Cencora, Inc. (COR) Earnings Call Transcript & Summary

All right, good morning, everyone. Welcome to the AmerisourceBergen session. I'm Bob Jones. I cover the health care supply chain here at Goldman. Very excited to have AmerisourceBergen with us today. Representing the company, we have Steve Collis, Chairman, President and CEO. We also have the pleasure of having Jim Cleary, EVP and CFO, joining us on stage today. So the format here, obviously, Q&A. But to the extent that there are questions, I'll check in with the audience. Feel free to raise your hand. We'll be sure to get to you.

So Steve, one of the questions we've been asking across the different presentations today amongst the CEOs -- we're just wrapping up a decade. I know you pretty much took over the role as CEO pretty much at the beginning of the previous decade. But really want to focus more on the future. As you think about the next decade and maybe even more specifically, the next several years, what are the most important and evolving trends that investors should be focused on as it relates to ABC in the industry?

Yes. Bob, thank you. Thanks. Thanks for being here. Always a pleasure to present with my colleague, Jim. So if you look at the next decade, I think, first off one, it's fairly obvious, we've got a very complex regulatory environment. It's a mature market. We have 3 players in our industry. I think the role that we play is very well understood, and we have a very pivotal position between the manufacturer and the end user of drugs, be they patients or providers or retail chains, institutional customers like hospitals. We have -- so our future will be determined by how successful we are in adding to the value that we provide to those various constituents, and ABC has never been payer-focused. That's not what we do. We've always been very manufacturer-focused. And I think that's why we're a leader and continue to be a leader in specialty. And we've been very provider-focused, and we have a great mix of customers. More and more of those customers look to us, there's an attempt to partner, and there's different characterizations with customers. The small customers need us for financing, they need us for third-party reimbursement management, they need us for even store design, merchandising, et cetera. And even if you look at an independent oncology practice or independent physician practice in ophthalmology, there's practice management, there's software, there's reimbursement analytic tools that they need from us. But the larger customers are going to look to us to provide scaled solutions, they're going to look to us to be able to compete almost in a global market, but a very complex, mature market, where the requirements of payers and government agencies are going to be very economically driven. So ABC will play a key role in that. On the manufacturer side, we'll continue to benefit from the innovation that we were hearing about before from Bristol, who is a great example, great partner for us. We'll continue to be challenged, I think, by generic deflation, but there will be, I predict, quality issues, shortages are a problem, we want to try to work with customers, and we have some advanced analytics programs to make sure that some of that goes away. Biosimilars is going to continue to be an important trend for our customers, for ourselves, for our suppliers, more complex generics will be a trend, and we'll benefit from personalized medicine, cell and gene therapy, and ABC is really set up well to represent some of those businesses. And then some of our portfolio companies that play more niche roles like MWI, World Courier, Lash Group, we think, are going to really -- are poised to have very good growth, and that's why we have them in that as a sector. So I hope that over the next decade, we're talking about the other sector becoming a bigger part of the overall ABC earnings because we have a chance to have higher growth in those segments. Jim, would you add anything for a crystal ball?

Steve, I think you covered it really well, and in particular, and Steve hit on a number of these things, is really the growth in specialty, the continued growth in specialty over the next decade and how well positioned we are in that market. And whether it be the innovation that Steve talked about or new indications or biosimilars and the continued growth in that market, which really kind of plays into our strength, and particularly in Part B and our specialty or in our specialty physician services business and also in our commercialization services businesses.

And -- sorry, Bob. But from a ABC particular perspective, I think some things that make me very confident about our future is, first of all, our management team and our associates. We are purpose driven. We're very confident in our role. The team is pretty seasoned. We've got, I think, the most seasoned team in the industry. We have a very entrepreneurial flare. We have leaders in the team who've built businesses have been part of high-growth stories, and we want to be back to a high-growth trajectory. And then the financial management at ABC has our strong balance sheet, our lack of leverage, our ability to overcome the opioid settlements. I think we'll be able to manage through all that. And so I have confidence and optimism in our future.

Well, fortunately, you touched on a lot of the things that I have follow-up questions for.

Good, good.

One of the areas I know that comes up a lot that you guys mentioned in your opening comments there is specialty. This is clearly an area that a lot of folks are looking to be a meaningful growth driver across the supply chain and specifically for ABC, but it is a bit of a catchall phrase, I think, in the industry. So just given ABC's breadth of their specialty offering, I was hoping maybe we could spend a little bit of time, have you guys focused on specific trends within specialty that you think are most relevant to ABC's P&L?

Look, our customers -- I think technology, digital, artificial intelligence, all of these are trends that we will see become more and more prevalent in the practice of pharmacy, in the practice of drug development. I just heard the end of the conversation, virtual clinical trials speeding up, making -- a friend of mine's daughter's unfortunately not well. And she was able to completely change her course of treatment through a very advanced genetic test that is not generally available, but it is coming around. And hopefully, that's going to be -- we're going to solve, we're going to find more ways to solve cancers and difficult tumors. And that's very, very exciting. I think if you -- I was at ION meeting in October, and I was talking to physicians, and it reminded me of my father at the end of his periodontal career, when there was new technology that he was able to make patients much happier, much -- well, and he said it was the most fulfilling time of his life. A lot of oncologists feel that way. So I think you're going to see just -- you're going to see the base treatment, but you're going to see much more advanced targeted treatments, and ABC will be there to help because you're going to have to have analytics, you're going to have to demonstrate value. And those are the sort of areas where we want to grow. We want to be able to help our customers look at their records so that they can be a part of clinical trials and their patients can have access to clinical trials or compassionate use programs or experimental programs. And we see ABC with our capabilities in Xcenda, in World Courier and then our physician touch points with business like Besse oncology supply, ASD, ION that we are very well positioned. So our specialty franchise, let me just go down to the history of it and a bit about how we're positioned. We have very strong customer relationships. When you look at the Part B-type drugs, it's very common that we have anywhere between 50% and up to 70%, 80% market share, and that's because we have very strong physician relationships, we provide very transparent value and we've developed services that are key adjacencies and are recognized by those physicians and also partnerships in certain cases where we need to on the technology front. So we feel that we understand these markets. We've got great management teams in them. And we are contracting with the right customers. So our customers tend to be above market growers, particularly in oncology, where we're working with the 2 largest emerging new type of practice management company. So those are customers that are going to develop into, we believe, multi-billion dollar customers. And we have long-term contracts with them, long-standing relationships with them. I would be remiss if I didn't mention ION, which has been so important to the growth of community oncology, the first physician services GPO in that space, established over 20 years ago and continues to grow because I think manufacturers more and more see the value there. They believe, if they won a contract here for a cell therapy or a biosimilar, there's a good clinical path, there's a good market share path, there's a good economic path to work with ION. And likewise, our physicians understand that ION is there to help and assist them very much like Elevate and Good Neighbor Pharmacy. So I think we're very well positioned in specialty. And we've got strong offerings in other areas like ophthalmology, urology, but oncology tends to be about -- probably about 2/3 of our specialty business as we define it. And more and more, it's harder to define it because you said it's a catchall phrase. But specialty's everywhere. It used to be -- we talked about it as a $30 billion, $40 billion, $50 billion industry. It's now -- the brand industry is essentially the specialty industry with demographics and clinical and market shifts that have occurred. Jim, anything to add?

Well, it's -- most of you know, Steve founded our specialty business many years ago. So Steve, I don't think I can add to your terrific explanation. But I will say one thing though. I was recently at a weekend business meeting that ION had for a lot of the top physicians in ION that kind of come in on a weekend and really kind of discuss practice and business topics and kind of go through best practices and hear about the tools that we have to offer. And I was just -- made me feel so good about the business to see the engagement that the customers have, the engagement that the physicians have and the value that they put on our offerings.

You guys touched on some of this, you mentioned ION specifically, but we do hear a lot more from manufacturers about a willingness to pay for additional services as it relates to making sure that the product gets to market smoothly. The patient experience is good. Reimbursement is not a hiccup for the physician. I guess, where do you see the biggest opportunity? You mentioned ION. Are there any other opportunities as it relates to ABC's current portfolio? And then more importantly, are there areas you see developing where ABC would like to have a bigger presence that they maybe don't have the appropriate assets today to take advantage of?

We got this question from investors earlier and we would say our portfolio is -- of customers is excellent, and our portfolio of services. I think we specifically segmented out the other sector because we see those as growth businesses and we'd like to see that become a bigger share of our part. We definitely want to grow our pharma distribution and keep up with market. But those aren't somewhat mature product offerings, and we also are going to be inevitably affected at the operating income line by the disproportionate growth of the large customers, the Walgreens, the Express Scripts and Kaiser that are the multi, multi-billion dollar customers are going to grow more. But if you look at the growth we've experienced with Kaiser, with Express Scripts, with Walgreens over the last few years, it's really remarkable. And as I said, those are scale relationships where we could do some interesting things, be it on biosimilars or working with them in the specialty area or working with them in managed care contracting, also on unique manufacturer programs. But it was interesting to note -- we were talking about this at breakfast that in 7 years, since we started the WBA relationship, the distribution volume has doubled. It's almost exactly double. And that's for a 30 -- was already a north of $30 billion contract. So it's going to be double by this year. So we feel like we have the right customers. I think if there's anything that we could do to, say, help our customers compete better in a value-based world, that's something we'd be interested in, anything, again, I heard the real-world evidence that's definitely a theme, I think registries, data, we're investing in a lot of that. ABC hasn't done tremendous amount of acquisitions, the last acquisition we -- big acquisition we did was HD Smith, which was -- went really well, and it was probably the last wholesale tuck-in that there is in the U.S. But what we are focused on is enhancing our technology, making businesses like Lash more efficient, more scalable, more technology enabled. So -- and that's going to help us not only on the patient exit side, but also on the compliance and adherence side, so.

And do you think data is key to that as you think about acquisitions within specialty? Is it really something that would give you access to more patient data, real-world evidence data? Is that...

Well, I think we can -- we could -- we need to partner with people. We have important connectivity. Sometimes, people want that. We don't necessarily have to acquire things. Sometimes, it's just a matter of how you get into those records, how do you efficiently aggregate records so that you can find that prostate cancer patient or the ovarian cancer patient. And I think we're interested in those sort of things, how does managed care -- we don't want to see white bagging, brown bagging. We want patients to carry on being in oncology offices, and those community cancer centers where they like to be, where we believe they receive the highest standard of care in the world. So whatever we can do to help that. We've done a lot of work. ION also does share a lot of data with payers about how efficient, not only from a clinical perspective, but also from an economic perspective those sides of care are and that they need to be encouraged and they need fair reimbursement. So government policy is important to us. We have to understand policy is important, and we understand what's going on. I mean, frankly, it's concerning right now, the level of discourse around pharmaceuticals and how misstated it is. I recently wrote an article in LinkedIn about benefit design and how that's distorting things. People have incorrect perception that they're paying too much for drugs. It's often a benefit design issue. So I don't think we should be punishing patients by having them disproportionately pay for prescriptions versus other forms of health care.

That's fair. I wanted to take a step back on specialty still. So obviously, you guys touched so many different parts of the end market, which is obviously a good thing for organization, makes it a little bit difficult at times to model. Some of the work that we've done and even listening to some of the presenters today, it seems like 2020 is going to be a significant launch year, in particular, for specialty drugs. So I guess, a, would you size the market or assess the market similarly? Do you think that 2020 will be a significant launch year for specialty drugs? And then if so, how should we think about that impacting ABC on a relative basis as we think about previous years?

Well, the performance we've had, we're very proud of the year we had in 2019, and our strongest performance was in the specialty area. What -- but, again, that's becoming more and more integrated, the core business. We had a business, ASD Healthcare, that was really doing niche specialty products to hospitals now, well over $10 billion business because that's such an important part of what we do those specialty products to hospitals and institutional settings. So specialty is so much of our core business. We are, again, our market share. So I think if you think of ABC, I think you should think about us as having a blue-chip roster of clients. I've mentioned a lot of them, but also very good community practices and disproportionately indexed to the specialty market in the U.S. So you should see us outperform, and we've had 3 years of record growth in the specialty business. So we couldn't be more proud of how that business is succeeding. And so that success feeds upon itself. As ION becomes more successful, more manufacturers want a contract with us. When I left, we had 3, maybe 4 significant manufacturer contracts. We have 70-plus now. So it's really grown because the value is there. And if you provide value, it will come. And if you provide differentiated and innovative services in this robust market, and we're going to continue to have those opportunities.

All right. I guess just moving over to biosimilars and to the topic that you had brought up. On a recent earnings call, you noted that you saw better-than-expected uptake of some oncology biosimilars. Just wanted to see if you could elaborate a little bit more on that. I feel like biosimilars is a topic that we've been talking about more theoretically for several years. Is it, in fact, now starting to show up more so in the market? Is it showing up more so in your financials?

It's definitely one of the clearest demonstratable tailwinds that we'll have over the next few years because we have a role there. When there's choice amongst brand products, even if there were 2 original products, but they were clinically equivalent, we always did have opportunities, particularly in a business like ION. So the biosimilars is definitely a boon for us. It's an opportunity for us with formula replacement, with a greater market share sort of contracting, and we believe that they give patients greater choice, they give physicians greater choice and clearly, as we have a role in selecting which product gets used as there are 3 or 4 choices, we will earn higher margins because that is a role that you get rewarded for. So as the market matures, as is more products, then we'll see a greater percentage margin coming from those products. Now it's never going to be where oral solid generics are, but the ASP for these products should stay pretty high. So we think that they -- it's too soon to say that it's from a significant call as yet, but we can see that the platform is there for this to be a very important business for us.

And what do you think specifically has or has to change in order for this to continue to be a bigger tailwind for the company?

Yes. I think the legal challenges has been a key thing you can -- a key point you can -- interchangeability. For us, with our biggest business being in cancer, though it's mainly episodic treatment, so it's easier to do interchangeably. When you look at MS or psoriasis, it's harder to change the patient, so that's more about the new scripts. But also continual ability to diversify choice for the providers and patients, I think, will be a good thing. But Jim, I've been talking a lot. I'd love to hear what you think.

Yes, we -- I mean, clearly, we see it is a positive benefit this year and should continue to be a tailwind for quite some time.

And I guess, just maybe moving back to the traditional legacy business, talking about the distribution to traditional retail pharmacies. And I want to spend a little time on drug pricing. So we're past January 1 now. So I'd imagine you have maybe some more insight into how manufacturers are thinking about price increases for the year. I guess, real-time question, given that it's right after the start of the new year, any initial observations as far as how pricing increases played out, specifically in the branded side first, relative to what you were anticipating coming into the year?

Yes, sure. With regard to brand pricing, when we provided our guidance for fiscal year '20, we indicated that we expected in our guidance brand inflation to be basically consistent with fiscal year '19, mid-single digits. And as you well know, over the past week, there's been a lot of coverage in the media and through other market and industry participants indicating that it's coming in, in that range, in the mid-single-digit range. And as you well know, the -- if you look at our brand buy-side dollars, 95% of our buy-side margin is fee-for-service, and the other 5%, we rely on price increases from manufacturers for our margins. But we clearly have seen over the past week or so all the media and industry coverage being that it's coming in that mid- single-digit range.

And it's a little bit of another crystal ball question. But as you think about this year and then future years, once we kind of get past the election, I mean, do you think that there's an opportunity for branded pricing to go back to where it used to be, high single digit, low double digit? Or you think this is kind of new world order on branded pricing?

I just would think that it's going to be hard from the public perception to warrant those sort of above EPI at least that's particularly on products that have been established in the marketplace for a long time. I think it's just sort of thing that our industry has to be very mindful of. I think we always have to be focused on the value that drugs provide and that most of our customers, it's such an important part of their budget, it's hard if it double-digit increases to not pass it on to payers, et cetera, and then employers have a problem. And so we'll just see how the system evolves, what happens with Affordable Care Act, exchanges, et cetera. But definitely, all these trends, I think, point to a more moderate inflation rate, sort of what we experienced this year is what we -- that's what the 80/20 rule would [indiscernible], right?

Fair enough. I guess, just moving on to generics. I mean, I think deflation there seems to have been fairly consistent now for some time. Curious if anything has changed recently. Again, starting the new year, any new contract discussions? Anything that you would call out as far as changes in generic deflation and how you're thinking about that over the course of the year?

Yes, nothing to call out. Again, when we did our guidance for fiscal year '20, our assumption was that it remains relatively unchanged. The rate of deflation remains relatively unchanged, relatively consistent to where it's been. And we've said for a while now as long as it stays within that range, we won't put a specific number out there. But as we said, we've seen it staying within that kind of a general range. We also said we saw a little bit of improvement at the end of fiscal year '19. So we did see a bit of improvement there. We've seen some manufacturers rather than looking at kind of a basket approach have evaluated products on a product-by-product basis. But once again, looking at the year, as we indicated when we did our guidance, we're looking at it as relatively unchanged.

A question we get a lot. I know there's a lot of moving pieces in the business. But if you take those 2 pieces, so branded inflation kind of staying in this mid-single-digit inflationary area, generic deflation kind of staying in this area that it is maybe mid- to high single digit deflation, as you think about your core business and you net those things against each other, is that ultimately a headwind, tailwind or neutral to core EBIT?

I mean, compared to the past, it'd definitely be a tailwind. The generic deflation, it's moderated slightly, but it's still -- it's a tough trend. So what we have to do is work very hard to increase the units that we sell to make up for the declining ASPs. So we've successfully done that. And we've done that through better analytics, better compliance programs, working hard on our independent customer base, in particular, working hard to get larger customers that haven't traditionally bought generics from us to do that. So we need another support from WBAD. We need the support from suppliers to do that. Often, manufacturers want to have a direct relationship with large mail order customers, in particular. So I think those are the discussions we continue to have. And at ABC, we successfully do that. Sometimes, we have a fairly significant secondary relationships with the chain and drugstore-type customers, food and drug-type customers. So that's all the sort of work we need to do. It's not the sexy stuff, but it's the basic blocking and tackling you need to do to make sure your generic mix stays somewhat constant. But on the brand side, it's exciting because we are growing in these new tech therapies. They often still need the supportive care products, and that's why it's just the outpatient business is a booming business. And it's successful, I mean, we're having people be able to live longer and endure more complex therapies because of the advances in clinical pharmacology.

I want to move over to fiscal '20. In the guidance that you guys recently gave, I think us and others were somewhat encouraged with the expectation for low single digit, mid-single-digit growth in the U.S. pharma segment EBIT. The high end of that, the mid-single-digit growth, would represent a pretty meaningful improvement relative to the past few years. I guess, what would have to happen in your mind to get towards that upper end of that guidance range? Is there any major swing factors that you're focused on as far as moving potentially towards the upper end of that guidance range?

Yes, sure. And when we did our guidance, our guidance was overall low to mid-single-digit operating income growth. And then within our 2 segments, low to mid-single-digit operating income growth in pharma distribution, and then high single-digit operating income growth in our other segment, which is our Global Commercialization Services & Animal Health business. And to answer your question, kind of to get to the higher end of that range in pharma distribution, kind of some of the moving pieces, of course, PharMEDium was a significant financial headwind for a couple of years. And so if we compare fiscal year '20 to fiscal year '19, it's -- we don't expect it to be a financial headwind compared -- year-over-year comparison. And so that's kind of one thing that impacts growth rates. Kind of some of the other drivers to impact the growth rate are success on operating expense control and some of our initiatives there across business units. Really just generally execution across the business units, it's kind of obviously, a key driver within that range; branded inflation, generic deflation, as we've talked about is a driver there; and then also customer growth. And so those are some of the things that move us within that range.

And I guess, if you think about 2020 and maybe some of those things playing out or even just getting the initial guidance, is there anything in there that you would not see carrying forward into subsequent years? Or is this mix of business that's driving this anticipated growth in fiscal '20 the makeup that you could see carrying that type of growth in fiscal '21 and beyond? Or are there things that you would call out that might change?

We didn't have a lot of contract renewals this year. I mean, sometimes you do renew large contracts. But most of our contracts are pretty close to market now. We don't feel that we have any contracts that are -- that we're overearning on. And as far as value with manufacturers, we have a very good supply chain team that manages those contracts. And I think we feel like people always are concerned, say, Bristol-Myers and Celgene merged, that you're going to go to the lowest contract, but that's not necessarily the case because we have market-based data on what fees are. And I think we have different services that we provide for -- depending on the type of product portfolio you have. And I think we can have those legitimate enterprise to enterprise discussions, and we're able to do that in a respectful and in a way that doesn't distract value. And more and more, we can do that with the customers who are more sophisticated on the provider side as well. Frankly, the days of -- every RFP provider's expecting a big benefit from that as the contract expires. And it isn't -- the business isn't really like that. A lot of that was subsidized by generics. We don't have that driver going forward. So it's quite obvious that contracts will be very much -- in fact, in some cases, we're having to increase prices because we're having to change the product the way that especially it's become too much hot, we have to increase the cost of goods or reduce the discount that we were providing.

And Jim, you mentioned global commercialization services. Obviously, this business performed very well throughout fiscal '19. I guess, thinking about the future of that business, maybe if you could talk about some of the pushes and pulls there? Is the type of growth that we experienced or witnessed in '19, something that we should expect to continue throughout 2020?

Yes. I mean, our guidance for 2020, as I said, in that business is high single-digit operating income growth. And let me talk about some of the businesses and some of the things we're doing there. I feel really good, and we feel really good about the long-term investments that we're making in those businesses, World Courier, which is the leader in doing logistics for drug trials. And really, it's been growing very nicely and has good long-term growth potential. We've really invested a lot in a system we call NOVA, which is our new, state-of-the-art transport platform for World Courier, which will enhance its future growth. In Lash, as many of you know, we put a lot of money into a new patient services platform called Fusion, which will really create great growth potential long term. And this year, just as last year, we've had costs at Lash. This year, we're migrating a lot of clients on to Fusion, and that creates operating expenses, which is impacting this year, but we're really setting that business up for strong long-term growth. Xcenda market access consulting, all of these manufacturer services have good growth potential, and that's why we have a guidance of high single-digit operating income growth in fiscal year '20 and feel good about the businesses for the long term. And as Steve said earlier, these businesses are really benefiting from the growth in specialty. So just like our specialty physician services in ION are benefiting from the growth in specialty, global commercialization services are also benefiting from that trend. And what we have outside of the U.S. is we have a business in Canada and a business in Brazil, where we have a lot of the same commercialization services that we offer in an integrated manner in Canada and Brazil. And so we do have a strong outlook for those businesses this fiscal year.

All right. I think just changing gears and being mindful of the time that we have left. Steve, one of the topics you brought up, which I'd say is one that comes up quite often, unfortunately, in our conversations is around opioids. You mentioned the litigation. I guess, just for starters, maybe at a high level, if there are investors out there that are obviously kind of hung up on this being a major overhang that is very nebulous, what would you say to them to try to get them more comfortable that this is something that you think has a resolution and that AmerisourceBergen can come out on the other side of benefiting from a lot of the things that we just talked about?

I think if you take a perspective that the attorney generals are very [ pivotal ] to this, which our belief is that they are, we had some very good dialogue with them. We've been able to educate them on our industry and the role we perform and how important it is for us to be, for example, investment-grade and a very important financing function. I mean, almost every customer that we have, their biggest bill is us. So it's very important that this industry for the U.S. economy, and there is a study which HDA commission recently did. If we were to go away, for example, healthcare costs would increase by $40 billion to $50 billion. So we do provide significant value. And I think we were able to share a lot of that information with regulators with the attorney generals, with plaintiffs. So that was understood. So we are optimistic and not blindly optimistic, but optimistic that the settlement structure, $18 billion and 18 that was talked about by the attorney generals, is a construct that makes sense that most people will agree to and come into that fold. And we certainly are committed to timely and transparent discussion as soon as we have more information. But we think that it makes sense. It was well negotiated out. I don't, for a second, believe it's fair, but it is what it is. We want to put this behind us. It doesn't make sense to have constant litigation. So we believe that this will -- that the wisdom of this settlement will essentially be seen fundamentally, and we'll be able to work around it.

I appreciate you're obviously limited to a degree on what you can figure. I mean, but you mentioned the $18 billion settlement. Is there any just general feedback you can share as far as how the response from the other side was to that proposal because it seems like that was kind of out there and then we didn't hear a lot about it?

Well, don't forget that wasn't our proposal. That was -- we were -- we didn't come to that number. Lastly, it was very hard -- but we wanted to give what we felt was something that was very significant. That would give the attorney generals enough resources to end this litigation, materially end it across the cities and counties. And we, again, we're not going to get into [indiscernible] but it was a very complex negotiation. There's a lot of different tools which would incentivize different people to join in, different parties to join within the state framework. So we think it makes a ton of sense. And also Bennett interrupted me once this morning to make a really good point: This will benefit communities and patients. If we can get the money out there soon and they have legitimate, credible plans on how to deploy that capital, we can eliminate some of the suffering that is out there, not just from prescription drugs, but hopefully, from Fentanyl as well, which is the real problem right now.

And I guess, just last one on this is -- I know it's a little bit of a difficult question, another crystal ball. But is there any kind of just construct or time line that you would be able to share with us and investors and how they should maybe think about the way that this could play out, staying away from final numbers and details? But just what kind of time line should people be thinking about as they think about putting this issue behind them?

Again, it is hard because there's so many different parties on the other side. But I think everyone understands how impractical it is to continue to litigate this out. I think there's more and more understanding that ABC was not a -- well, our industry was not a key player in this crisis. I mean, if you really get into it and understand what we did -- and it's complex. I mean, you saw today, retailers in Ohio suing physicians. So that's -- it's not controllable. And there's reasons that you could say that's a legitimate pathway, I think, so it's very, very complex. It's a whole system that broke down. And we're trying to do our best to put this behind us. And I think the industry has worked very thoughtfully to be practical and get this behind us.

Fair enough. Again, in the interest of time, I just wanted to run through a couple more topics that we get a lot of questions on. Obviously, a lot of regulatory legislative things floating around in there. But maybe if I just pick one that I think is most relevant for AmerisourceBergen business, it would be international pricing index. We get a lot of questions on this. If Part B is moved to an international price index, how would that impact the economics of AmerisourceBergen business?

Well, it is a difficult path for that to be adopted. I hope that it's -- if there is some sort of real big change in the way Part B is priced. The way it can be negotiated, we hope that it's thoughtful, that it's transitory, that -- because the impact to us is not as big. I mean, we could have -- potentially, our business could -- if you're having the ASP of key products decrease, we could have negative growth in that sector. So that wouldn't be good for us. And presuming we keep our same margins on the center buy side, which is probably good. Maybe, we would even increase them a bit on the buy side. But it just wouldn't be good for us. But we also, again, are very tied to the economic and development or health of the manufacturers. So we wouldn't want to see them have -- we wouldn't want to see legislators do anything that was that detrimental to them. So I think the ways to accomplish this is there's tremendous complexities around the referencing because the pricing works very differently. And some of those payer prices were negotiated a long, long time ago, and there have been price increases in the U.S., et cetera, and they just haven't had that opportunity in other countries. So I think you have to just be very fair and thoughtful about transitioning to different pricing of the manufacturer.

That's fair. And then one other topic that has seemed to come to the surface a little bit more recently, it's the health of independents. I know this is a topic that we could probably go back to 10, 15 years ago, this is probably the same type of question, but there has been some signals in the market, at least from what we picked up at the health of the independent, the economics of the independents could be incrementally more challenged today. I'm just curious if you would tend to comment or care to comment on what you're seeing in your independent customer base. Has there been a change in the number of them in the viability of them? Just any color there would be helpful.

We've seen about a 21% market share for independents very consistently. I mean, the highest, I think, it's ever been in the recent history is 23%. So there's a lot of resiliency there. The independents are entrepreneurial. They're supported by their patient base. Often, the patient base is willing to pay our out-of-pockets for out-of-network participation. We think as there's new therapies available, as these therapies become more customized to the individual potentially, even as you have cannabis-based products, that honestly, these are areas where the independent pharmacy can differentiate and excel. Pet medications may become more complicated. We think that independents will continue to be very entrepreneurial. I don't think that they would have 21% market share, if it wasn't for the roles of the wholesaler, the financing that we provide, the services like Elevate and GMP that we provide and our peers provide. So look, I think the market share is going to be hard to stay at 21%, 22% because some of the bigger contracts like [ APP ] are not going to be -- they're not going to be able to directly participate in those. So -- but mail orders come down as a percentage of total script volume because I think people want choices, and they want to be able to go and talk to their pharmacist. And we've seen another thing, we've seen some new generation come in, we've seen an ability to transition from an older manager to a younger manager. Our companies and other companies assist with that. And we've seen a more professional level of service. I mean, the data that they can access, the tools on reimbursement that they can access, the understanding of their own business attending like our trade shows. And that has vastly expanded in the last few years, I'd say. So they are able to be equipped to compete in the modern world, so.

I had one more, but I did say that we would open up to questions from the audience. A quick check if there was any questions from the audience before we wrap up? No? All right. So the last one I had, to end on a slightly more positive note, which is around capital deployment. You did highlight, Steve, in your opening comments, the health of the balance sheet. I think less -- certainly less than 1x levered today, a lot of balance sheet flexibility, as you put it. What are the key priorities? Is there any timing issues that you're waiting on related to whether it's the settlement or anything else? And how should we think about the deployment of the balance sheet over the next couple of years?

Yes, sure. Our balance sheet, as you know, is really strong right now. And we have a lot of flexibility, relatively lower levels of debt and strong levels of cash. So a lot of flexibility in our balance sheet and very strong free cash flow, both in fiscal year '19 and our guidance in fiscal year '20. And our capital deployment priorities remain continuing to invest in the business where we've had very high returns on invested capital. And I talked about a couple of our businesses that we're investing in now, but we see good growth opportunities from investing in our businesses. We continue to look at strategic acquisitions. And over the past year, I think we've done a really good job in the strategic planning process of looking at all of our core businesses and all of our adjacencies [indiscernible] adjacencies and really evaluating them from a standpoint of market attractiveness and our ability to win, to help guide our looking at strategic acquisitions. Over the past couple of years, we really haven't done anything of size since the HD Smith acquisition. As we've looked at things, we really kind of haven't found things that are the right quality and that are the right valuation. And so the past year, we've -- a couple of years, we've returned more capital to shareholders. And so the other 2 aspects of our capital deployment: our dividends and share repurchases. And last year, we returned $1 billion to shareholders through share repurchases and dividends. And so our capital deployment strategies remain the same. And once again, really strong balance sheet and cash flow.

Great. Well, I think that's about all the time we have. I want to thank Steve and Jim for being here. Thanks everyone for coming.

Thank you. Thanks.