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

Good afternoon. My name is Lisa Gill. I'm the Healthcare Technology and Distribution Analyst with JPMorgan. It is with great pleasure this afternoon that I introduce AmerisourceBergen. With us is CEO, Steve Collis. We will take all questions across the hall in the Georgian room post the presentation. Steve?

Hi Lisa. Thank you, everyone, for attending. I was worried Sage presented before us and the room was jampacked, and almost everyone left, but I appreciate everyone who came to attend and fill up our chairs. So I thank you here, for being here. And the next slide is my cautionary note regarding forward-looking statements. Any of you can read, pass an ophthalmology exam, you have my great respect. So now I'll move on to my presentation. AmerisourceBergen, yes, is $175 billion in revenue. We'll be hopefully getting close to $200 billion in revenue soon. That's quite a milestone. It puts us around 10th in the Fortune 500 U.S. companies. We have 22,000 U.S. associates with 150 global offices, 50 countries, but we are largely a U.S.-based business. We have one business, World Courier, which is very international, that has most of our international offices, and we have principally in the U.K., Brazil and Canada, some other offerings around veterinarians and specialty, but principally a U.S.-based distributor. If you like the U.S. pharmaceutical care prescription market, then Amerisourcebergen is your place to invest. Particularly important is our oncology and specialty distribution business, where we are the #1 in market share. We've been really benefiting from new therapies and new customer wins in that sector. We're also the #1 distributor of animal health products. We like that business so much that we made their founder and former CEO, our CFO, and he's -- he'll be up with me at the Q&A session, Jim Cleary, who's known to many of you. We do at least 70,000 daily deliveries to health care facilities, and we ship over 3 million products a day and we have about 30 warehouses throughout the U.S. that does most of those shipments. So several hundred million dollars a day in sales. Over the last few years, as we faced a much more difficult regulatory environment, increased scrutiny, higher profile, and as we've really focused on our talent and really attracting millennials, we become very vested and very guided by our purpose. And our purpose is being united in our responsibility to create healthier futures. You'd always be shocked at how long it takes to come up with that one sentence. This was a lot of thought creating healthier responsibility, United. These are all key phrases that inspire us to do the right thing. AmerisourceBergen, we think about ourselves as problem solvers with an entrepreneurial spirit. A lot of our leaders are people like Jim and Bob Mauch, who is here, who is our Head of Operations, all the businesses report to him. Our group President, Bob, also founded a business, Xcenda, that we acquired. We really are very customer-focused and patient-focused. So our leaders will go the extra mile. And I believe we have an outstanding culture that is focused on doing the right things and is focused a lot on being healthy participants in the communities that we participate in as well as a great deployer of talent within our businesses. So again, we are guided by our purpose. But here is our key strategy areas, especially medicine, we can't talk about that enough. Earlier in the session before this, somebody said, "what am I not asking you about" and I said, "you haven't asked us enough about our specialty business." We have really identified this as a key area of growth for us. We've had record-leading growth in this sector for the last 4 or 5 years. We're benefiting from innovation on the manufacturer side, which is really supplemental to the additional -- to the protocols and supportive care products that we've done. We also have a greater role when it comes to distribution to community providers through key partnerships with customers. But also through businesses like ION and Xcenda and Lash, which really help drive those specialty drugs into the established physician marketplaces. So one of the key tenets of ABC is community providers. I've talked about oncology and other providers like urology and ophthalmologists, but we also have 2 other significant community businesses: That's veterinarians and/or -- and -- sorry, veterinarians and pharmacies and community oncologist. Those are 3 community businesses. In all of them, we play a very significant role. If you think about a veterinarian, many of them are smaller businesses. They require practice management services. They require business coaching. They often require financing. We are their adviser, we are their friend. We help them. We often do areas like say in Community Pharmacy, we assist with generational transition. The next theme I'd like to talk about is key customer partnerships. AmerisourceBergen is distinguished by key partnerships. We were asked the question earlier about United buying one of our customers. Usually, we are on the right side of M&A because we're with a lot of the growing partners, companies like Walgreens, Express Scripts, which is now part of Cigna. At CASA, they tend to be strong organic and inorganic growers. We also have one oncology, and Florida Cancer Center that are strong growers in community centers; also Banfield. So we tend to be with the strongest, some of the most innovative and well financed community providers, and we tend to have long-term and innovative partnerships with them. Many of the relationships that I'm talking about have been going on for decades. And we really try and use them as a cornerstone of our growth and as key developers of scale and efficiencies for us. Another area of focus for us is our strong cash flow generation. ABC gets high marks for financial management. I'll share with you our priorities in capital deployment, but we have been a strong generator of cash. We had a particularly strong year in 2019, added by some very strong collections towards the end of the year, but we try to get to greater cash flow than our net income, which is -- puts us in unique territory amongst most businesses. So here is our legacy over the last 5 years, we've done very well because of our balanced capital deployment, you'll see it's very close to 50-50 with $15 billion in total deployment, about half between dividends and share repurchases and half from capital expenditures and M&A. Of note, since I'm CEO, is certainly our HD Smith acquisition, World Courier, PharMEDium and MWI have been our biggest acquisitions in the last 9 years, since I've been CEO. Certainly, PharMEDium is an area where we've experienced some problems. But other than that, I'd say, we've executed very well on our M&A strategy and underestimated the regulatory risk in PharMEDium, but we're proud of our record of improving our earnings per share and the balanced capital deployment. A question that we've been getting a lot lately is, have you -- could you have bought more. We want to retain financial flexibility and so we have a very strong balance sheet. It's the strongest balance sheet we have in our history. We have well over $3 billion in cash at the moment. But certainly, that creates us -- that gives us the flexibility to manage through the regulatory environment we're in, while also allowing us to do strategic M&A. So why are we so well positioned in the U.S. market? We believe patient demographics are excellent. Although our industry gets a bad rap for driving expenses, we believe that, that's often a function of benefit design. Really, we are just in double digits as a percentage of total U.S. health care spending is pharmaceuticals. About 90% of drugs, as you know, are generics, which we have a strong presence in, and we source our generics through our partnership with Walgreens in WBAD, but we also have a very robust innovation pipeline. Many of those products are cell-based therapies. Biotechs, small molecule products that ABC has a very strong expertise in. So we are really experts and have strong experience in managing through these products. I'd be remiss if I didn't mention biosimilars. Biosimilars are finally coming of great significance to you as investors in Amerisourcebergen, as the pipeline of physician-administered biosimilar products becomes more and more interesting to us. So we now are getting to the stage where we often have 3 or 4 different biosimilar manufacturers and through our businesses like ION, that really functions effectively like a P&T committee, where the physicians have the ability to drive market share, we are able to earn higher margins than we would on regular brand fee-for-service on higher ASP products. So that's key for you to think about. Prescription utilization trends, we're very interested in adherence. We have a business called Lash that does reimbursement access, patient assistance, but also focus on adherence and persistency programs, and this is a key area for ABC. Of course, we have one of the strongest economies in recent memory and increasing employment, increasing coverage, better understanding of the tools that are available for patients gives us better demographics and better utilization, which is good for our business. So all these various drivers help us to leverage our scale, and we believe we have the most modern infrastructure of any distributor in the U.S. to capitalize on that scale and that competitive advantage we have. A key part of our strategy, and now 20% of our business is in our commercialization businesses. We have several businesses that really look on the manufacturer as a partner where we are, instead of paying supply chain bills to the manufacturer, we are billing the manufacturer for services. A good example of that is World Courier, which I mentioned is our most global business. We're making tremendous investments in those businesses. We're the leading specialty distributor in Canada with NMR. We have a growing specialty business in Brazil, and we have strong market access and field team support through Xcenda and Lash. Lash is a business that's very well-known to our manufacturer partners. We get a lot of credit for Lash because it helps drive product commercialization. It helps patients access products. Many customers -- manufacturer customers will get us to reverify benefits for patients annually on chronic medications. So that's an important benefit that we provide. And a business that dovetails really well into that is a business that I mentioned, Bob founded, Xcenda, which has got a strong field-based reimbursement and health care economics and outcomes consulting. So of course, these are businesses that we have opportunities to expand, both through investing in new technologies through artificial intelligence that we're deploying at Lash and other areas that we've invested in. And you'll see that this will be an area that we want to see -- have outsized growth within the AmerisourceBergen portfolio. So we hope that over time, this 20% will grow. And this is certainly the area where we have more opportunities to deploy capital for acquisitions, and we are very active in this area and looking. But of course, we have to have the right fit, both from a capabilities perspective as well as a cultural and talent perspective for us to move forward. So a lot of these solutions are very patient-centric, and they drive a lot of interest for us to help meet with emerging ex U.S. companies and -- not to be underestimated, of course, is our specialty and third-party logistics business, known as ICS, which was really a startup that ABC did. And that really helps solve a lot of the basic logistics and infrastructure needs a company -- that companies have when they try -- when they first obtain FDA approvals as well as more mature products that want advanced market access programs. Animal Health business, we acquired it for $2.5 billion. Lisa put out a note that a couple of years ago, ABC surprised everyone at this conference by announcing the MWI acquisition. As I said, Jim Cleary is now our CFO. This is a business that is about 60% of their products are with multinational pharmaceutical manufacturers, companies like Zoetis and Elanco, formerly part of Lilly. And Merck is a key partner to us there. So it fits very well with our business. I told you about the theme of community providers. Certainly veterinarians are strong partners for us and an area where we've been able to benefit from what we do on the good neighbor pharmacy side. There isn't a third-party insurance issues, but we've been able to really benefit from some of the experiences we have from community veterinarians back to our community pharmacies and vice versa. So not to be underestimated, and almost any of you that have pets know that the human pet bond only grows stronger all the time. And there's tremendous technology innovation. Last year, we were privileged to visit a couple of our production animal customers. And it's quite remarkable, the flexibility we have with our technology when it comes to the protein, lot feeding customers that we have there. And that's about the stickiest of technologies we have. If you have the MWR production technologies there, it's very hard to change that out. So we also are regarded as #1 in the U.S. with some of the strongest long-term relationships with companies like Mars, Banfield, who's probably over 10% of the market now, with probably more opportunities to consolidate market share. They have been very active and bought the #2 player in this area. So we've been benefiting from having them as a customer as well. Okay. Here we go. So what did we do in 2019? A question we've got, as we've been meeting with investors is, what were the key accomplishments you had in 2019. We've certainly executed on our goals. Bob and the team did incredibly well with the HD Smith acquisition. We had a very big infrastructure for a regional wholesaler there, and we've got most of that completed. We got the distribution centers tacked into our distribution centers and as well as all the sourcing program. So that was a big area of execution that we exceeded expectations on. Again, I've talked about our strong growth in our specialty distribution and practice management Services business. We created new innovative partnerships with OneOncology, which is regional, which was 3 regional cancer centers that came together that elected AmerisourceBergen to be their distributor. We also did a drone partnership with UPS that received a lot of press. [ Alarzo ] health is a predictive medicine company that we're partnering with at Lash; and Biosimilars Canada selected us as their patient assistant partner in our NMR business. And I've talked about Mars petcare. So we're very proud about our good neighbor pharmacy platform being recognized by both JD Powers and Newsweek as the #1 pharmacy program. Our Elevate network continues to get plaudits from customers. So that's a very strong offering. We really believe that community pharmacy survived through the support of our industry and through wholesalers like us that offer merchandising and financial services. So we really are keeping that community pharmacy business at about 21% of all scripts in the United States. So we're proud about that. Something that has received a lot more attention is our environmental impact. Of course, we've been very thoughtful, just from a cost and efficiency perspective for a long time about packaging. But more and more as we go into new buildings. We look at climate issues and be very energy and waste efficient. This is something that is very important to our employees. Very important to our board. So we're very cognizant of that. And that's an area that you'll see ABC comment more on. Something that I'm personally very proud about is the growth of our foundation. We have a wide range of interests. For example, through our Animal health business, we think that it's important to make to certain key wildlife areas. We do a lot with opioid patients. Luna is a key charity partner for us, for example, that works with children of opioid victims to help them enjoy camps and -- so there are many, many worthwhile causes that we support through our foundation, and we're really proud of that. The governance of our Board, those of you investors in AmerisourceBergen, you should take great comfort, our Board is excellent. It's a very diverse board. It's got a lot of experience. Just last week, we announced the election of Dennis Nally, who was formerly Chairman of Pricewaterhouse, is our newest member. And I think Dennis is going to be a great Board member. Another innovation that we brought to our Board is that we separated our Audit committee into a compliance and regulatory committee, because it was just so much work in the Audit committee. So now we created a new committee, which will really look at ABC's responsibility around compliance and regulatory issues. So I think our Board is really focused on doing the right thing for our shareholders and all of our stakeholders, and we certainly are very proud of the Board that we've assembled. So lastly, as I wrap up, I just want you to think about AmerisourceBergen as having a differentiated customer base. Whenever we get asked, "are you going to be really going hard after this customer or that customer or competing on that customer?" we say "we feel like our portfolio is very well positioned." We are with a lot of the right customers that are growing, that are acquirers in this space. We have a strong U.S. pharmaceutical focus. We have a lot of leadership in specialty distribution and services with a history of investment. Actually, long-term relationships, our friend, Raj Mantena, was the founder of ION, and we bought that company in 1998. And he's still a good friend to the company and comes here to support us. So we have long-term relationships. And a lot of our businesses are like that. When you're in the service businesses, your human relationships are very important. We couldn't be more proud of the leadership of our specialty business and a comprehensive offerings and how they managed to always stay ahead of the market. You'll see us carry on investing in solutions for manufacturers and patients, helping out with adherence and access and then a strong focus on a great return to shareholders while doing the right thing. Value creation, cash flow, growing our earnings per share, but also advancing our human talent. That's been very, very important to us. I think the talent at ABC is the best in the industry, and you'll continue to see us executing well. To deliver on the strategic objectives that hopefully I described well for you today. So with that, I'll close up, and we're going to go across the hall for Q&A. Thank you for your attention.

Good afternoon. My name is Lisa Gill, and I'm the health care technology and distribution analyst with JPMorgan. It is with great pleasure to welcome you to the webcast of the ABC breakout. To my right is Steve Collis, CEO; and to his right is Jim Cleary, CFO. Thanks for joining me guys. So Steve, let's start with a reflection back over the last 12 months. Maybe spend a couple of minutes talking about what you believe were some of the biggest achievements and some of the biggest challenges for ABC?

Our fiscal year 2019, which we ended on September 30 and was really a great year of execution. If we think about HD Smith, I think it's a year when we also started seeing biosimilars become more and more important to our product portfolio, not only to us but to our customers and ultimately, the patients we all serve. Our leadership position in specialty really continued with some of our customers growing. We tend to have the largest practices in community oncology. And if you think about it, there's about 20% of the market that's with McKesson U.S. oncology. So the fact that we have somewhere between in the mid-50s, in that market is really impressive. So our services in our portfolio continued to differentiate us there, and we tend to grow in market share. We had strong execution, particularly in the back half of the year in our Animal health and commercialization businesses. And we integrated HD Smith well. And we made progress certainly, in the end of the year towards settling the opioid litigation, which you and I talked about briefly. It's not obviously where we want to be. It's not something we think is fair, but it's something that we think is important to put behind us. And frankly, the fundamentals of our industry give us the opportunity to do that. So those are some of the key highlights for me, but Jim told me now he's been with us for 5 years, not 4. So in light of that, Jim, do you have anything you'd like to add?

Yes. In fact, just the one thing on that personal note, it was 5 years ago today that Steve announced the acquisition of MWI by Amerisourcebergen here at the JPMorgan Conference and JPMorgan played a big role in that deal, representing MWI in that deal. So it's a little bit of a fifth anniversary for me here as part of the AmerisourceBergen team. And yes, fiscal year '19 was a really good year of execution for us, and it really showed in our revenue growth, our operating income growth, our EPS growth. That set us up very well for guidance in FY '20, where we're guiding to mid- to high single-digit revenue growth, low to mid single-digit operating income growth on a consolidated basis, low to mid single-digit operating income growth in our pharmaceutical distribution segment. And once again, high single-digit operating income growth that we're guiding to in our other segment, global commercialization services and Animal Health. So yes, we feel good about the execution in 2019 and how we're set up for FY '20.

And as we start to think about fiscal '20, a lot of talk about drug price reform, a lot of talk about drug price inflation as we're now 13 days into 2020. Do you want to just take a minute and just talk about it versus your expectations versus the guidance for drug price?

Sure. When we did our guidance for FY '20, we indicated that for branded inflation, we expected FY '20 to be like FY '19, mid-single-digit on the -- on the buy-side inflation. And as you know, there's been numerous reports in the media and by analysts that overall seeing branded inflation at mid-single-digit at the first part of the year. And so we feel good about that with regard to our guidance.

And then how about on the generic side? I know you have a partnership with Walgreens. They reported last week, and they talked about the fact that generic price deflation, also kind of mid-single-digit is what they were seeing, but seeing some benefit for WBAD that was helping them to have something was a little bit better. So that would be the first part of my question. And then secondly, how do we think about launches of generics. Cardinal earlier today talked about the fact that there weren't as many launches in the most recent quarter as had been previously anticipated and that you need to see some incremental launches for them to be able to make it to the -- their expectation around generics.

I moved -- so 11 years ago, I moved up from running just the course -- the specialty business to running what we called the drug company in those days. And the #1 thing we would look at when we started our fiscal year planning process was generic launches. And that was the golden age of the generic patent cliff. And so really, the business has changed to where Bob and Jim and I, the 3 key people who go through the planning process together, this is just not a big issue for us anymore. We will not make or not make our numbers based on generic launches in the year. There are some that are important. I think, biosimilar, what happens with biosimilar adoption is probably becoming more and more important to us. So many manufacturers have deployed different strategies. The buyers in this industry become so consolidated that many times you can manage by going straight to the PBMs and mail orders. You can manage as a manufacturer to preserve your patent protection and do different things while adjusting your price. So it's just not as important to us. And I don't think that when we looked at FY '20, that there were any launches that would really be that material to us. The generic inflation is -- 2 years ago, we said that we're expecting it to be in the mid-single digits, maybe 1% or 2% higher. And that there was nearly no reason to comment on it until anything changed, and we feel like that's still and -- you think that there are shortages in some products, mainly in injectables. That creates a big operational hole for many of our customers, particularly on the health system side. So we would like to see a really safe industry. We'd like to see one where supply is assured because it causes us a lot of headaches if our customers don't get products, causes patients headaches. So -- but our partnership with WBAD has been excellent. I think it really changed the industry. It's 7 years since we signed that contract. And the volumes have absolutely doubled. We started out at $33 billion in the first year, and we'll be well into the $60 billion plus range. So it's really been a great partnership. So Jim, anything you'd add?

Sure. What I'll add, Steve, is that as we did our guidance for FY '20, we assume generic deflation relatively unchanged from FY '19. We did indicate that at the end of FY '19, we saw a little bit of moderation in generic deflation. But overall, for FY '20 our guidance assumes relatively unchanged from FY '19.

And then I think the third component of this and it takes us back to 2015 when there was some disruption in the marketplace as we had the shift away from drug price inflation for some of the generics as well as some competitive pressures. I remember you signing or renewing a big contract at that point. But -- and so as we think about -- we talked here on the buy side economics. But how do we think about the sell-side economics today, especially in the generic market?

Well, I'd say we have a well worn phrase that the industry is [ competitive but ] stable, but it really is true. I mean, if you look at, say, McKesson just renewing the VA or a lot about -- and a lot of the customers are -- have very close relationships with their wholesalers. They tend to be very integrated. So they have to be motivated to change. What motivating is usually personnel changes, the restructuring or a corporate merger. So I think many times, the incumbent has a terrific advantage. And when it comes to independent pharmacies, it's a really big deal for those buying groups to move because there's merchandising, there's signage, there's [ elevate ] programs. And there's long-term relationships, I mean, we are -- if not, probably the key business partner for those community pharmacies. So I think the buying group change of wholesalers is a very big decision. And at the time that was our #1 pharmacy customer. And I think you could say that maybe the timing was a bit fortunate because it was right before generic deflation was very understood. But we're very happy with the relationship. It's a relationship that has delivered a lot of the growth and compliance that we look for. And I think where the business is now in terms of analytics, compliance, generic programs that we have and really proud of all the strength that we have in these programs.

And as we think about the business model, just first on just your drug distribution side of the business, growing kind of mid-single digits, talking about low to mid single-digit growth from an EBIT perspective, is that the right way to think about it longer term? Do you think you could get leverage in that business model over time? Or is the leverage really going to come from, and we'll get into questions around commercialization in some of the other product areas that you have, but when we just think about pure drug distribution, is it just that you have really big customers like Walgreens that clearly are at a below-market rate because of the amount of volume they have and, therefore, make it difficult to have a margin that would grow the same as revenue?

Sure. I think that there are a few things that are drivers there. Of course, one is business mix. And if you look at businesses like our specialty physician services business that's little bit of a higher-margin business due to some of the wraparound services or our commercialization services business, which is a higher margin manufacturer service business; and Animal Health business, a little bit higher margin also. In terms of business mix, as those businesses grow faster than the core pharma distribution business, that can have some positive impact on margin. Operating expense control is something that is really important in our business, and we've made significant investments in infrastructure and significant investments in technology. And so operating expense control is another thing that can that can drive some leverage in our business in addition to business mix. And then, of course, execution by the businesses. And you'll see from time to time that we'll have some new customers come on that can drive that. Our second largest customer this year is adding volume as a result of a merger. And some of that is pallet shipments, really big pallet shipments that are additive to top line, and that's why our top line guidance is to grow mid- to high single digit, but it's inherent -- these pallet shipments can be inherently lower-margin business. So that's actually the type of business mix that can cause operating margin to come down a little bit. It's still additive from an operating income standpoint, but can be a little bit dilutive from a margin standpoint.

And when you think about commercialization, we think about some of the other programs within specialty or we think about animal health, they're all in your other category today. That's about what, 20% of your operating profit? Is there a goal there for that to be a certain size over time? Can it grow faster than your traditional business, so that it does become a bigger component of your business?

Well, certainly, the organic -- the biggest business is MWI, and we expect that, that's going to have a high single-digit operating revenue growth rate in keeping with the market, and we are the #1 player in the U.S. Certainly, we've always had the view that if there's more M&A, there still are some regional players out there. But a lot of -- like Elanco just announced this week that they're going to be limiting their distribution to just 4 players. And I think it's increasing the also mature market, but we have opportunities to innovate with technology and new customers there. Our Lash business is one that's very high profile. World Courier has been probably our top performer in our commercialization businesses, and that business is really getting better all the time. The management team is outstanding. They are, by far, the leader in the area of clinical trial logistics, and they keep on doing more end-to-end services and finding new ways to partner in comparative medicines, other areas. So we're very excited about that opportunity that we have there with orphan cell therapies. And so I think you will see us adding to the commercialization. If we're going to do any partnerships on the data side, on the clinical integration side, even like looking for clinical trial, patient information. That's the area we'll be doing that all in. And a lot of our integrated business development, Bob's vision is really to move a lot of that to those sort of businesses. So they'll be really carrying the flag with the manufacturers for all of ABC.

We noticed in the presentation today that you did give us a little bit more color on commercialization, and graphically. Is there any thought, Jim, to giving us more financial information to really understand the different components of this business and breaking it down beyond just the disclosures you give today?

Yes. At present from a segment disclosure standpoint, of course, we do pharmaceutical distribution. And then we do other, which is global commercialization services and Animal Health. We do break out our revenues of our Animal health business. In the last couple of quarters, that's been $1 billion-plus in revenues and had good growth. But at this point in time, our segment reporting is on the other, which is a global commercialization services and animal health altogether. And -- but each of those businesses really has good growth potential. And once again, our guidance for the year of that group is high single-digit operating income growth.

And one of the other businesses we didn't talk about yet would be PharMEDium, which has had some issues over the last couple of years. Can you give us an update on where you are on PharMEDium? And do you believe that the PharMEDium business is part of the longer-term strategy for ABC.

It's been a very tough road in PharMEDium, unlike MWI, and I think we had excellent people there. That deal was right. We like the health system space. We have good market share there, good relationships, and we wanted to add the services. We felt like with the 340B environment becoming clearer, that it was the right time for us to participate. And certainly, that year that we acquired PharMEDium, we had an extremely strong -- or strongest cash flow as we really harmonized the benefits from the WBAD relationship. So I think at the time, we did everything right, but we underestimated how quickly the FDA would expect us to make the LEAP to the CGMP environment and that was really a very significant mistake. So the business has been challenged. We have made progress, and we made progress in all the right areas. On expenses, we've moved to 3 facilities. We passed 2 inspections. We're working to get the states back that really took our licenses away. So we're making progress there. We believe we have an excellent management team in place. And hopefully, our goal this year is to get Memphis reopened. It's a very important goal for us. And then we feel like once we've done that, we'll be in a much better position to look at strategic alternatives. But the business has really moved from being more of a pharmacy business towards being more of a CGMP business.

As we think about capital deployment and priorities around capital deployment. I think I've heard you talk in the past: one, reinvest in your business; two, strategic acquisitions; three, share repurchase, if that's correct. If that's the case, can you just talk about kind of -- you talked about today, HD Smith being a successful acquisition. We've talked about a number of successful acquisitions. How do you think about like a larger acquisition for ABC. Is that something that you would be interested in? Are you primarily looking at tuck-ins into these other higher-margin businesses?

What I think, if you look at the acquisitions, we've always bought the #1 or 2 in the space. And so I think we like that. ABC is a pretty lean management team, a pretty lean infrastructure because we are so efficient. So we like to buy strong teams, strong cultures that can fit in with us well and that will be of value to our customers. So we're very active. We look at it. In fact, Leslie Donato is with us for the first time as part of ABC. I believe she's been -- in the past, she recently joined us from Bayer, and prior to that McKinsey, but Leslie is bringing a very strategic approach to our M&A. And a lot of our managers like it, but we know what makes an acquisition great and we're certainly very experienced. Jim, you want to comment?

Sure. I'll ask you, if there's one process that we've gone through over the past year is looked at all of our core businesses and all of our near adjacencies and we've ranked them from the standpoint of market attractiveness and AmerisourceBergen ability to win. And so as we look at acquisitions, we look at them through that lens of what's the long-term attractiveness of the market and what's AmerisourceBergen ability to win. And then the only other thing I'll add on capital deployment is each of the last 2 years, FY '19 and FY '18, AmerisourceBergen has returned $1 billion to shareholders each year from share repurchases and dividends to our shareholders.

As we think about -- just kind of in that same vein, as we think about capital deployment, a question we get asked a lot is around opioids. And the settlement around opioids, the potential settlement, what that would mean for the ability to actually do something larger scale, what it means for share repurchase and some other things. So why don't we just first start with any update that there is around your last discussion on a potential settlement framework. So you had, just to remind everybody in the room, McKesson decided not to do really anything, right? It's only talked about the 2 counties. You came out and put a number around it, and Cardinal decided to accrue for it. So one, if there's any update around that, the time line and where we are and kind of what are the next steps that we're looking at. And then secondly, how do you think that an ultimate settlement plays into capital deployment?

So we just appointed Dennis Nally, as I said earlier, a former Chairman of PWC and I said to him, I couldn't have ever imagined that the central point of our last earnings release when we had the fiscal year-end and the guidance for FY '20 would be the accounting drama on whether we accrue or not. And certainly, I think that for AmerisourceBergen, we made the great decision. And it's about 2.5 months ago since the 3 -- 4 attorney generals. We had a very bilateral and industry-wide exchange with them, and we think we came up with a settlement that is, under the circumstances, I would never say it's fair because I think you know I feel about it, but it was practical to be moving forward. And it's very important for us to remain investment-grade. At this stage, I don't think that anything we would do M&A wise would be constrained. We've never done $4 billion or $5 billion-plus acquisitions. We have -- the 2 big acquisitions we've done have been $2.5 billion. And that's sort of the sweet spot of what we'd look at. I think that's the sort of area that we'd be comfortable with. But they have to be quality companies and certainly PE companies have been willing to pay very high multiples for what we would not regard as the highest of quality companies. So I think it's pretty clear what we're going to do. A lot of -- we meet with some of our shareholders. They encourage us to be more aggressive on share buybacks. But we like having a strong balance sheet. And you've been in this industry for a long time. And you remember that I was here in 1999 when Bergen's stock went from 28 to 3 and we reached our debt covenants. And I think for wholesalers, it's really, really important. We get a lot of credit from manufacturers. We want to be investment-grade. We want to have the -- a really strong balance sheet. And I think we have a balanced capital structure. I can look any shareholder in the face and say, we returned -- we had about $1.5 billion to $1.6 billion in free cash flow, and we returned a good percentage of that to you last year and the year before.

I just want to circle back to a couple of things that you said earlier in our conversation, because I think one of the things that is sometimes missed around the ABC story is your specialty business. And I know that's where you came from, Steve. You talked about the fact that you have nearly a 50% market share, even though McKesson has 20% market share with U.S. Oncology in talking about the oncology office. What do you think over the next several years, what changes in that marketplace when we think about that relationship? I think there's questions around what happens with Part B reimbursement, do we have some kind of new pricing mechanism in the marketplace? You brought up biosimilar several times, but without interchangeability, is there really an opportunity for Amerisource to make a substantially better margin in biosimilars? So just overall, how are you thinking about that market today?

Look, our margins in specialty are higher in physician distribution. We deploy more capital there. We -- receivable terms are a little bit longer. But I think that's because we play a greater role. Biosimilars are definitely an important part of that. But we're really benefiting from the new therapy. So we have the existing -- I mean, if a cancer patient -- you have a breast cancer patient, they have all the technologies that we've had in the past, plus the newer ones. And those are sort of -- they're not chronic treatments, they are episodic treatment. So we do have a good opportunity with interchangeability. So I think it's going to be very interesting. But I think the personalized medicine, the genetic testing, time managing the course of treatment is going to be very interesting for ABC, and we are so well positioned because those practices trust us and they're going to allow us to interface them from a clinical perspective and maybe look for that ovarian cancer patient that is going to help with the manufacturer's trial. And I think these are just areas that we're very, very interested in, and ABC has a sophistication understanding. I mean, recently, we got an industry data presentation. And I was looking at the people in the room, and we all could have given that presentation. We know what's going on in our marketplace so much better than we have any time in the past. And ABC has really developed from a sophistication perspective. And I think the same is true in MWI in our commercialization business. Anything you want to add, Jim?

Yes. The -- those trends in specialty that Steve was talking about that are benefiting our specialty physician services businesses are the same trends that are benefiting our commercialization services business. So the drug trial logistics that World Courier does, the market access consulting that XCenda does, the patient services work that Lash does are all benefiting from those specialty trends.

So we have about one minute left. And I've asked you this question in the past, I've asked everybody this so far. When we're sitting here next year, it will be 2021, what will investors appreciate about ABC that they don't appreciate today?

I think we are very resilient. I think we're going to execute. Look, it's inevitable that we're going to face challenges. The regulatory environment is very complex. But this management team, we have our purpose of being united in our responsibility to create healthier futures. And we're very intent on doing that. And this team is motivated. We're excited about the customer partnerships we have, the positions we have in the marketplace, the opportunities we have in front of us, our strong balance sheet, and you'll see ABC performed very well in the future. I'm very confident.

Okay. Thank you very much, everybody. Thank you.