and distribution analyst here at B of A. We are very excited to have McKesson here. We have CFO, Britt Vitalone. Thank you, Britt, for joining us. You know, you introduced pretty impressive fiscal 2025 guidance, last week. Can you just provide maybe the key highlights from the quarter and the guide?
Yeah, well, first of all, thank you for having us here, and, and good morning. We had another strong year in fiscal 2024, and we are really pleased with the performance that we had across all of our segments. Certainly, the performance in most of our segments was at or above the long-range targets that we provided and upgraded at the beginning of last year. A lot of things, I think, really support that, and maybe I'll just give a couple of the building blocks that we think are important to, to last year that will support our FY 2025 guide as well. We have seen utilization be stable and growing over the last certainly several quarters, and that has underpinned the performance that we've had in our U.S. Pharmaceutical business.
It's underpinned some of the performance that we've seen across our oncology business, as well as in our, our medical business. We continue to grow the provider network within oncology. We had a strong year last year of adding over 300 providers to the network. We now have 2,600 providers in 31 states. So that business continues to grow, as well as the capabilities and assets that we're surrounding in building out this oncology platform, whether that be our Ontada data business, our clinical trials capabilities, and the partnership that we have with Sarah Cannon Research, and the strength of our GPOs. So the scale, the breadth that we're adding within the provider base is strengthening our oncology business. And then within our Rx Technology Solutions business, we have supported biopharma manufacturers with their products and their product launches, particularly GLP-1 medications.
We believe that our programs will continue to support the growth within that segment, as well as other drug classes, and that supports the strength that we had in RxTS last year and the guide that we have this year, which is another strong year of growth. Our medical business has continued to perform very well over the last really decade plus. If you think about this business over the last five years, it has grown our adjusted operating profit at a compound annual growth rate of 11%. So stable, consistent growth. We have medical supply distribution, lab capabilities, private brand across all alternate sites of care. That helped our fiscal 2024, and it supports fiscal 2025.
And then the last thing that I would point out that also is supportive of our 2025 guide, we have a strong financial foundation, a strong balance sheet. We have a strong investment-grade credit rating. We were upgraded by two of the three major credit ratings this past year, and we have a lot of flexibility to continue to grow and return capital to our shareholders. So we're pleased with the development that we've had over the last several years. We're pleased with the assets that we continue to acquire and build within our different businesses, and obviously, all of that is supported by a strong financial foundation.
Really appreciate all that color. As you think about the different segments of your broader business, and you think about the guide that you just put out, can you talk to maybe two or three of the major drivers that would either get you to the top or bottom end of that guidance range? What are the major factors to think about?
So I'll come back to our U.S. Pharmaceutical business, for a moment. Two things that I would point out here. The underpinning of that, I think, is just utilization in general. We saw utilization growth of 2%-3% on a quarterly basis, last year, and that has been stable over the last, you know, many quarters now. That helps drive the efficiency that we have built within our pharmaceutical network. We've added a lot of investments around automation and additional infrastructure, and we're driving operating leverage as part of that utilization growth that we're seeing. Within our oncology business, we continue to add providers, we continue to add scale. Certainly, the data that is going through the EMR and all 2,600 providers practice off of the same EMR system.
So that's driving a lot of clinical capabilities, as well as data and analytics, both for practice, but also upstream for manufacturers as they're thinking about developing their pipelines. So the growth that we're seeing in our oncology platform continues to be strong, and we believe that that scale and efficiency is a key driver for that business. Within our technology solutions business, if you think about prior authorizations as one example of that, we service nearly all of the programs, GLP-1 medications on behalf of biopharma. The growth of that has, as you know, the growth of GLP-1 medication prescriptions has been strong. It has slowed down, still growing, but at a slower rate. And we're providing the support through our PA Prior Authorization services on behalf of all those manufacturers.
We expect that that will continue to grow, although at a slower rate next year, and we continue to invest in capabilities around access and affordability solutions, as well as adherence solutions. So the investments that we're making into that segment continue to drive good, stable growth.
So it sounds like you mentioned three different drivers here: utilization, the oncology business, and RxTS. I want to unpack the oncology piece here. Independent oncologists are under a lot of pressure. There's been a lot of consolidation in the space. Can you talk to why partnering with McKesson is an attractive alternative for these providers?
Yeah, it's a great question, and I appreciate that. So I'll come back to the platform that we've built. We started down this journey in 2010, when we made the acquisition of U.S. Oncology Network. And what we were doing at the time was leveraging off of the efficient distribution network that we had, and the play was really for us to continue to generate scale and efficiency through drug distribution. The practice management element of that allowed us to help providers by letting them focus on providing clinical expertise while we handled the back office. We were able to build a GPO, a set of GPO services, leveraging the capability and strength that McKesson has within its pharmaceutical business.
And then over time, as more providers came on and as the providers all were utilizing the same EHR system, you're getting data through one system that everybody has access to for clinical purposes. And then as we built this Ontada business, adding data and insights and analytics back upstream to manufacturers. And then the ability to have clinical trial access, clinical trial research through US Oncology and the joint venture, the investment that we made with Sarah Cannon Research to increase the access to clinical trials for these providers, is another element for providers. So when a provider comes into McKesson, they think about, "I want to practice medicine. I want to be a provider. I don't want to worry about all the back office." The practice management capabilities that USON has helps them focus on that.
The data and the scale of the data that's going through our Ontada business, that gives them more access to data for cancer care and for clinical care. Then the ability to have more access to clinical trials and clinical trial research, we believe is a very differentiated offering that provides a lot of value to a provider.
As you think about the growth of the providers in that network, are trends accelerating, or are they just sort of continuing the strong growth? Are there new factors that have popped up over the past year or so that are driving independent oncologists more toward McKesson? Are they thinking about drug pricing? Are they thinking about IRA? Just curious what the recent conversations are with providers that are joining the network.
I think it comes down to three things, really. I think certainly, the scale that we have around drug procurement and drug pricing, and being able to, to provide lower cost availability of drugs to our providers is certainly one. The scale that we have, within that network is, is an asset to a provider. I do think that what providers are looking for is capacity in their day. You know, how can they spend more time in front of a patient versus having to worry about a back office and managing payroll and managing all the other things that go on with just running a practice? And the McKesson capabilities in the U.S. Oncology Network and the practice management that we have allows them to have more capacity to focus on being a provider.
And then I think also the, the clinical trial aspect, having access and reach to more patients, to having more capabilities around clinical trial research, particularly the investment that we made to, with the, the acquisition and the joint venture that we created with Sarah Cannon, yeah, I think is very differentiated. So, I think it comes down to those three elements.
Switching gears to the RxTS segment, can you frame the drivers, the underlying drivers of the really strong revenue growth in that segment? Obviously, 3PL, it seemed like maybe the fourth quarter was a little bit disappointing. But just talk about the really strong guidance for fiscal 2025. What's underpinning that really impressive growth?
Yeah, thank you. We're really pleased with the performance in that business. We had adjusted operating profit growth last year of 23%, so above really the last five years' growth rate that we've seen, and we're really pleased with that. This is a business that has a few underlying factors. Certainly, prescription growth, and in particular, new to brand prescriptions. So as manufacturers are launching new brands, they're looking for support, whether that be traditional hub services, and we have assets that automate a lot of the traditional hub service capabilities or requirements around that. They're looking for prior authorization services to support their drugs and making sure that patients can get on the medications that they need.
And certainly, affordability programs, whether that be our eVoucher service or it be managing discount cards at the pharmacy in workflow, having connected automation like we do have, and the investments we make in that connectivity of connecting 50,000 pharmacies and 900,000 providers and, you know, all of that running on the back of the Relay network, which is, you know, 20 billion transactions a year. We think that all of that connectivity, the scale of that, the reach that we have, is providing value to providers, is providing value to payers, and it's certainly providing value to manufacturers as they're launching drugs, as they're looking for support for drugs, as they're looking for education, affordability programs.
You know, we have built this over a long period of time, and, you know, the RelayHealth network was the fundamental and foundational peg, but then we added capability around CoverMyMeds and, and other services. So, a long-winded way of saying that we've built a, a lot of capabilities on the back of prescription drug utilization, new to brand, launches, as well as just other services that manufacturers are looking for adherence capability.
So digging deeper into RxTS, obviously the prior authorization business has been a nice driver underneath the hood there. As we think about your fiscal 2025, and I asked this question on the earnings call, but I want to unpack it a little bit more here. GLP-1s, according to a survey, only about a quarter of employers covered them last year in 2023. Now, in 2024, about half of employers are covering them for weight loss. So there's been a doubling of employer coverage for GLP-1s. My understanding is that because the amount of employees that would have access to coverage is doubling, that would increase the opportunity around prior authorizations. Can you speak to whether or not you're seeing any increased demand for GLP-1s, even though the growth rates of GLP-1 scripts are clearly decelerating?
Just trying to kind of, pick apart those two trends that we're seeing.
The growth of GLP-1s, although the medication itself, although at a slower rate, has still been pretty robust. Wherever there is a requirement for a prior authorization by a payer, by an employer, for whatever indication they're requiring that prior authorization, as I mentioned before, we have relationships with nearly all of the manufacturers for those drugs, so we support all of that. If there's an increase in requirements for prior authorization, certainly, you know, our services are there to support that. We have seen continued growth and good growth in prior authorizations, specifically for GLP-1s. It is not the only product that we have within that particular segment of our business. It's an important, growing, probably faster-growing, part of the segment. There are other products that we have, such as our affordability products.
But we have seen, really good, robust growth, although at a slower rate in the back half of the year, as we expected, as the medications themselves have grown at a slower rate. You know, we were seeing growth of GLP-1 medication year-over-year of, you know, 100% in the beginning half of the year and coming down to 60% in the third quarter. I mean, that's still very strong growth, and as I mentioned, we have relationships with nearly all of the manufacturers for the prior authorization services. So we're providing, prior authorization capabilities and support for those drugs. So, you know, look, if employers or payers are going to change the frequency or the requirements for a prior authorization, our programs are there to support.
You mentioned on the call that you're investing this year in the biopharma services platform, and you talked about incremental infrastructure investments and the cost to deliver increasing levels of ROI for customers. Can you unpack what those investments are, specifically? I guess as we think about it, clearly, there was a big blizzard season, as you talked about, which I would assume cost around that would have fallen into fiscal 2024. So just curious, what are these investments that you're making that are going to impact the P&L in 2025?
So I'll categorize these in just a couple spots. You know, traditionally, a lot of the services that are provided for manufacturers for their drug, whether it's education or support or launch, are done by large call centers with just staffing with lots of people. And we believe that we have built and are continuing to build efficiency and automation into those capabilities so that it doesn't require staffing up big call center for a blizzard season where you're helping reset, you know, annual verifications as policies, insurance policies reset. You don't have to staff up 3,000 people and staff down and then staff up for other programs. We're trying to create efficiency through automation. We're trying to connect networks. We're trying to make sure that work.
You know, provider and payer requirements are done in the workflow in a system that they're working in, and they don't have to go outside a system and use human intervention. So those are the types of investments that we're making to reduce the friction within a process, to create faster, more efficient processes, and to help, you know, basically help customers get on their medication faster, to afford their medications, and to stay on their medications. That is really what the focus of this business is, just create automation to remove the friction, to get people on their meds faster, stay on their meds, and afford their meds.
Can you talk about the duration of these investments? It sounds like this is going to be margin accretive at some point. Obviously, it's margin dilutive in fiscal 2025. Can you talk about the expectation over an intermediate period of time? When would you expect some of these margin benefits from these efficiencies to start flowing through the model?
Well, it depends on the investment. So if you think about an investment in artificial intelligence to remove some friction, that may have a longer payoff period than an investment that is automating a certain component of workflow. Those generally will have a faster payoff to them. What we're trying to do is be consistent in investing, in building out these capabilities, these automation efficiencies, and we believe that, at being consistent and investing in these will drive consistent levels of return over a long period of time. We think that it's a differentiation for us and a competitive advantage to continue to invest, to remove that friction, and we're pretty pleased with the returns that we're getting. The business continues to grow and grow at a very high rate of return over a long period of time.
We're pleased with the investments that we've been making, and we think that they're driving a lot of return on investment for the company, but also for our customers.
Can you talk a little bit about the 3PL business? You know, is our brand launches impacting that business in the fourth quarter? I'm just curious, what are embedded in expectations in fiscal 2025 around that part of the business?
Yeah, so this business is not very linear. So, you know, we're providing third-party logistics services for manufacturers, for certain products. Sometimes these products can launch and go much faster in the beginning. They may have a supply constraint to them or other things that create some bumpiness from quarter to quarter, but over a long period of time, or even over just a period of a year, generally speaking, there's good consistency in this business. The challenge with this business, just from looking at the P&L from the outside, is it drives a little more than 50% of the revenue, but less than 10% of the Adjusted Operating Profit. So, quarter- to- quarter, there's gonna be some bumpiness to this.
We had some one of our customers who had a product that was delayed into fiscal 2025 or so that created some lumpiness within the quarters. But there's no change in the program that we're supporting for this particular customer. There's just, in terms of the supply going through the system, it created a one-quarter lag, if you will, it moved some of that revenue into next year, which creates a bigger revenue bump, 'cause, again, 3PL is a higher revenue business for us, but less AOP contribution.
Turning to the U.S. Pharmaceutical segment, as we think about. There's obviously really strong revenue growth, really good profit growth in that segment. As we think about the drivers of the delta in margin year-over-year, you're obviously onboarding a larger customer. There's a continued impact from GLP-1s. What other items are impacting that margin line that investors should think about besides those two items?
Well, you hit on one of the important ones, which is customer mix. So customer mix certainly has and will have an impact on the top line, as well as at the margin line. Product mix is also an important factor. So as we've talked about for many quarters now, specialty products have grown faster than other areas of the business. I think everybody knows that, just given the pipeline, pharmaceuticals, and they've grown faster for us at our largest customers. So it's a combination of the customer and product mix, which has driven that. We're still very pleased with the growth that we're seeing in our profit margins. We believe that that will continue into next year, given our guide. The other thing that certainly has been an impact is the level of investment that we've put into this business.
And we've put a lot of investment into our network for automation capabilities, as well as to create some efficiencies for our customers, and those customers include biopharma. So capabilities that we have to service their pipeline as well. But those investments, we believe, have a fairly good return and a fairly quick return, and that's why we're, you know, gonna continue to make those investments. But customer mix, product mix are the key drivers. The timing and level of investments that we make into automation have factored into that. But a business that has continued to grow in a very consistent and stable way, and we're really pleased with it.
Turning to the Med-S urg business, obviously, there's a lot of seasonality in that business, but curious what you're seeing so far this year on a utilization, from a utilization perspective. And then secondarily, the midpoint of the guidance range would assume, margin expansion in that business. Is there anything to call out there that's driving that leverage?
So it's a little early for me to comment on anything that would be different than what we saw in the fourth quarter. This business will see some variability given illness seasons. Illness season was softer in the first half of fiscal 2024. It was a little stronger in the fourth quarter. You know, we chart out illness seasons over the last, you know, the 15 years that I've been here, and I haven't seen one that looks the same in terms of timing and the level of that. So, you know, I think over a long period of time, it is a very consistent business. We have seen patient visits, in terms of mobility of patients at outpatient settings, be stable and have returned from the COVID levels that we saw.
We've seen that return. So I think the illness season is one that's gonna affect the timing, but not necessarily the overall growth of the business. I think what's important to note about this business is the breadth of capabilities and the breadth of channels that we service. So we are medical surgical supplies for sure. We have added private brand capabilities across a lot of different categories of medical surgical supplies, pharmaceutical distribution in-office dispensing, as well as at ambulatory surgery centers. That's a key asset that we have, building on the capabilities we have within our U.S. pharma distribution business. Lab Solutions is one where we've invested in that, and we've created some efficiency for our customers.
Then the breadth of serving all of the alternate sites of care, we believe is a very differentiated business from that aspect. So outpatient visits have been stable. They have returned from pre-COVID levels. The illness season has been variable, but over a long period of time, fairly consistent, and we saw the fourth quarter drive a little bit more foot traffic. In terms of the margin that you asked for-
Mm-hmm.
One of the investments we're making this year is in our data capabilities. We made the acquisition of Compile. We believe that there's an opportunity for us to leverage the relationships that we have with providers and payers and pharma manufacturers, as well as the extensive data sets that we have within the business. We think that the first use case is with our medical business, given all the breadth of relationships that they have, and you know, certainly they have very extensive data sets there. So that is a headwind in their numbers this year. Generally speaking, we have seen good operating leverage in this business.
You know, the margins are strong and stable, and the operating efficiency that we've been able to generate here is one that we would anticipate will continue, and obviously, that's part of our guide.
That's great. And on capital deployment, I think your guidance contemplates about $200 million less share repurchases in fiscal 2025 versus what you did in fiscal 2024. How should we think about your strategy around capital deployment? Is it evolving at all? Is it, is it basically the same? Just tell us kinda what's new, this year.
So our capital deployment has three key pillars to it. The first priority for the business is to grow. Certainly, we can grow organically, making investments in the business, whether that be to reduce customer friction and for products and services or for infrastructure, whether that be AI or the network that we have within our pharma business. Certainly, inorganically, we are looking at acquisitions that will extend our scale in some of our core businesses, but really help accelerate our growth pillars, oncology and biopharma services. You know, in oncology, we are looking at to continue to add providers to the network. We're looking at adding clinical capabilities around that to continue to broaden out our oncology business. In pharma services, looking at capabilities that remove friction within with traditional hub services or supporting a product and looking for automation opportunities there.
So growing the business is our number one priority for assets that are on strategy or extend a core capability or a core leadership that we have at the right price. We are going to also return capital to shareholders. Now, we have a growing dividend. We've grown our dividend, we grew it 15% last year. We continue to grow our dividend in relation to earnings growth, and that has been a stated strategy of ours, and returning through share repurchases. And, you know, one of the things we've talked about with share repurchases is if we are going to be efficient with our balance sheet. So if there are no clear opportunities in front of us for growth opportunities, then we're gonna look to return capital through share repurchases.
We also are coming through the divestiture of our European operations, and one of the things I talked about as we were divesting Europe, one of the ways that we would pave over the lost earnings there is with share repurchases, you know, smart allocation of share repurchases. So, clearly, what's left for us in our, our European operations is Norway. We still do intend to sell it, but it's a small piece of, of that European operation. Underpinning all of that is the maintenance of our investment-grade credit rating, and as I mentioned, we were upgraded by two of the three major credit rating agencies this year to A rating, so we're pretty pleased with that. That gives us a lot of, of financial flexibility, and, we believe that we have flexibility to not only grow the business, but continue to return capital to our shareholders.
With the last couple of minutes here, I guess, as we think about the next year or so, what are you most excited about? And then just a question we get from investors: What's the biggest risk that you see to your business that you're trying to stave off here? So what are you most excited about? What's the biggest risk to the business?
Well, thank, thank you for that question. There's a lot for us to be excited about. If I think back being on this stage five years ago, we were at the very beginning of thinking about how can we grow some, some nascent capabilities we had in biopharma services, and how can we continue to broaden out our oncology business beyond the U.S. Oncology Network. Five years on, and we have broader platforms in both. And so that is exciting to me. The growth and the earnings that we've driven from those business is exciting, but the opportunities in front to continue to accelerate those, accelerate those internally, but also accelerate those with capital deployment, I mean, I'm excited about that. That is supported by our outlook for 2025, but also supported by our longer-term growth targets.
In terms of what do I worry about? The things that are within McKesson's control, whether that's investing in our business or deploying capital or getting efficiency out of our distribution network, we do that very well. The things that are outside of our control, public policy or some other, event that is not inside McKesson's control, I can't do anything about that other than be well-positioned and be in a position to help educate and inform.
Great! We'll leave it there. Thank you, everyone, for joining, and thank you, Britt.
Thank you.