... Okay, great. Good morning, Steve Baxter, the healthcare services analyst here at Wells Fargo. We're very pleased to have Cardinal Health with us today. So Cardinal is one of the largest drug distributors in the U.S. and operates a handful of other businesses, you know, we're gonna touch on today. From the company, we're very pleased to be joined by CEO Jason Hollar, and then Matt Sims from Investor Relations. I think, Matt, maybe you wanted to start with a comment, and then we can kinda go from there.
Yeah, great. Well, thanks for hosting us today, Steve.
Yeah.
It's great to be here. So before we do begin, just some quick housekeeping. 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 at ir.cardinalhealth.com.
All right. Okay, fantastic. We have a pretty long list of questions. Of course, it'd only be polite to offer if there's any prepared remarks you'd like to make, but otherwise, we're happy just to-
No, that's-
Kinda get going. Okay, that's great. So yeah, starting with the, you know, sort of the core U.S. distribution business, I guess when we look at the, you know, the very successful year that you've had, most recently, and again, I think what a lot of us try to do are really kinda strip out the acquisition impacts you have, strip out things that are a little bit, you know, maybe less recurring, like some of the COVID impacts that you've had. You know, we see core earnings growth in more of, like, the low double-digit percent range, and I think it's pretty consistent with kinda how you've talked about the impact that acquisitions have had. And that's despite, you know, the loss of the Optum contract, for example.
So, you know, you're growing essentially 2x the long-term targeted growth rate of the segment, which is obviously a really, really strong outcome. I think as we sit back in the investment community and try to think about, you know, what have been the two or three or four most important factors that have kinda driven that strong performance, you know, I guess, what are those, and how are we thinking about the sustainability of some of that momentum as we move into this year?
Sure. And, I'll echo Matt's comments.
Yeah.
Thanks for having us.
Yeah.
It's a great conference to be able to participate in, and I'm looking for all the discussions. Yeah, our Pharma segment, in particular, Pharma Specialty Solutions, had a fantastic year.
I'll break it apart into a couple of the key components. The core of the business was very strong. It may not be always the most glamorous part that we talk about all the initiatives with, but nonetheless, we have invested heavily in that core. We are benefiting from broad-based utilization trends that are positive for us and for the industry. But importantly, that volume is just a starting point, and then we operationalize that very effectively with nice performance improvements. Whether it was branded or generic products, when you look at our quarter-to-quarter disclosures, it seemingly is like we're talking about different product classes all the time, and it shows the rising tide of this industry, but also our performance within it, which is a great testament to the execution of our team.
Outside of the core, though, we have invested more heavily in the specialty part of the business, and so whether you're talking about the distribution, specialty distribution, or those other services within Biopharma Solutions, we saw broad-based execution of those strategies, but also just the underlying growth that was strong utilization there as well. Our distribution business is the key driver of the revenue, and we've highlighted that we've grown that business now pretty consistently in the mid-teens types of rates, so very strong growth rates above the market growth.
And then with our Biopharma Solutions, those higher margin, growth, parts of the specialty business, that's been growing around 20%, and we highlighted within our Investor Day in June, some of the initiatives behind that, that gives us confidence that we're going to continue to grow that at 20% type of CAGR, bringing it to about a billion-dollar business by Fiscal 2028. So there's a lot of individual types of initiatives underneath the surface of that, but it really comes down to broad-based utilization, demand, demographic trends in our favor, but then absolutely operationalizing that in a very effective way.
Yeah, that's very helpful. And then, yeah, as we just sat back, with the environment, you know, has been quite strong, and obviously, I don't think any reasonable person would necessarily assume that this is gonna be how things are forever. But as we think about sort of the next, you know, year or maybe two years, like, are there things that are, you know, just discrete that we should be thinking about, that do at some point become kind of like a lapping consideration? Or is it just more about, you know, hey, this is just the kind of environment that we just, you know, maybe think about as, as maybe being something that might not be sustained out ten years?
Yeah, you know, we think it's a good setup. Back to the demographic trends, we have very strong confidence that we're gonna see a rising tide utilization, and we feel very good about our initiatives underneath it.
Yeah.
With that said, I do think the level of growth that we've seen in the broader market has been stronger than what we've seen historically.
Yeah
And it's not to the level that we anticipate it going forward. Now, we do anticipate, specifically for this fiscal year, that our growth rates are faster than what the normalized long-term rates are. So we're not saying going all the way back to where they were, but we do think it's prudent to anticipate a little bit slower growth, but still strong growth in this next fiscal year. And while we don't attribute it to any one area, I do think some of the noise coming out of DC is something that you know, we are aware of.
So whether you're talking about, you know, the Medicaid funding or even some of the restrictions placed on COVID vaccines, these are all areas that it's kind of, you know, a little bit of new news as it relates-
Yeah
To what it could have as an impact on the industry. But we overall feel very good about the general utilization, though, and, and you're always gonna have some parts of your portfolio growing faster than others.
That is a very healthy dynamic, where we're not relying on any one product line, any one customer, one product class to be able to drive that. We're really diversifying the business to make sure that we have a very solid participation in the fastest-growing parts of the market within specialty, but also making sure that we continue to take care of that core.
Yeah, just to follow up on the vaccines, that has been very topical in the news the past couple of weeks. I mean, I guess first, you know, historically, the company's provided some directional insight into the contribution of, you know, commercial COVID vaccine trends. And I think generally, you probably would have planned for those to moderate some anyway, even before all of this. Just, I guess, just remind us first how you were thinking about it inside the guidance for this year, you know, sort of related to COVID. And then just the sensitivity of the broader model to, you know, vaccine demand outside of COVID, and, you know, is it too early to just say at this point, or do you feel like you have some insight into, like, what this could mean?
Yeah. It is ultimately too early to get into any specifics. What I will say is that in general, we're not providing real-time updates today to any of our demand disclosures that we had, because we just had our year-end a few weeks ago, so there's not a lot of new news there.
As it relates to the vaccines, what we did include within the COVID vaccines is a similar type of slight headwind this year versus the prior year, like what we did, and experienced, in the prior year. So as a reminder, what we saw two years ago was, perhaps the peak of what that COVID contribution, would be. And it's also important to remember some of the timing elements of that, because that was a very late FDA approval, and so our second quarter, was the driver two years ago. Last year, we had an early FDA approval, so it was, more of it, not all of it, but there was a little bit more, all things, equal, that was pulled into the first quarter.
And now this year, it's a little bit later, and of course, there's some of this uncertainty as to exactly, you know, where that's going with some of those restrictions. So we have a little bit of a quarter-to-quarter dynamic going on here as well. But ultimately, it's an important category for our customers, for patients. Certainly, if you're in any of those classes, this is a very important, you know, therapy and protection for them. So it's something that we'll continue to support, and we'll provide updates as we get more insight into that.
Okay. And then if we were just to, you know, to revisit Q4 in this segment, I know there were, you know, a few items that you had to call out that, you know, were not excluded from the adjusted earnings, and I think it had a decent impact on profitability in the quarter. I guess, just, I mean, maybe help us think about, you know, from your point of view, I guess first, like, you know, kind of the late-breaking nature of those items and how you guys think about, you know, the core growth rate and, you know, the number that we think we should be focused on kind of coming out of the quarter that maybe better reflects the operational strength in the business.
Yeah, I think your question is specific to the Pharma Specialty Solutions segment.
Yeah.
But when you step back and think about the enterprise, our other growth businesses in nuclear, at-Home and OptiFreight, as well as our GMPD business, they were all very, very strong. And even pharma business was within the range. It was at the lower end of the range, which I know is the essence of the question. But we're really pleased with the overall growth of the overall enterprise, and even within pharma, it was 11% growth in the quarter. It was 12% for the year. Very, very strong results. So when you do the math on the low end to the midpoint of that range, you're talking about $10 million. In a company of our size, at year-end close, those are the types of adjustments and the variability that you'd expect.
This was our guidance that you're referring to was the guidance provided at our Investor Day. That was just a few weeks before the end of the quarter
Operationally, there's nothing new there.
Yeah.
There's no communication. In fact, our revised 2026 numbers actually imply a slightly higher level of profitability for the pharma business. So it was just in and out as it relates to some normal year-end types of adjustments, and nothing that we see impacting the business going forward.
Yeah, and then you touched a little bit on some of the more policy uncertainty or maybe it contributes to the macro environment. I think something that, you know, we're obviously watching quite closely in 2026 is at least for some of the other businesses I cover, you know, things that could, you know, result in a decrease in the insured population, things like the enhanced subsidies on the exchanges, things like work requirements in Medicaid, potentially getting pulled forward. I guess, how has the company, you know, thought about the impact that this might have on demand for the services you provide?
Yeah. We think it's going to be relatively small, especially when you compare it to the underlying demographic innovation trends that we see in the industry.
Yeah.
Using Medicaid as one of those funding elements that's more definable than the others, because there's a lot of activity trying to figure out if there's a there there for some of those other policy changes. But in terms of the Medicaid funding, which is usually the essence for this question, you do the math on that, and that represents only about a 1% impact to the overall healthcare industry, and that's a one-time 1% impact that you know the exact timing of that and the implications of that are very hard to determine as well at this point.
So we think it's relatively minor, and ultimately, what we do believe the administration is looking for is very consistent to our primary goals, which is very consistent for most of us that are in leadership roles within the healthcare industry, and that is to ensure that we have affordable access to innovative healthcare. And, that creates a lot of solutions for patients that ultimately is good for our business and for the industry. So while there will be some things that we need to work through, and as I've always highlighted on this, this topic, there could always be, you know, a few months type of, transition or a quarter or so that we need to react to, to get through that. We are very confident in our underlying business model.
At the end of the day, we provide an incredible value for the services that we provide to safely, efficiently, effectively deliver these products to those that are in desperate need of them, and no one can do that better, safer, more cost-effectively than we can, and so we expect to be compensated appropriately and feel like there's a good setup for that.
Okay, and then just to kind of hit on a couple of, you know, recurring topics that are important to your business. There's a little less focus maybe on generics than there was, you know, going back five or 10 years but it's still obviously a very important part of your business. Can you talk a little about the trends that you've seen over the past several quarters? A nd kind of what you're thinking about, you know, in terms of the generic utilization and, you know, maybe also, like, price as well?
Yeah, I think part of the reason why everyone talks about it a lot less is that it's been very resilient, predictable, not a lot of variability. It's not just the last several quarters, it's really been the last several years.
Yeah.
It's been a very stable product class for us, so the consistent market dynamics continues there, and we are certainly benefiting from the continued partnership we have with CVS on Red Oak Sourcing. So that's a business that continues to drive a lot of value for us, not just in terms of the cost of these generic products, but also on the service levels. Our service levels are fantastic, not only because of the work of Red Oak, but also our own Cardinal Health team, so it's a nice, stable category, and the volumes continue to be growing in that, you know, low single, 2%- 3% type of growth rates, what we have always anticipated, so these are areas that continue to be as predicted and expected.
The one thing we did highlight at our Investor Day is that part of the reason we have confidence in the ongoing value creation of our generics program is because of when you look at just the the timing of the loss of exclusivity of the branded products that are in the pipeline, the next three years, we highlighted, we anticipated being at a greater value of loss of exclusivity than what we've seen over the last three years. So all things being equal, we see that being a little bit of a tailwind going forward, and it, and it just highlights why innovation is so important for our business. Maybe we don't get all the value of it on day one when there's a new, hot, branded product, but that creates longer- term opportunities for some of our services.
It also creates opportunity for those products to eventually go generic, and that creates an-
Yeah
incremental opportunity for us to create some value.
Okay. And then, just as we think about, you know, the retail pharmacy end market, obviously, there's been a lot of moving parts with, you know, some of the larger players. I guess, as you think about the smaller independents, you know, you had some notable wins over the past couple of years. I guess, first, how are you feeling about the financial health of this end market? What are you hearing from your customers, and how does the pipeline look for, you know, potential customers that are out for bid?
Yeah, it's a product class that is, or customer class, that's very important to us. As I mentioned earlier, you know, we benefit from the broad diversity of not just the products, but the customers and the classes of trade. So this remains an important one there. You know, they get kind of both ends of what I'm talking about here, right? They do get the benefit of the volume.
Yeah.
So you need volume to be able to generate value in any business, and they're not excluded from that. So that volume has been helpful for them and for retail more broadly. Of course, the challenges are more on the reimbursement side. And while we can't solve that, and certainly, with our 1% margin profile, we're not gonna be able to give to that, but it is our job to be an advocate for them, whether that is, you know, our One Voice initiative, to be their advocates in each of the 50 states, as well as the federal government, to make sure that we're thinking about the smaller retail independents when policy decisions are being made, or it's some of the investments that we're making.
When you think about some of the investments that I've stressed about our core, the real recipient of the value of that is our retail independent customers, but our broad retail customers in general. Our Consumer Health Logistics Center, that's just now going live the last couple of months, is a great example of that, to ensure that they have access to a very cost-effective, high-value, fantastic service levels that will come along with that new facility, or our e-commerce system that's now live with most of our retail independents. That helps give them even more efficiency and better decision-making as it relates to their procurement habits and processes.
You know, we'll continue to look for additional opportunities to invest in that relationship so that we can have a win-win opportunity.
Okay, and then, you know, we've obviously been tracking the growth of the GLP-1 market quite closely. It's contributed a lot to your top-line growth over the past couple of years, but, you know, obviously, less contribution on the bottom line and, you know, additional cost to incur for things like cold chain storage. I guess, if you think about the evolution of this market over the next couple of years and potential for oral therapies to come to the market, they maybe have a better cost structure for you. How do you think about the opportunity to actually maybe participate at a more normal level in the economics of this drug class?
Yeah, you know, I'll go back to my starting point. We do like all forms of innovation. We don't benefit the same from every type of innovative product, but GLPs are a good example of that, where you're right. We've not benefited tremendously from the margin pull-through of a product class like that, and we have had to invest heavily into these products through the cold chain side of it and the specialized handling that goes along with that. With that said, it's important to customers, and we don't look so much at a product-by-product profitability within a customer. We look at the full portfolio of that customer, and if this is important to them, then we're gonna make sure we treat that product as carefully as every other.
With that said, I like having a new innovation to be able to create alternatives for us and for our customers. You know, back to your question on the retail independence, it's important for them to have some alternatives as well. And I think when our customers and the industry are healthier, that creates more opportunities for us to work together to find value creation opportunities for both of us. So I think there could be an opportunity as we go to a more simplified handling product, like the oral GLPs, but it's very early to be able to determine that, and it's one where, you know, we'll find opportunities to work with our customers to hopefully find some ways to create value for both of us as that innovation continues.
Okay. And then, you know, similar to generics, you know, as you read the biosimilar pipeline reports, all seem to kind of show a, you know, pretty significant amount of value coming into the market over the next several years. Seems to be higher than some of the, you know, the biosimilars that we've seen over the past couple. You have an interesting sourcing joint venture, you know, with CVS. How should we think about the moving parts of, you know, biosimilar adoption and contribution to the growth profile for the next couple of years?
Yeah, I'd say it's kind of a microcosm, a little mini-me of the generics business.
Yeah
Where even when you think about the sourcing partnership we have with CVS, with Red Oak, it creates similar value for us and for our partner, CVS, in that regard, that we then share with ultimately our final customers and patients, but it is a smaller contribution to the underlying volume of our business and of the overall healthcare industry, so it's one that we do think will have a rising tide benefit, like other utilization and innovation that we've seen in the industry, but it's not one that we've called out as a key driver for any particular quarter or year. It's been a consistent type of tailwind, and that's kinda how we see it going forward.
You know, as those products get introduced into that pipeline, you know, there's some opportunities that come along with that. But it's a much smaller base to build from.
And then if you think about, you know, some of the acquisitions that the company has done, most recently, you know, Solaris, I think, you know, it's, I think that seven hundred and fifty providers in urology, and I think you kind of view this as a platform-type asset for the company. I think, you know, valuation is almost, you know, kind of twenty times EBITDA, so kinda catching some initial, you know, trying to understand better how we kind of move from maybe the initial purchase price and then, and sort of how you think about that in the context of other assets that are available. And what are the kinda synergy opportunities and growth opportunities in front of the company that make this such an important asset-
Yeah
from your point of view, to go do this deal?
Yeah. It's a great business. It's a great partnership addition to what we already have, and it's very well aligned with the strategy that we've laid out, not just at our last Investor Day, but well before that. And let me just kinda connect those dots, 'cause I think that then answers the question as to where the synergies come from. We've been very intentional. We've been very clear about our priorities. The autoimmune space and urology are clearly those two key areas that we see that there's a lot of opportunity to create value with our physician partners. And when you think about, there's probably two or three different levels and types of synergies that come out of a partnership like this. What we started with was just within the Specialty Alliance umbrella.
We have GI Alliance, and now we have Urology Alliance. And we have the capability of going broader into other autoimmune areas. But those two are the clear foundations now for the Specialty Alliance, led by one leadership team under the direction of Dr. Weber, who came with us with the GI Alliance acquisition. And within the Urology Alliance, we already have several recent acquisitions that we now can bring together with Solaris to create that Urology Alliance platform based upon the Solaris platform, but also based upon the capabilities and the foundation that Dr. Weber and team built with GI Alliance.
There's some synergies within urology, but then there's also some synergies, and why we like urology is there's so many similarities to what those physicians need, comparable to the autoimmune space, whether that's pathology or diagnostic imaging, you know, all the, you know, RCM and those types of things. There's so many things that are similar to what they do. They have very different clinical types of needs as well, but a lot of their operational and business aspects are quite similar.
So we see synergies within the Urology Alliance, but we also see synergies within the Specialty Alliance, and that's exactly why we formed the Specialty Alliance the way we did, is we saw. We did a whole bunch of work in advance of this to see how these different therapeutic areas, where they need to be the same, where they need to be different, and how we can optimize that. So that's what gave us enough confidence to do the acquisition. What we have less clarity on, though, is some of the longer-term possibilities that also gives us option value with an acquisition like this. And let me just pause on urology as a therapeutic area. Think about all the areas that Cardinal Health is the clear leader in urology. We are the clear leader as it relates to nuclear radiopharmaceutical products in the urology space.
We're the clear leader in all the at-home distribution for at-Home Solutions business. We are the clear leader in data and technology. When you think about Specialty Networks and PPS Analytics, it was created in the urology space. So we have a long history, organically with Cardinal Health, with the two years ago acquisition of Specialty Networks, and more recent acquisition with GI Alliance, and now with Solaris. So our journey with urology, when you go into any of these acquisitions, one of the questions I'm always asking is, who's the rightful owner? Who's the best owner to create more value, most value for customers? In this case, it's those specialty physicians, the urologists, and we can create more value for them than anyone, which then, you know, ultimately gives us some opportunities to build a better business as well.
Got it. No, that's, that's super helpful. And then, it seems like over time, like, an opportunity to be much more of a consolidator in this space. I guess, how do you think about continuing to add on and, and maybe, like, the tuck-in type opportunity versus, like, the platform-type deal?
That's a great follow-on question because, you know, while there are many fewer large platforms out there, and of course, they've all kinda seen the writing on the wall and came to market as quickly as possible, recognizing there's only gonna be so much capital, I think, available for acquisitions like this. But more importantly than the capital availability is, we were picking our partners to build out these platforms. We have the Navista platform, which came from ION, as well as our organic investments for oncology. We have Solaris working closely with the rest of Specialty Alliance for urology, and then GI Alliance, clearly for the autoimmune space. So we got our three priority areas that we laid out long ago, but reinforced at our June Investor Day. Those three priority areas, we have three very clear platforms.
So while I won't put a threshold on what type of partnerships and acquisitions we're willing to consider, I will highlight we are clearly prioritizing... well, first and foremost, the integration of these fantastic businesses. Nothing else matters if we don't execute flawlessly, giving our customers and patients an absolutely fantastic experience. And given the amount of acquisitions we've done this last year, we're very much prioritized on that. But outside of that, our priorities will be to bolt on and look for other strategic additions that go onto those in a way that's leveraging the value from those three platforms and not replicating that in any other way.
And then obviously, you know, GI Alliance and Ion so far seems like so good, and you brought an update with your most recent call and the timing of some of the distribution coming over to you guys as well. I guess, how do we think about, you know, like, what that means in terms of the financial impact? I think that, maybe it's size $3 billion of revenue, I think, with these assets overall. I guess, how much of that, roughly, is coming from drug distribution, and any way to think about maybe the margin profile would be helpful.
Yeah. The $3 billion is prior to the Solaris acquisition.
Yep, yep.
So that is accurate there. It will be $4.5 billion, post-Solaris, in terms of the total MSO revenue. And whether you're talking about the $3 billion or the $4.5 billion, the numbers are basically the same. It's. They're very diversified revenue streams, so about a third related to drug spend, about a third, you know, office visits and other procedures, and then a third for other ancillary services. So it's a very balanced revenue profile. But to answer your question, $1 billion of the $3 billion or $1.5 billion of the $4.5 billion, you know, that's what the drug spend is within MSOs. You know, we don't break apart, you know, margin rates, you know, outside of that.
But, you know, it varies quite a bit as to whether or not you're what types of services you're providing. Is it just distribution? Is it GPO, and stuff like that. But we would expect these margin rates to be consistent with similar customers.
Okay. And then maybe the last one on the pharma specialty business, 'cause there are, you know, some other things to touch on here. You know, just acknowledging that, you know, I'm sure you're not gonna be sizing any kind of potential impact from things like Most Favored Nations policy. I guess, you know, just with the latest companies, you know, thinking around this issue, I guess, what do you feel like you would need to know that maybe you don't know today to help kinda frame the exposure? And I don't know, could it be as simple as thinking about, you know, the physician groups are in, you know, the same spread on lower prices? I guess, what are the key moving part here to watch?
While I won't be explicitly giving you a number or anything, maybe you'll be pleasantly surprised to hear how I frame this, because I think we've given a lot of elements of this that can help you frame and understand it. I mean, the short answer is, we expect this aspect of any of the policy changes that we're talking about to be relatively minor, and let's break it apart into two different pieces. I think the question's really focused on the MSO side. We did. I just went through the numbers, so I won't have to, you know, restate those too much, but the $4.5 billion of MSO revenue we're talking about, you know, only, you know, a $1.5 billion, you know, about a third of that related to the drug spend.
So that's the starting point. But these businesses, and part of the reason why we were so excited about how the autoimmune and urology businesses fit together, is a very diversified payer mix as well. So we have a relatively small percentage that's specific to Medicaid. So we think that, first of all, our drug spend is, you know, a relatively small percentage of the total, and then, the payer mix that is at most at risk is a relatively small percentage of that total. So a small percent of a small prcent gives you a pretty small number. So that's presuming you have some type of direct impact. We think it's fairly manageable in that regard. Now, I think there's another really important point, is we don't believe the intention of MFN is to harm the community physicians, though.
So I'm assuming no mitigation, and there's a lot of things that we can do to mitigate that, and there's a lot of things the administration can do to mitigate that further, and when you think about the especially community physicians are already the low-cost provider of these services, and it's where patients want to go, close to home. You know, we think that there's still some work to be done to find ways to mitigate that so that there is no impact, so it's manageable and/or it's perhaps not even going to be an impact, depending upon what changes from here, but we think they play an invaluable role, and we're, you know, the advocates for those partners and customers of ours, just like we are for everyone else.
Okay, great. And then just to, you know, to spend a little bit of time on, you know, the other business, you know, at home, you know, obviously, as a business you're very focused on, you closed ADS in April, and you've been integrating the business. I guess, how do we think about, you know, the key synergies here, the key growth opportunities? Anything to watch out from the policy front, whether it's things like, you know, competitive bidding and things like that? I guess, how do you think about the interaction of those things?
The business is a perfect fit with our legacy business. When you think about ADS and Edgepark, it's effectively the very same type of scope and structure, different type of payers, different types of customers and products, so it was a nice blend of different types of leadership within the industry. The other part that, so there's a lot of similarities, but there's also some key differences where ADS is absolutely fantastic at customer acquisition, patient support, things of that nature, and we are fantastic on the distribution and the operational side, so this is truly an opportunity of bringing together the best of the best. And since the businesses mirror each other so well, to answer your question around the synergies, it's really up and down the P&L.
There's no aspect of the business that doesn't benefit from the combination of these two. And, the example I love to use, I've used before, but I'll say it again here, is, this represents ADS brings on about an incremental 33% to our revenue in our at-Home Solutions business. We increase our revenue 33%, yet it only utilizes 2% of our distribution capacity. So we're able to bring them on and effectively not even impact our network and not have to make many investments at all. So, it's a really good synergistic fit, and that's what creates ultimately the synergies that go along with that. Now, as it relates to policy, it's, you know, very early to tell with that as well.
But I do believe we're much stronger together than we would have been separately, because we're the only scaled provider in this space that both acts as the provider as well as the distributor. So we bring capabilities that no one does have. We are incredibly diverse with the payers and with the products. So, you know, your question on competitive bidding is usually around the CGM, which represents about 15% of that company's business. So, you know, it's one that is, you know, relevant but relatively small in the grand scheme because of the diversity that we have across the broader customers and the broader product set, and it's a space that is growing very quickly.
When you think about diabetes in general, why it's a focus in administration, I believe, is because it's growing very quickly, and it is a high cost to support, but it's also a high cost 'cause there's a lot of value that is necessary to take care of these patients. And today, there are 4 million Americans that have diabetes, that are using insulin and are not using a CGM. And that's something that can really create a much better patient outcome if they utilize that technology, and we are the best ones positioned to be able to deliver that.
You know, we think about GMPD. Obviously, there's been a lot of, you know, effort to get results, you know, back on track after everything that part of the business has been through over the past few years, and even kind of setting, you know, the recovery aside, it's generally perceived to be a pretty difficult business, just given the intensity of your customers and their scale and intensity of certain competitors. I guess, how do you think about the competitive dynamics in this business today versus how they might have looked over the past, you know, call it five or 10 years?
I actually don't think the competitive dynamics are any different. I mean, what you have seen is a supply chain that had to go through all sorts of zigs and zags. When you think about starting five years ago with COVID, that supply chain was remote from where the customers and patients were, and so that long supply chain created a lot of issues. Then we had the incremental inflation, which created other issues. Now, you have tariffs, which not only create a cost issue. B ut also a need to move the supply chain closer to the United States, so you've had more change in this part of the healthcare industry than perhaps any other.
Yeah.
When you think about pharmaceutical products to date being largely immune from tariff changes and a lot of significant direct policy changes, that wasn't the case for medical devices and
Yeah
and that side of the business. So we've had to deal with more changes. Doesn't change what's important to us. That's why our transformation and our GMPD improvement plan is the right set of initiatives to make sure that at the end of the day, that we're delivering fantastic products and services at incredible service levels to our customers. Our service levels have never been better in this group
Yeah
They were challenged during COVID, and in spite of tariffs and all these other things, we've managed to deliver best of all time service levels. That demonstrates the value we're creating for our customers. We have shared in that, right? Our earnings this last quarter were $70 million for that business and growing very quickly year- over- year. We are dealing now with another $50 million-$75 million of net impacts from tariffs in Fiscal 2026, but the business is healthier than it's ever been, and it's one where we have a lot more opportunity to continue to grow through Cardinal Health brand growth. But then also, we saw some simplification opportunities to further reduce our cost.
Okay. And then maybe this is the last one on capital deployment. You've done a series of, you know, larger deals now. As we move past Solaris, like, you know, whether there's appetite for, you know, continued acquisitions or whether it's more about digesting and maybe share repurchase focus?
Sure. Well, we're really pleased with our cash flow over the last few years. Just using last year as the example, even with the large customer transition, our adjusted free cash flow was $2.5 billion. We set guidance for this year at a midpoint of around $3 billion, and the three-year adjusted free cash flow, we're targeting at least $10 billion. So we are doing a lot of great things to drive substantial cash flow. It makes it really important that we... While we work very hard to generate that cash, we're gonna be very protective of it to make sure that we're only investing it in ways that are beneficial to the business, our customers, but certainly the shareholders as well. So our priorities in the framework will stay the same. We will focus on our organic investments first and foremost.
We are spending more there than we have in the past, but that is because of the fantastic opportunities, accretive opportunities we see there. But also high on our priority list is protecting our investment-grade balance sheet. Targeting to get back into our 2.75-3.25 gross leverage ratio by the end of fiscal 2026. Even with these acquisitions, we have that in our sights, and that's because of that strong cash flow generation. And we're also committing to an even higher level of returning a capital to shareholders. We raised our repo from $500 million- $750 million, which, combined with our dividend, commits us to $1.25 billion every year for capital deployment back to shareholders.
But that still leaves us billions of dollars over the next three years that we will be able to deploy opportunistically. So, ultimately, that's going. You know, we're gonna look at the relative value between share repurchases and additional M&A. We have a lot of flexibility, and we'll put the money to work where there's the, the best return relative to the risk that we see. And, as we discussed earlier, we feel very good about the platforms we built. It was never absolutely necessary from a strategic standpoint to do so. What I've always said is it accelerated our strategy to do so. And so now we've got the platforms in place, and we'll look at those incremental investments based upon, how else we can create value for, for our business, for shareholders, and for our customers.
Okay, that's fantastic. A perfect place to leave it. Thanks so much.
All right. Thank you.