it on a more efficient basis, which is a long way of me really getting to the underlying point, which is, as you've seen from our recent financial results, as we've committed to over time, given the low-margin nature of our business, right? Part of our strategic focus as well is simplification. It is finding how do we continue to deliver against our core mission across all of our businesses in a way which is simple, which is cost-efficient, and that doesn't hurt when talking about cost pressures from any source, whether it's competitive or regulatory-based.
Yep. Yep. Makes sense. And then sticking with that MSO business, there was a report that negotiation of the top 10 drugs in Part B could lead to a $25 billion decrease in add-on payments for physicians, half of which are in oncology. And given the MSO model, I think that could potentially have a direct impact on you guys. So I'm just curious, if we do, again, we're talking theoretical here, three years out, but if we do see these negotiations in Part B and a significant reduction in physician add-on payments, does that change how you think about the MSO business at all? And is there anything you can do to help offset some of these physician pressures that are sure to come if we do have these Part B negotiations?
I'm going to give you an unsatisfying answer, which is to go back to from our core business perspective. Again, we will negotiate with suppliers to ensure we're getting the value of the services we're providing. You're all aware that we are not as exposed to oncology as others in the industry. And so if there's a more direct impact on the oncologists, right, we won't feel it to the same degree as others in the distribution industry.
But certainly, as we ramp up our exposure to specialty practices, as we partner with more specialty physicians, right, that's something we'll be very watchful on. But it will, again, go to how can we bring our scale, how can we bring our expertise to allow the docs to do what they do better and ensure that they have attractive economics to continue to practice medicine and we have the right return on the investments we're putting into the space.
Yep. Yeah. Okay. Let's get into specifics now on the pharma segment. This has been a big area of strength for you guys recently, I think even more so than I and the street had expected. You've put out a target of 4%-6%, long-term target of 4%-6% pharma operating income growth. You've operated above that over the past couple of years, including a very strong quarter this past quarter of around 16% growth.
So I'm wondering if you can kind of break out specifics on where you're seeing the strength. I know it's been kind of broad-based, but maybe if you can provide a little bit more detailed on exactly where you're seeing the strength. And then as we think about the rest of the year and the step down implied for the next few quarters of your fiscal year, maybe if you can help bridge that step down in growth from 16% to your guided range for the remainder of the year?
Happy to do so. It is a complicated year for us. Of course, in our first quarter, we had the first quarter of transition away from a significant customer. And if you think back a couple of quarters, the concern was how will Cardinal Health manage through that customer transition and what will the impact be to profitability? And so what we've been doing month after month as we heard the decision and then talked about it publicly and then worked our internal plans is really focused on how do we simplify our operation, how do we offset the impact of that customer transition. And we were really pleased to see our Q1 results. Notwithstanding Optum's move to another distributor, we were able to deliver 16% profit growth in the first quarter. Now, that was driven by a strong demand environment.
We had a strong demand, we had a strong ecosystem and brand and generics and specialty and core and consumer health. Really, everything was hitting all cylinders in the first quarter from a demand perspective, and we benefited from that. It's also the case in the first quarter we benefited from the pull forward of the COVID-19 vaccine volumes. Last year, COVID-19 vaccines got started late in our first quarter. It was the middle of September before the authorizations came through. This year, it was much earlier, and indeed we saw the peak in Q1 as well. And so some of the goodness that we saw in our Q2 last year was pulled forward into Q1.
And so, while I love to cite the 16% number from a profit growth in Q1, I also want to be realistic in the context that it was both a strong demand environment and the pull forward of the COVID-19 volume. While acknowledging that Debbie Weitzman and the team did an incredible job of managing through the first stages of the transition away from that customer. And how did they do it? They did it by having a plan from day one and executing against the simplification efforts, really focused on our resiliency. How do we ramp up our support of other customers? How do we meaningfully address any cost opportunities within the business, along with, of course, continue to execute against Specialty Networks and the other elements of the offset plan that we had put in place as part of our Q4 guidance?
Yep. Yep. Got it. Okay. And as I think about the broad-based strength that you referenced, hitting on all cylinders, obviously vaccine is going to drop off next quarter a little bit. But it doesn't seem like any of those other things that you mentioned are really going to be temporary in nature. Or am I misinterpreting that? You look at the third-party IQVIA data, still pretty strong.
Yeah. Well, I'm not here today to provide any updates on the Q2 environment. I have to wait until our Q2 earnings call at the end of January. But I would observe the following, which is what you're really asking me is sort of you're sandbagging your guidance for pharma for the year. And I want to go back to just acknowledge where we started the year, which is we had a $40 billion revenue customer, right? Go to someone else. And so what we've been doing is working aggressively to offset the impact of that in the year. Q1, we had the benefit of strong environment. Q1, we had the benefit of taking cost out and simplifying early on. But by the way, the customer transition just doesn't impact just Q1, right?
We have the impact of that customer transition in each of the other quarters because it was an end-of-fiscal-year event for us. And so we do also have to fill that gap in each of the subsequent quarters. You've already heard me call out the fact that COVID-19 was a pull forward from Q2 into Q1. And keep in mind our original guidance, which we reaffirmed in our last earnings call, which is COVID-19 on a full-year basis is a net headwind for us, slight headwind for us, right? And so I'm not expecting to earn more in the year this year than I did last year. It will be largely just a time between Q1 and Q2. And so that contributes to part of why you're not going to see 16% growth every quarter thereafter.
And last point I would make is you also have to keep in mind that part of our guidance for the year also reflected the fact that we have significant customer onboarding happening in our back half, right? Part of the plan that we created to offset the customer transition was $10 billion of new customers or material expansions of existing business with existing customers, right? And that is all in our back half. And that ramps. It's not one day it's there. And so the combination of all those factors together is why we were pleased to raise our guidance from what was 1%-3% profit growth to 4%-6% for the pharma business for the year.
Got it. Okay. And is it safe to assume of that $10 billion of onboarding, much of that or a majority of that is coming in 4Q versus 3Q? And are there any additional expenses in 3Q that you might have a little bit of a mismatch between costs, inventory build in 3Q versus 4Q when everyone's fully on board?
Great question. Let me give you a little bit of context. We've not guided specifics between Q3 and Q4 on the ramp other than to observe that it starts as we turn the calendar year and we'll grow from there, and so we have not provided any specifics beyond that. We have talked about a couple of the new customer onboardings. The Publix chain, for instance, is one that we will start to ship in the back half of the year. Because when we issued our guide, we knew about the new customers coming on board. To answer your question about are there incremental costs that you may not see, the onboarding costs, as we can see them today, were part of our original guidance, and we have not changed that, and so there's nothing to see there.
And then with respect to your question on inventory builds, etc., that's more on the cash flow side. And I guess I would take the opportunity to observe there as well that during our Q1 earnings call, we actually raised our cash flow guidance for the year as well. Because, again, in Q1, we were facing a cliff event where because we were unwinding the negative working capital position of the Optum contract, we had to work through that. We think we worked through it rather adeptly. And as a result, we were able to, having already had built into our guidance what we believe the investments and inventory, etc., will be in the back half for those new customers, we were actually able to raise our guidance for adjusted for cash flow for the year as well.
Okay. And these new clients is $10 billion of new win that's coming in at a higher margin than the loss.
Yes.
Okay. Okay. All right. Let's focus on specialty because I know this has been a big area of investment for you, both organically and inorganically. You mentioned here that it's going to be $36 billion of revenue in fiscal 2025 from $32 billion. And that's excluding Optum, which was a big contributor to your specialty side. But before we dig in deeper into that, everyone seems to define specialty a little bit differently. So I was wondering if you can give us your working definition of what rolls up into specialty for you guys.
It's hard to answer without a multivariate equation. The simplified rule I would give you is the manufacturers typically designate what is specialty or what is core pharma. The secondary answer to that is if there is something special about the distribution, if temperature-controlled unusual elements of the distribution chain, it will fall within our specialty definition. It's also the case that our manufacturer services, the biopharma services, also fall within specialty. But we are pleased that even before the customer transition, the business was growing at 14% a year. And the fact that we will grow it this year, notwithstanding that transition, is also a sign of our continued execution against our focus on building our capabilities within specialty and increasing our exposure to that business, both upstream with the manufacturers as well as downstream from a distribution perspective.
Got it. And safe to assume that on the manufacturer services and specialty, much of that is your 3PL business?
I would say some of it is. 3PL is certainly an important part of that, but we've not broken out the relative magnitude of that 3PL versus other parts of our manufacturer services.
Okay. Got it. And obviously, as I mentioned, this is kind of one of your top priorities from organic and inorganic growth. And you guys have been very acquisitive recently on the specialty side. So you did.
Glad you noticed.
Specialty Networks. You did ION. You did GIA. So I guess going forward, where do you see the most opportunity for investment and what kind of informs that decision to buy like you did with these three recent acquisitions or build like what you're doing with Navista?
Our approach to our business and indeed to our engagement with shareholders like all of you is to be very thoughtful in developing a strategy to tell you what we're going to do and then to go do it and report back on how did it go and then continue that cycle. And so what I hope you're taking away from the last couple of quarters' results as well as the more recent announcements we've had around M&A is us doing exactly what we told you we were going to do. If you go all the way back to our investor day in June of 2023, Jason stood on stage and highlighted the fact that we were underpenetrated.
While we had a bigger business than people expected, we were underpenetrated in the specialty business and that was going to be our primary investment area, both organically with the capital expense we are deploying as well as inorganically as we looked at opportunities in front of us. We've done just that, right? We announced at the time the launch of the Navista effort. That was an organic build, very technology-focused, very capability-focused. We built a team, etc. We already were servicing distribution within the oncology business, but we were raising our game internally while also looking at external opportunities to drive scale and allow us to acquire additional capabilities as well.
And indeed, first with the launch of Navista and then with the announcement of ION, which I'm happy to say we closed yesterday, we're in a place now where we have done what we said we're going to do as far as continuing to invest in being relevant in the oncology space, right? It's not our goal to be the leading oncology distributor in the world, right? That is a we are a couple of years behind that, but certainly it's important for us to have relevance and expertise in the space. And we continue to build against that as you carry forward. But if you take a step back, at investor day, we also highlighted the fact that we have historically been stronger in what is called the otherology, the other therapeutic areas that are not oncology, many of which are attractive, right? They have attractive economics.
They're attractive growth areas for us as well. And we were very purposeful in deploying not against one strategy or the other, but against deploying on both strategies. And that's why the first acquisition you actually saw us do was for Specialty Networks. We announced it early in this calendar year. We closed it a couple of months later. And Specialty Networks, if you're not familiar with it, it's a GPO Plus. It's not an MSO, right? It was focused in urology, gastroenterology, and rheumatology, right? It is a highly technology-enabled GPO data analytics platform that really is remarkable for its PPS Analytics platform, which allows it. It's reading the EMRs of 42 different types of EMRs at the practice level, sending the data up to the manufacturers and sending the practice recommendations back down to the docs.
That was very attractive to us because it's something that is expandable into other therapeutic states. And so we acquired that business to get the benefit of the technology, knowing that we could invest in it and grow it into other areas. And that's exactly what we've done, whether it's oncology or other specialty therapeutic areas. We also found the team to be quite attractive. And one of the less understood elements of our Specialty Networks acquisition is that when we acquired that management team and they have found themselves not running just Specialty Networks, but running a much larger part of our own portfolio. And so we have leveraged them to make a broader part of our business better in that way. And so we are super excited about that, as well as the focus that they have in urology, rheumatology, and gastroenterology.
Now, you might be sensing a theme because, of course, then we also went and acquired the largest national MSO in gastroenterology in the form of GI Alliance. Not yet closed that transaction. Hopeful that we'll be able to close that one soon, but it's more than 900 docs, 345 practice locations in 20 states. There's a bunch of things attractive about that business from the exposure it gives us to gastroenterology. But again, somewhat like Specialty Networks, what we love about it is it's a platform. It's a multi-specialty platform for us. There's a lot of goodness there for GI that we believe with partnership with Specialty Networks, with partnership with the core contracting and distribution capabilities that we have, certainly enabled by our balance sheet, that that will be an enabler for our broader specialty non-oncology strategy.
Got it. Yep. Yep. I think it's interesting that you've been at least recently more focused on growing outside of oncology. And one of the questions we get is how much space is there in oncology to continue to acquire. So I think you've definitely been more on the forefront of the otherologies. What informs you? What's kind of the nextology to go into? And what are you most excited about outside of oncology for your MSO business?
Two answers. First, just touching on oncology real quick. I mean, it is the case that there are still a couple of thousand independent community oncologists out there who are not being served by the existing incumbents, and our strategy all along has not been to try to be the other guys, but rather to have our own strategy and to support the independent community oncologists, and that's what Navista was being built for. It's indeed what Navista combined with ION will continue to focus upon. With respect to the broader specialty therapeutic areas, when we announced the transactions, we called out a couple of core areas where we were focused, expanding beyond gastroenterology, rheumatology, where we already had some investments, nephrology, other areas, urology, certainly. Those are all areas that are of interest to us.
But what we like about the platforms that we are acquiring and the capabilities that we've built is that we have the analytics platforms that we can customize and expand, right? We have now MSO capabilities that we can customize and expand. We have leadership that understands the doctor's practices, that understands what they face day-to-day that can allow us to enable the success of the physicians as well. And so we are casting our eye widely across the horizon while, importantly, making sure that we're doing everything in a way which is assured to have a good shareholder return, right? Because at the end of the day, it all comes down to capital allocation for us, which is how are we taking the benefit of the cash flow that we're generating? How are we generating the right return for our investors?
We believe that that starts with investing in our business to drive that profitable growth, and so that's always our first priority. We've commented that we're going to, of course, protect our balance sheet. We've taken a little bit of debt to do the transactions, but it's manageable, certainly, as we carry forward. We've committed in the past that we will have a baseline return of capital shareholders
And we haven't updated anything on that post-transactions other than to observe that, notwithstanding the acquisitions we've done, we are committed to delivering on the $750 million of share purchase for this year. The fact that we were able to say that at the same time as announcing two transactions in the same day should tell you something, right? And then, of course, we'll go back to the top and continue to assess our opportunities because Jason is very focused on ensuring that we remain committed to delivering shareholder value creation.
Got it. Okay. We've got a little less than five minutes left. And I want to make sure I leave room for questions for you all. But let's do some rapid fire on the GMPD business because I think that's been a source of a little bit of controversy over the past few years. I guess really, let's just focus on your goal of reaching $300 million of profitability by next fiscal year. This fiscal year, you'll do $175 million or so of profitability. But how do you expect to kind of grow, double your profitability in fiscal 2026? Hit that $300 million. You've laid out three buckets. The inflation offsets are kind of already done or will be done by 2026 in terms of kind of the calendar effect. But what are the other avenues to double your profitability from fiscal 2025 to fiscal 2026?
So the financial context here is two years ago, we were a $150 million loss. Last year, we did $90 million of profit. And so there's a $240 million swing in that two-year period. As we think about this year, our updated guide is $140 million-$175 million. I'll come back to that in a second, which would still put us two-thirds of the way towards the $300 million commitment for fiscal 2026, which we have not backed away from, notwithstanding the things going on with the business.
And so we believe that the greatest source of shareholder value creation with respect to our GMPD business was to continue to own it and to continue to make progress against fixing it, reflective of the progress that we've made in the last couple of years and reflective of a deep strategic and operational view of what are our opportunities and where can the most value be created for us. We're pleased with the results that Steve Mason and his team have delivered against that business so far and believe that there's significant opportunity in front of us with the business. Now, as the source of those opportunity, you're right, reacting to the inflationary environment that was a result of the supply chain disruptions, etc., that is largely behind us. Of course, we'll always need to manage inflation. We'll always need to manage input cost increases, etc.
But that was the large part of how we were able to drive the profit increase from fiscal 2023 through fiscal 2024. The two remaining buckets to the plan, they're big buckets. One is actually the increased growth of the Cardinal Health brand business. We all know that own brand or private label products, they tend to have a higher margin. And that's certainly the case for us as well and other industry participants. And so part of what we've been focused on, and it's a longer build than the inflation mitigation, is how do we continue to grow the Cardinal Health brand presence? We saw revenue growth in Q1. I think we guided that we're expecting continued revenue growth over the course of the year.
And that will be a key element to how we deliver, not just against this year, the updated guides to 140-175, but also deliver against the 300 for next year. And the second element, which also is a continued labor of love for the business, is just the continued simplification of the business. As you think about what I was saying earlier about supply chain flexibility, supply chain resiliency, I should have added operations in front of both those words as well because the team has done an excellent job of really taking a giant step back and assessing, okay
How can we be more effective? How can we support the customers better? How can we increase the relevance of our product line? How do we improve the customer experience? As those scores are rising, as we're doing better day-to-day within the business, right, that actually is both a result of and an enabler of further simplification of our operations, further simplification of how we go to market, which will also help to improve our overall profitability.
Got it. Okay. I think we've got about a minute left now. I want to open it up to the floor. If anyone has questions, we have a mic runner. Okay. No questions. I'll continue on the other segment. I think one of the interesting acquisitions you made in your trifecta of acquisitions a couple of weeks ago was the ADS business, the diabetes business getting bigger into CGMs. We get a lot of questions on CGMs just given some of the potential pricing dynamics there, both with the OIG looking at Medicare pricing and also more volume going from the DME channel to the pharmacy channel. So I was wondering if you can kind of comment in the 20 seconds we have left on that and also why you decided to get bigger into diabetes and CGMs.
Sure. Again, it's a good example of us doing what we said we were going to do. When we resegmented our operation starting last January, we put a spotlight on the three businesses that are in other Nuclear Precision Health, At-H ome, and OptiFreight, and commented at the time that we would consider doing inorganic investments in those businesses because we view them as higher margin, higher growth opportunities for us. The ADS acquisition is an example of us liking what we're seeing within the at-home medical space. It's on trend, liking what we're seeing within the diabetes treatment space. There are 40 million people with diagnosed diabetes in the U.S., only half of which have access to CGM, and the penetration is in the 20%-30%, 25%-30% thereafter.
And so there's an opportunity for us from serving the patients that need access to the measurement devices, right? And so we think we view CGM as something which is here for the long term as people continue to work through their diabetes care. We view it as an attractive market for us. And the acquisition of ADS, just to call out two examples of why it makes sense for us. One is that our at-home business is very commercial payer focused. So we're already exposed to the pharmacy channel, right? We know a fair bit about that.
ADS is more government payer focused as well. And so it provides us a mixed benefit there as well. And then also that business will increase our at-home revenue by 25%, right? We're going to add $1 billion of revenue to the at-home business, but it will only take up about 2% of our operational capacity. And so from that, you can conclude that there's probably some significant operational synergies coming from us layering that business on top of our existing operational network.
Great. Well, we are out of time. I know, Aaron, that you guys have to run, so we'll let you go. Thank you so much for joining us this morning, and thanks for everyone coming in to listen to the story.
Thanks for having us.
Thanks to you.