Good morning. My name is Lisa Gill, and I'm Head of Healthcare Services here at J.P. Morgan. It's with great pleasure this morning that I have with us McKesson, a former hometown favorite, but since at that time, has moved to Texas. Presenting for McKesson this morning is CEO Brian Tyler. Then, after Brian makes some remarks, he'll move over to the podium with myself and Britt Vitalone, who's their CFO, where we'll run through some fireside questions. With that, let me turn it over to Brian.
Thank you, Lisa. Good morning, everybody. Welcome to... I wish I could say sunny San Francisco, but it's not as bad as last year. We can at least agree on that. On behalf of the 55,000-plus employees of McKesson, it's my privilege to get to share a little bit about the company with you. Before I do that, though, I would just remind everybody that I may make forward-looking statements and refer to some non-GAAP metrics. So I direct your attention to the screen behind me, or the webcast, or the McKesson investor website for a full set of our disclosures. You know, McKesson is well-established with very mature and leading distribution platforms in pharmaceutical and medical distribution.
But what I'm gonna focus, most of my time this morning on, is our leading and growing positions, and really the exciting growth markets for us of oncology and biopharma services. We think healthcare is a very dynamic place, a very dynamic environment, a big market that's obviously grows quite quickly. And we're very excited with the diversified set of assets that we help, that we have inside our company, to navigate that environment, to help innovate with our customers and with our partners to really improve the quality, cost, transparency, and access across all healthcare. A few years ago, four or five years ago now, we really stepped back and did a bit of a strategic reset. We really migrated from managing the company as a set of great distinct assets to really formulate what we call our enterprise strategy at McKesson.
This strategy is obviously the guiderails, the framework, the posts that allow Britt and I to allocate our capital, whether that's human resource capital, financial capital, or just management focus and time. We translate our enterprise strategy into a few key priorities for the company, and the first one is a focus on our people and our culture. This is really, to us, about making sure we're attracting, retaining, developing the very best talent in the healthcare industry, and then creating an environment inside the company where that talent can collaborate, work together as a team, with as few distractions as possible.
Well, we think of it sometimes as let our talent practice at the top of their ability with as few distractions, push accountability down to them, make sure they understand the strategy, so the day-to-day decisions are aligned in supporting that strategy, and let your team run. So I'm gonna talk a little bit more about each of these, but just to frame it. The second pillar is really sustainable core growth. And here I talked about our medical distribution, which serves hundreds of thousands of providers, mostly in the alternate site, has a broad array of products, lab, pharmaceutical, specialty equipment, really to meet the holistic needs of our customer there. In our pharma distribution business, we serve roughly a third of all prescriptions in the U.S., will go through our network each day.
So these are scaled, durable assets, well-entrenched with our customers, understand our customers' needs very well. And we're excited in this business not just to leverage what we think the core growth market opportunities are, but to continue to take advantage of, of physical automation and certainly AI and technology, to continue to enhance the businesses. These businesses run at massive scale, lots of transactional data, and so we're really excited to continue to invest in these businesses, to innovate for more efficiency, productivity, to continue leading in these areas. The areas I'll talk most about this morning are what we call our growth strategies, oncology and biopharma services. And I'd say the common thing in both of these growth strategies is the collection of very unique and differentiated capabilities that we have in the company.
And we don't think of each of those capabilities as a point solution, but rather part of a platform that help reinforce and drive the value of the other parts of the platform. So we have leadership in oncology, we have leadership in access, affordability, and adherence solutions. We think both of these markets are big. We think both of these markets have good growth prospects, not just for the year, but for the coming, you know, 5, 10-year horizons. And the last part of our strategy is really to evolve and grow the portfolio. In the early days of the evolution of this strategy, it meant things like spinning out our health IT business, Change Healthcare. It meant divesting Europe, and we've done a series of, you know, smaller actions along those lines in the company as well.
More recently, we've been acquiring some capabilities that are complements to our growth platforms or help support the, the growth in our core. And I, I guess the thought I wanna leave you with here is this is a continuing ongoing process for us to evaluate the capabilities, to look how we build off of our, our growth platforms, how we invest organically and inorganically, to continue to extend the life of our growth opportunities. All right, I wanna go just a little bit deeper in each one of these. I talked about our focus on people and culture. Our, our purpose at McKesson, the reason our employees of Team McKesson get up every day, is to help advance health outcomes for all, okay? We do this in day-to-day with a set of values. I'm proud to say these values have been around the company for 25-ish years.
I mean, so this is not a new thing. This is not something... This is really embedded in the culture of who we are, and it's kind of our commitment to how we're gonna work together as a team, how we're gonna work with our customers, and how we're gonna work with our partners. It starts with integrity. It means inclusion. Everybody knows they belong and are cared for at McKesson. We take a customer-first mindset.... We believe if we solve our customers' most pressing challenges, they will reward us by, by giving us the business and supporting the services that we offer to deliver them that value. We have great accountability, we have respect for all of our partners, and everything we do, you know, whether it's compliance, whether it's regulatory, whether it's service rates, we wanna do it with absolute excellence, best-in-class, leading capabilities.
I talked about our sustainable growth platforms, the one-third of pharmaceutical prescriptions, the broad reach in medical supply and the alternate site markets. And by the way, that was intentional. You know, we really believe that it's gonna be a long-term and continuing trend. We've seen it in the past. We think we'll continue to see it, for care to continue to migrate into these alternate site or closer to the patient settings, whether that's urgent care centers, or retail clinics, or ambulatory surgery centers, or skilled nursing facilities. We've been very intentional in that part of our strategy.
As we think about these scaled platforms, though, we think about how we continue to reinvest for cost advantage, for quality, for transparency, using both physical automation, sometimes facility design, and certainly, we think that this AI, I don't know if this will be a revolution or an evolution, but for businesses at scale like McKesson, we'll find ways to continue to unlock, value, to increase our speed, to increase our efficiency, and ultimately, to increase the value that we deliver to our customers. So core, core platforms in pharmaceutical and medical that we think are really, really well-positioned, with opportunity to both benefit from organic and natural market growth, but also the efficiencies and productivity that we've demonstrated we can deliver year-over-year as well.
I wanna talk a little bit about our oncology platform, and I talked about it being differentiated, or a unique combination of assets. In the specialty distribution space, which is really where we started in this market, we are the leading distributor to the community oncology setting. We've been growing our independent community oncology footprint pretty steadily year-over-year. Off of that platform, you know, we've added other capabilities like a specialty pharmacy capability. These past couple of years, we've done two important things. We've expanded into a data insights and analytics business called Ontada. Ontada is really leverages off our oncology EMR, that all of our US Oncology Network physicians utilize in the management of the day-to-day practice. So that's over 2,600 oncology providers on a common platform with common data, common data structures.
As we've managed the network, you know, and got very close to how medications are actually used in the community setting, we think combining that deep insight into how oncologists practice with this data that's standardized and at scale, you can see 2.4 million patient records, we have the opportunity to provide insights back to manufacturers who are attempting to get their products really out of the lab, commercialized and adopted ultimately into the market. And the more we help them do that, the more value we can provide to our providers by helping them understand best practice, the more insights it generates, and it creates this virtuous loop. So we're in all of these businesses. We're in all of these businesses at scale and with leading positions, and we're very, very excited about that.
Our most recent announcement was the joint venture with SCRI, which expanded off the clinical trials business we had, US Oncology Research, and really creates the leading community-based oncology clinical trial service business. We have 250 locations, accruing patients, and over 1,000 active clinical trials today. Now, we built this differentiated platform over a series of time, going back 15, 17 years in the case of oncology. And it really started with something that was very close to our core distribution business, the distribution of specialty oncolytics, expanded into GPO services. Then, we acquired the leading independent community oncology practice management business, the US Oncology Network. That really brought us the scale and the health and the health IT backbone. Over the last few years, we've expanded into specialty oncology services. We've got into radiation and medical oncology.
I talked about the data business that we've built and the clinical trials business. The thing I wanna leave you with here is it's been a very thoughtful, natural expansion off of core strength into adjacent markets that continue to open up new markets for growth. As we've made this migration, we've gone from kind of lower-margin businesses to higher-margin businesses in the service sector. So really feel like the oncology platform being differentiated and at scale is a really exciting growth driver for the company. Let me talk next about our access, adherence, and affordability business. We call this our Pharma services and solutions business. This past year, we helped patients access their medication 78 million times across our relay network, which does 21 billion transactions a year. So large technology at scale.
We helped, in partnership with the manufacturers, help patients save $8 billion on medications. These are affordability programs we manage. Could be something as simple as a copay offset program, where the manufacturer will offset some of the copay so that the financial barrier to starting on that prescription is lower for patients. $8 billion, this past year, we saved patients through administering these programs. And adherence. This is things like hub services, helping patients understand how their therapy is gonna evolve, coaching them through that therapy, making sure they stay on that therapy to get the right clinical outcome.
Here, we're focused on leveraging these networks, these provider networks that are connected to 900,000 providers or 50,000 pharmacies, the technology, to take some of the bumps and make that a more efficient, faster process, and we've improved patient adherence rates by 25% using this platform that we've put together. Now, just like the oncology platform, this wasn't one thing. This was in a series of expanding our capabilities. RelayHealth was the one health IT asset that we held back from the Change Healthcare spin. We thought it was so core to our pharmaceutical distribution customers, and we saw the value to create leverage off that network being in the pharmacy workflows. We next got into CoverMyMeds. This is basically they automate the insurance authorization process for pharmaceutical products.
And really, what this business did was take a very manual, labor-intensive for payers, providers, pharmacies, and it automated it, and it leveraged the Relay network. And so we saw a synergy there, and so we expanded and add CoverMyMeds to our portfolio. We had long been in the hub services business, which is a business that helps people get on their medications and stay on their medications. In 2018, we acquired RxCrossroads, which essentially brought us more scale and opened us up to more therapeutic areas.
Then in 2020, we made the important decision to not operate these as siloed businesses or point solutions, but to integrate them together into one business around one strategy that could leverage the technology, the network connectivity, really think of them as almost distribution points as we get into the workflow of physicians and pharmacies, so we could continue to bolt on, add on services, things like Rx Savings Solutions, that leverage that reach and that scale. So if I step back and think about oncology and the biopharma services and our key growth drivers, I think we've shown a track record for innovation and value creation. These are both large markets. They're growing significantly, and we think there continue to be challenges in cost, quality, and access that our technologies, our reach, our footprint can help address.
These are scaled leading platforms. They are differentiated in their capabilities, and we believe they're well-positioned in these growth markets. So before I close, let me just comment a little bit on our FY 2024 Adjusted EPS guidance. You can see our current guidance is $26.80-$27.40. This represents 3%-6% growth compared to the prior year. However, if you adjust for some things in the prior year, like our exit of Europe and some of the government COVID programs we're managing, this represents 14%-17% growth compared to the prior year. We continue to be very disciplined in our capital deployment.
We will do $3.5 billion of share repurchases in FY 2024, and as I'm sure Britt will talk about in the Q&A, we have a very strong balance sheet. We have a very secure, stable credit rating that we think is the platform and foundation for the financial strength of the business. So I'll leave you with this final thought. This is how we think about the long-term financial framework for the business. We've scaled businesses in good markets with organic growth. We can add on top of that operating leverage, which we think delivers 6%-8% growth to the business. We complement that with that strong balance sheet through disciplined capital allocation to drive another 6%.
As we think about our baseline Adjusted EPS growth rate targets, it's in the 12%-14% range, and we're very, very pleased to have consistently performed like that. McKesson is a diversified healthcare services company. We have scaled and durable pharmaceutical and medical distribution businesses. We have two great growth platforms in oncology and biopharma services. I think if you look back at our track record the last few years, we feel like we've got a good, good, good track record of shareholder value creation, and we represent a very compelling investment thesis. I thank you for your time, and, Lisa, I look forward now to the Q&A.
Thank you very much. I'll start with a question for Britt. Brian, thank you for all the comments. As we move here throughout fiscal 2024, and just as a reminder for people that don't follow McKesson as closely, their fiscal year end is March 31st. So we're halfway through the year. Almost three quarters through the year. As we think about, you know, the key components of the, that guidance that you gave, and they're still arranged, can you, one, just remind us of kind of what the key elements are for upper and lower end? And then secondly, anything around near-term trends that you would call out either positively or negatively?
Yeah, sure. First of all, thanks for having us here this morning. You know, we're excited, this is, as Brian talked about our strategy, the execution against our strategy. This is another year of really solid growth for the company, and it's across really all of our segments that we've, we've talked about. There are a number of what I would call building blocks that go into the growth within McKesson. I think it starts with the stability and growth that we've seen in utilization. Prescription utilization has been consistent, it has been stable, it's been strong. That certainly underpins not only our distribution business, but it's an underpinning for our technologies, business as well, where we provide, as Brian talked about, access, affordability, and adherence solutions, for providers and for patients.
We also continue to execute against that growth operating leverage, particularly within our distribution business, which we believe is one of the most efficient businesses that we have. It generates great cash flow, and so we've continued to generate some operating leverage. As Brian talked about, we've been investing in our growth strategies, and we've continued to see growth within our oncology business. We've been adding oncologists to the platform, to the U.S. Oncology platform. Last year, we added over 200 providers in seven geographies, so that's helping to advance the scale that we have within practice management, which is also supportive of the growth within distribution. But the acquisition of Sarah Cannon Research, that joint venture that we've created, has continued to provide more services and capabilities around clinical trials. So our oncology business is strong, and it continues to grow.
We've talked about patient visits continuing to grow year over year, not only from a total perspective but on the same provider perspective. In our RxTS business that Brian talked about, which really is our biopharma services, we're seeing great reception to the programs that we have, particularly around prior authorization, supporting programs for drugs like GLP-1s, as an example. Of course, Brian talked about our balance sheet. Our strong balance sheet, our good financial position, has provided us flexibility and capacity to not only look at opportunities from an M&A and an internal investment standpoint, but to return capital to our shareholders. We increased our dividend 15% in during this fiscal year, which is aligned to our earnings growth, and we've continued to repurchase shares, which we believe has been a, you know, a really good source of value for our shareholders.
So I think there's a number of things that are helping to support the growth that we're seeing in our business, and we're excited about the finish of the second half of the year.
Pete, you talked about utilization trends, continuing to be strong. And obviously, part of that's propelled by GLP-1. So I think two questions on GLP-1s. One, our understanding from you and others is that GLP-1s, there's definitely a margin degradation just due to the fact that the cold chain, the special handling, the time it has to be delivered, et cetera. Do you expect that the margin on that could improve with efficiency, or are you as efficient as you can be around GLP-1s? And then secondly, when you think about your prescription technology solutions business, and you talked about prior authorization, can you maybe help the audience better understand what types of programs you have, and are they geared more towards the manufacturer or more towards the actual patient or member?
So let me answer the first part of that, and maybe I'll have Brian answer the second part, is when we think about GLP-1s for McKesson, there are two facets to this. There's the distribution of the drugs itself through our very efficient distribution business, U.S. Pharmaceutical. And what we see with those particular drugs, given some of the characteristics that you talked about, is that they are a lower margin rate for us, and in fact, they have provided a headwind to the growth that we've seen year-over-year. The other side to that, though, is that we do have, within our prescription technology solutions business, programs that support prior authorization of those drugs. And we support the programs for the manufacturers for all the GLP-1 drugs.
And so the prior authorization work, within that, you know, through our technology solutions, has been a better margin and a higher growth business for us within that segment. So, you know, we have two components to this business: the distribution, where we have a lower rate, margin rate than we do on other drugs, given the components and the characteristics of that drug. But the prior authorization services that we support, the programs of the manufacturers in our prescription technology solutions, has been a benefit to the growth that we've seen in that segment.
I think your second question was, who's the real customer in that segment? And there's not a super straightforward answer. The reality is, we think of the pharmacy as a customer. We're integrated into their workflow. We think about how we create value to make them more efficient. We think about the patient, certainly, 'cause this is about access, it's about affordability, it's about adherence, so there's a patient element. Now, the patient typically doesn't pay anything for that.
Right.
There's a beneficiary of that. And then, certainly, as I shared, the $8 billion of savings, that funding is sponsored by the manufacturer. So ultimately, we think of pharmacy, biopharma, and even at times, the payer, 'cause they're all important constituents in this. You think about a pharmacy-
Right
... you know, get a prescription that has to get prior authorization, has to get approved, so that's a payer interface. There's a patient that's waiting. In fact, one of the innovations that we're excited about, we've just rolled out this year, is giving the sponsor the ability to notify the patient through our technology of where they are in that prior authorization process. So we continue to innovate organically, but ultimately, we think of this as a biopharma services business.
When I think about your biopharma services business, in the 8-K today, you talk about a small acquisition that you made, Compile, which it seems like it's a data aggregator. Does that feed into some of the things that you're talking about?
Yeah. So it was, the company was called Compile.
Oh, Compile. Okay.
Compile. And, you know, as we think about that, Lisa, you know, I would give a couple reflections. One, we have a big footprint in community practice in general-
Right
... whether that's physician office or retail pharmacy, and we have a big focus on community. So, you know, aggregating data across lots of our customers, these are community providers, you know, we think is a good capability to have. We also think about these two ecosystems I just talked about, our platforms in oncology and biopharma services, and say to ourselves: Do we think data's gonna get more or less important in the future? And how do we make sure we keep, you know, leading-edge skills and capabilities? So I think this will probably support multiple parts of our business and be complementary to multiple parts of our business.
... Great. If I just stick on just pure drug distribution for a minute, and we'll, we'll come back to biopharma and, and oncology. But, traditionally, around this time of year, we're hearing about drug price inflation from the branded manufacturers. Can you talk about what we've seen thus far in the early parts? I know it's only the ninth of January, but, in line with your expectation, would be my first question. And then the second thing we've seen in the last several quarters is that stabilization in generic pricing. And I know, like, when I think about generics, it, it is about stabilization, right? Because if you think about the, the spread economics on, on that product, and for a long time, we saw the economics coming down because of the deflation in generics.
Is my assumption correct, based on what we're seeing in the market, that it is more stable than it's been in the last couple of years?
Let me answer the brand question first.
Sure.
It is a little early in the year, but so what we've seen thus far is in line with the expectations and in line with the guidance that we set at the beginning of the year. In terms of generics, I would say a couple things on generics. You know, first of all, you know, our job is to provide stability of supply at the lowest cost possible for our customers, and we do that part through the scaled operation that we have called ClarusONE, which is doing the sourcing and the procurement of drugs for all of our customers. And so from a buy-side perspective, we utilize the capabilities of ClarusONE to have relationships with hundreds of manufacturers on the generic side. Their job, again, is to drive the lowest cost and the highest availability of supply.
We think we do that as well or better than anybody. On the other side of that, is to provide that consistent supply through what we call the sell side, which is selling that, those products and delivering them into our customers through our distribution business. And we take a very disciplined approach to pricing on the sell side. Again, our goal is to provide lowest cost, highest availability of supply. And at the end of the day, what that does is allow us to create spread. And whether there's deflation or inflation, our goals are the same, to provide that stability of supply, lowest cost, and create spread.
Over a long period of time, if you look at generics as a portfolio, a basket of generics, generics deflate over time, whether that be just through the maturity of the product, whether that be through new product or new drug launches, loss of exclusivity, generics will deflate over time, and our job, again, is to manage that portfolio on behalf of our customers, and ultimately, we'll create spread. So whether there's deflation or inflation, I think, again, you gotta look at the specific molecules-
Mm-hmm.
'cause specific molecules will have different characteristics. We manage all of that on behalf of our customers to create that spread, and, and I think we're as effective as anybody.
Coming back to your comments on the oncology side, you talked about adding 200 physicians this year. As we think about the market, and you having been in the market for some period of time now, it feels to us like it is becoming a little bit more competitive. So can you maybe talk about when, you know, what's the value proposition that McKesson brings to those 200 doctors that signed on? And, you know, for a number of years, you've had hospitals buying physician practices. Do you have relationships with doctors that are part of hospital practices, or is that competition to you?
So, start with the fact, I think we're saying, we're very pleased over the last multiple years now, we've added in the hundreds per year-
Yeah
... physicians to our network, and we think that speaks to the breadth of our capability, the depth of our experience, and our really, you know... We think we're leading in this market for a reason, including our common best-in-class IT platform, iKnowMed. So I think the value proposition and the ability to attract and retain speaks for itself. We have, in the past, essentially extracted physicians out of hospital systems-
Mm-hmm
... to join our network. I think, you know, when you think about the services that, like, these large cancer centers wanna focus on-
Right
the really tertiary, quaternary, rare, rare disease stuff, it's typically not the basis of the competition for, for us in the, in the community setting. But what we do know is that if you look at cost, the community setting-
Mm-hmm
... is the most effective place to get-
Right
... to get care. If you look at access, it's much easier. It's much easier to drive down the road 15 or 20 minutes than it is to have to fly to Mayo or-
Mm-hmm
...Sloan Kettering for treatment, and we think quality is equally as good. And so, you know, I don't know that—I think these have always been competitive markets. I think all the markets we're in are competitive. You know, at McKesson, we think our job is to get the right set of differentiated assets, put them together in a way that solves real customer and patient problems, and that's the basis of our recent winning.
When I think about the reimbursement environment, especially within oncology, a lot of those drugs are Part B, as in boy. Is there anything that we should be thinking about as it pertains to the Inflation Reduction Act and the potential impact on some of the pricing of those drugs?
I mean, it's obviously something that we're watching. I mean, it's 10 products now, and it's still a few years out, and I think there'll be lots of evolution in the way-
Right
... people think about coming to market. So, you know, the one thing, anytime there's change, I think people naturally migrate to the risk side of that equation. And, you know, what I always like to think about in McKesson is, based on the depth of our capability, anytime there's change, there's also opportunity. And when you have a set of tools and technologies and footprint and deep expertise, I tend to think there's as much opportunity as there is risk, and that we have the knowledge and the team that will navigate that successfully.
... And from that perspective, Brian, I mean, I think if we look out over the next several years, there's about $100 billion of drugs that will lose patent protection that would fit into the bio side of things, right? And the specialty side of things. As we think about those opportunities, can you talk about your unique position of where you sit, your ability to educate the physician, your ability to influence what product they use? And maybe Britt can chime in on how to think about the margin profile for a biosimilar versus the traditional.
Sure. I mean, I'd start by saying, I think it's our belief we're still in the early days of biosimilars. I think there's 45 approvals.
Right
- and 37 products in the market. So think about the universe of biologics. I mean, that's, we're pretty-
That's awesome.
We're pretty early into this, this journey. I do think that we have, though, when you think about our community setting footprint, whether that's our GPO and the non-affiliated oncologists-
Mm-hmm
- that we serve, or it's the US Oncology Network, there are a lot of services that we can offer around those biosimilars, not just at launch, but over the lifespan of that, including the fact we have 2,400 physicians, that if they make a-
Right
... clinically appropriate formulary decision, you know, we tend to operate as a common platform, not as 24 separate, 2,400 separate oncologists. So we can move, share in a meaningful way, and, you know, that has value to people. So I think we're extremely well-positioned in the community setting, you know, best in oncology, next in Part B-
Yeah
community in general, 'cause we do do specialty distribution of lots of other products.
Right
Beyond oncology. As you get into hospital setting, and you get into, then, you know, kind of a mail order Part D setting, the economics can be a little bit different for us there 'cause we provide less services and less value.
Right. So it's just kind of a pure distribution type of relationship.
It's really about the value you can deliver-
Yeah
at the end of the day.
You talked about other specialty areas beyond oncology. Is there anything specific that McKesson has strength in today or areas that you think are real growth opportunities?
I think we have broad strength across all specialties, to be honest. Oncology has been a little bit unique because of the complexity of oncology care.
Right.
There's just a lot more problems to be solved, the data intensity, the treatment protocols, staying up with the science, trying to manage the practice, you know, the financial elements, it's just a much more complicated, and so we've found a way to create a lot more value. Do we think we may find other disease states where there's a model like that? I won't say exactly like that, but maybe lighter touch, but more value add. Well, you know, we continue to look and explore that, and really, the way we do that, Lisa, is by staying on top of the pipeline.
Right.
'Cause the pipeline is gonna dictate where the opportunities are. But we think we have, you know, scaled representation and a whole bunch of other ologies that we're well-positioned-
Mm-hmm
If that opportunity approves, and we've got a bit of the model and a bit of the know-how.
I think, you know, one of the things that stands out for us, for us, for McKesson, is the two growth areas that you talked about, right? And we've spent a lot of time now talking about oncology and the growth in oncology. We touched a little on prescription technology solutions, a little bit on Compile, the new acquisition that you made. But when I think about incremental acquisitions that McKesson could make, and if I think about that business within prescription technology solutions, are there specific areas that you think in biopharma that you could add to, that would be useful in building that platform?
I mean, I think as I shared a little bit of the history of how we put the business together, it's been very much one of expanding off a core strength into a natural adjacency. And so I think that will continue to be our strategy, where we see natural adjacencies that can leverage off the capabilities that we have. So whether that's a Relay Pharmacy network doing 21 billion transactions a year connected to 50,000 pharmacies, or it's a CoverMyMeds connected to 900,000 physicians, do we foresee capabilities we can bolt on to those networks and think of them as distribution channels? Do we think of it as a capability that we can then combine to solve a new problem or, or solve an old problem in a more efficient-
Mm-hmm
... high quality, lower cost way? Now, those are the kinds of acquisitions. I wouldn't characterize this as per se, seeing gaping holes or gaps. I just see more of us naturally expanding into adjacent opportunities, leveraging-
Mm-hmm
the differentiated assets we already have today.
I mean, where we've been successful is finding where the pain points are in the system. I think the prior authorization is a good example of that, a very manual process, a cumbersome process where we are able to take technology and automate that and make it much more efficient and seamless. So that's where when we think about where are the pain points around access, adherence, or affordability, it's getting patients on their meds faster, keeping them on the meds, and helping them afford their meds. Finding where those pain points are and leveraging the platform that we've built, that's where we're looking for opportunities to invest.
Britt, when we think about that business, for example, last year, it has a tendency to be a little bit lumpy, right? When we think about the timeline of whether it's changes in benefit design in a given period of time, et cetera. How should we think about the trajectory of that business? I mean, is it, you know, you have to spend incrementally in the back half of the calendar year because of new clients coming on?
Yeah. I think when you think about the building blocks for that business, maybe I'll just tick off a few of them. You know, first of all, transaction volume. So we've seen consistent and stable utilization. That is, certainly helpful to see transactions going through our system and some of the products and services that we have. New-to-brand drugs will be supportive of some of the programs that we have, whether that's a prior authorization program or a, you know, a payment assistance program. We have other programs, such as an annual verification process that we do to assist our customers and assist helping patients save money on their drugs. That usually happens in our fourth fiscal quarter.
Right.
So that is one of the reasons why growth isn't linear in this business. We also have a large 3PL business. Large from a revenue perspective, doesn't generate the same levels of profitability rate, but it's an important component of our business around hub services and 3PL logistics that we provide. So there's a lot of components of the business that create some of this, you know, it's not a linear growth business.
Mm-hmm.
But when I step back and think about the growth on an annual basis, we have had consistent growth that has been, you know, above our long-term target range. We had a long-term target growth for this business of 11% adjusted operating profit. We increased that at the beginning of the year to 11%-12%, given the outlook that we have for our, our capabilities, and we're growing above that. So if you look at it on an annual basis, you know, we've been pretty consistent. Within the year, though, growth is, is typically not linear for some of the reasons that I called out.
We don't spend a lot of time talking about your medical supply business, but you have a great medical supply business. For those of you that don't know it as well, it's really focused on the alternate site. So whether we think about ambulatory surgery centers, as you talked about, physician offices, especially rural physician offices, right? The ones that are really needed. Can you talk about... You know, I know COVID was a help and then, you know, was a headwind when we think about the next year, but how do we think about the longer-term opportunities on the medical side of the business? And are there synergies between medical and pharmacy?
I'll start with the medical business. I mean, if you think about the way we built this business, years ago, it was in hospital distribution.
Mm-hmm.
and had the leading position in primary care or physician office distribution. But the bulk of the time and the energy was spent managing the acute care business.
Right.
We actually decided, based on being number third market share, we were gonna exit that market and just-
Mm-hmm.
Focus on alternate site, because we thought there was this long-term trend of care migration to alternate sites. So at that point, we were basically nursing homes and physician office. Over the years, we've expanded to sort of follow the patient. So as the patient wanted to go to a retail clinic, we got a leading position in retail clinic. As urgent care clinics came on, we expanded into urgent care clinics. So really, anywhere a patient's gonna present in the alternate site, McKesson wants to be there with the distribution capability and infrastructure to support them. The second important thing we did was expand off of kinda just core medical surgical products -
Mm.
cotton balls and tongue depressors and table paper, to get into other areas that are a bit faster growing and more attractive. So we expanded into generics and then pharmaceuticals holistically, and then lab, and then equipment.
Mm-hmm.
And so we've sort of just followed the wallet share of what goes on in those businesses. We think care is gonna continue to migrate to the community-based setting. We think we have the broadest set of solutions. We think we have the greatest sales force in the industry, and so, you know, we continue to be very, very optimistic about our medical business.
Is there a synergy in any way between pharma and medical?
I mean, there is synergy on the procurement side.
Okay.
We can source from each other. You know, we're very collaborative. I mean, many of these practices may be buying medical and pharmaceutical products. We think that's an expansion opportunity for us. So I would say yes, but not on the, not in the terms of thinking about it as one totally integrated business. I mean, the distribution infrastructures are separate for a reason, because we think the service requirements are very, very different, and that's a bit of our competitive advantage, is having a custom fit-for-purpose solution in both segments.
And, you know, we're able to leverage centralized solutions as well, whether that be technology solutions or finance or HR, so that's also-
Yeah, great point.
something that we're able to leverage.
We didn't get to talk about capital deployment, but we'll come back to that when you report the quarter.
Yeah.
We ran out of time. Thank you, everyone, for joining us-
Thank you, Lisa.
Thank you to McKesson.