McKesson Corporation (MCK) Earnings Call Transcript & Summary

Good morning, everyone. My name is Bob Jones. I cover health care services here at Goldman Sachs. Welcome to the McKesson session. We're very excited to have both Brian Tyler, CEO; and Britt Vitalone, EVP and CFO, with us. Thank you to you both for participating and Happy New Year.

Happy New Year.

Happy New Year.

So I thought, Brian, maybe just to kick things off before we get into some more specific topics. As we sit here at the beginning of yet another year, you've held various roles at McKesson over the past 2 decades. Just wanted to get your perspective on what you're most excited about within the various businesses and channels as you look out, not only into 2021 but into the years to come.

Sure. Well, first off, thanks for having us today, Bob, and Happy New Year to everybody out there. I know there was a -- at least it felt like a strong sentiment of happiness to send 2020 into the rearview mirror and great anticipation for 2021, and I suppose many of us share that. Although I would tell you, in my view, 2020 was really strong year for McKesson in many ways. I mean, the resiliency of our teams, their adaptability, I thought was remarkable. Our ability to execute in probably the toughest year we've seen and certainly, in some of our core business, was inspiring. And I think most importantly, from my perspective and what excites me about the future is that, in the midst of all that, in all that turbulence, we continued to stay focused on our strategies, to make investments into those strategies and to progress and to show real progress against those strategies. The 3 pillars that we're really focused on right now, one is in oncology, where we have a leading presence in community oncology. We have the U.S. Oncology Network. We have health economics outcomes capabilities, data and analytics capabilities. And we've continued to push and invest in those. That's a growing market with a good strong pipeline and portfolio of potential partners for us to be aligned with. Our Technology Solutions business, which is really connectivity and providers and into pharmacies and focuses on automating health care and really supports biopharma and advancing access and adherence solutions and help the health care system overall. We've continued to make great progress, and we continue to be excited about innovations like Access for More Patients, which is a new product we launched early in the year. And in the midst of everything else going on, I think that's quite a testament to our teams and their ability to not only get the day-to-day done but to continue to be focused on the future and where the growth, where the company, lies in the future. So I think the team has come together really strong, has really showed the strength and the breadth of the assets that we have in McKesson, how we can both balance execution in the very large day-to-day core operational executional businesses, but flex quickly to meet the needs of our customers and the evolving and emerging opportunities in the markets where we have such good presence in. So when I look ahead, I'm just excited that we've got a resilient, strong organization that's aligned around a set of strategies, that's committed to advancing those strategies and position markets that can support growth against those strategies.

Thanks for that, Brian. That's a great start. I guess maybe just to get into some specifics. Things are obviously very top of mind for us and for investors. There's clearly been a heightened focus in the recent weeks and days around the vaccine rollout. Some reports might suggest that the rollout hasn't been progressing quite as originally expected. There's debate around maybe why that's been the case and maybe where the bottlenecks have come from. I think it'd just be great to get your views on how you think things have gone in these early days just from an overall standpoint. And then for McKesson specifically, has there been any unforeseen challenges given the important role that McKesson will play as the centralized distributor for the U.S.?

Yes. Yes. Well, it should go without saying we're quite honored and humbled to have the opportunity to play the role as the centralized distributor really based off the strength in the backbone of our vaccine distribution, prior experiences and being a leading flu vaccination supplier in the country today. I think just to maybe make sure people are clear on what our role is in this, the CDC takes orders from the 64 jurisdictions, which is largely states and health agencies, like Indian Health Services. They aggregate those orders, look at supply, make allocations based on those orders and then feed that, that to McKesson. And we fulfill what the CDC provides us to the site of care that they instruct us to send it to. And so that's our role. We don't have any influence on how much goes where or who gets what. We are, as a 3PL, really fulfilling those orders for the CDC. And so I think a lot of the conversation that you're hearing right now is kind of mixing 2 things. When we think of distribution, we think of McKesson's role. Get that order from the CDC, get the vaccine supply in the right quantity, with the right temperature control to the site of administration it needs to be. That's going pretty well. I mean, we are right on the time lines that we have committed to with the CDC. If you go to their website, they'll tell you that we've distributed 15.4 million doses of the vaccine. I think that when you hear about the challenges, and let's face it, there's just tremendous interest, focus, scrutiny of everything, particularly in the environment we're in now. When you think about the administration, I think only roughly 25% to 30% of those doses have been administered. Now that's thousands of provider sites across the country. And I think a little bit of this is probably just learning curve. We're dealing with some ultra-frozen vaccine. That would be the Pfizer vaccine, which is different than the frozen vaccine, which is the Moderna vaccine. And so I think providers are just kind of getting used to how do we target. And remember, too, the first wave of people getting vaccinated are the frontline caregivers themselves who are also kind of busy taking care of near-capacity hospitals and systems. So look, I'm sure everyone would acknowledge the administration side of it has probably not gone as quickly as we would like it to, but I think that people will continue to ramp up the learning curve and you'll continue to see those provider sites progress. And in the interim, McKesson is very pleased that we've been able to stand this up in relatively short time and deliver the distribution component of it right along the time lines that we were committed to.

No. No, I appreciate that, Brian. I guess one of the other questions that comes up quite a bit, it might again be just outside the core role that McKesson's playing, but would love to get your thoughts on it. Are there things that you're hearing or in discussions with about potentially speeding up the process, not just maybe within some of these early hiccups on the state-by-state level, but just, in general, as far as getting the vaccine out there to the folks that want it quicker? Or are there any things that you're hearing or in discussions about?

Well, I don't know that I have any secret insight or speculation that will be useful here. I do think everybody, from the manufacturers who are trying to staff up production facilities and recruit workforces and accelerate the production of the vaccine, obviously, to us making sure we've got throughput to handle whatever quantities come, to the administrators, are really looking at the process and thinking every day, how do we get more vaccine into more arms more quickly? And that's ultimately what it's about, is that last mile of challenge of getting the vaccine into the arm. And I'm quite confident. I'm encouraged the partnership between ourselves and manufacturers and Operation Warp Speed. Everybody's got a shared interest in this to get this right. So I think as we get focused on the task at hand and less about what the issues are and focus on improvement, we'll continue to see improvement as people just get more comfortable dealing with this. A lot of this is brand new.

Yes. No, for sure. I guess, just one last one on the vaccine. And I know we're still early days, and I don't know if Britt, maybe you want to jump in on this one, too. But as it continues to progress, I know that it's been hard to really share much details just because we didn't have them. But now that you're actually starting to see the vaccine rollout, is there anything that you can share to help us think about the economics that could be at play here for McKesson as we think about not only just this initial phase, but as we look across the year?

Yes. Thanks for the question, Bob. I think there's 2 areas to speak of here. There's the vaccine component itself, which, to this point, as Brian talked about, we've distributed -- we've begun the distribution of that here in our third quarter. We'll talk a little bit more about that on our earnings call. And then there's the kitting component, which we have begun the building of the kits really in our second quarter and really has ramped up in our third quarter. And we provided some information on the kitting component of that. In our guidance, we provided a full year contribution of $0.15 to $0.20. So as we've begun to get the vaccine into distribution, we'll have a little bit better sense of how that will play out over the fourth quarter. And we'll provide an update on that and provide a little bit of guidance for the remainder of the year as we learn a little bit more about what the distribution schedule is going to look like for the rest of the year as well. So just to repeat again, the kitting side, we provided a $0.15 to $0.20 contribution range for FY '21. And on the vaccine side, we've begun the distribution at the end of our third quarter, and we expect to provide some guidance around what that will look like for the full year on our earnings call.

Got it. Thank you, Britt. That's helpful. Maybe moving away from the vaccine and thinking about some of the other trends out there that have been fairly dynamic probably as a result of COVID, but one clearly that everybody watches, is prescription trends. I think you guys have said, at least once or twice, this year should be lumpy. I think we've all kind of seen that in the numbers that we're tracking as well. But the data that we look at would suggest that script trends could be down in the, call it, mid-single-digit range in recent weeks. At least the recent weeks of data that we have, as opposed to maybe a little bit more flattish if you go back to the fall time frame. Is that in line with what you guys are seeing from your side? I guess, would be the first part of the question. And then the second part is, how does that compare to what you expected us to be seeing at this point in your fiscal year?

Sure. So I think generally, we all track the same prescription trends. And given the breadth of our business and the balance across the channels, we tend to experience what the market's experiencing. So just in terms of what we're seeing today, there has been a little bit of softness in that IQVIA data in the last couple of weeks, but you also have been -- we obviously had the virus itself accelerating in some communities, decelerating in others, so some variability there. You had year-end holidays. You have benefits plans rolling over. So there's a lot of noise in there. I do think, though, it underscores the point that Britt and I have been speaking to over the course of this year, is that there was going to be some volatility. And when we laid out our original guidance, we sort of said Q1 is going to be really soft and bad and then we're going to grow sort of continually through Q2, Q3. And by Q4, we ought to be back to pre-COVID kind of levels. That turned out to be overoptimistic. And what we actually saw was a bit of a faster recovery in Q1 and into Q2, particularly the early part of Q2. that then started to [indiscernible] tone a little bit, and that's that stability you kind of referenced in the early fall standpoint. But I think even then what became clear is that the full recovery to pre-COVID levels probably was going to stretch into calendar 2021. And so it wasn't perfect guidance at the time we gave it. It was best line of sight, and we've tried to keep people -- we tried to recalibrate as we've got more and new data. But we do think, based on what we've seen, that we're going to continue to have some of this nonlinearity or volatility.

And Bob, maybe if I just could add on to that. I think what we're seeing now is in line with some of the guidance that we gave on our last earnings call that we do expect that the full recovery will extend beyond our fiscal year and into FY '22. So I think what we're -- the unevenness that we're seeing now fits the guidance that we gave of an extended recovery time frame.

Okay. So safe to say, the range might not have played out the way you thought originally, but the range itself still, at this point, has captured what has happened.

Yes.

Yes.

That's helpful. I guess another one that obviously comes up this time of year in January is branded pricing. There's been a few articles out there. I think it's always something that comes up this time of the year, just given the percentage of brands that take their annual price increase in January. Understanding that it's really not that big of a piece of the overall branded book anymore being linked to the increase of pricing and that most of it is, in fact, fee-for-service, but any initial observations on what you saw this January versus some of the more recent Januaries thinking about 2020 or 2019?

Yes. Maybe I'll start on that. Obviously, we're just a couple of days into the year. And again, I think you made a good point that I would reiterate here. The variable component of our compensation is less than it's been historically. It's right around 5%. And this is the strength of our relationships with manufacturers and how we've evolved those relationships over the last several years. The variable component continues to be a very nominal part of this. To the point, though, on what's happened early on here in January, I would say that the price increases that we've seen have tracked largely in line with how we planned the year out and largely in line with the guidance that we provided at the beginning of the year. So obviously, there's still a lot to play out here in the fourth quarter, our fiscal fourth quarter. But what we've seen thus far has really tracked really closely in line with what our expectations have been.

Got it. No, that's good. That's good to hear. Maybe switching gears a bit, thinking about some other potential drivers. Biosimilars seems to have garnered a bit more focus in recent quarters or even this past year even than maybe it had for the past few years. Just curious maybe if you could talk about why you think some of these products are, in fact, starting to gain more traction? Brian, you mentioned a lot of focus on oncology. I know that's a piece of this as well. And clearly, we're all looking at the same data, and it actually does seem like, in some of these categories, the biosimilars are actually capturing a decent amount of market share. So I guess, first part would just be, any thoughts you have on why we're actually starting to see some momentum here with biosimilars? And then I guess, what role could you talk about McKesson playing in helping continue to kind of push some of these categories where there is a biosimilar option deeper?

Sure. I'll start, and Britt can add on. I mean, first off, I would say it's still early innings of the biosimilar story. I mean, I think there are 28 in the U.S. that have been approved, 18 that have been launched. We do like biosimilars. We think they're good for patients, good for cost, good for the health care system cost, good for providers and anything that's good for community providers tends to be constructive for McKesson as well. I think if you look at the launches that have happened, 2018, 2019, 2020, it's been a handful each year. And those first ones were really kind of new. So to the question of how has adoption gone, I think in the very early days you saw people trying to get comfortable with it and really focusing on new patients that start and probably not moving all new starts, but testing, so to speak, with some patient populations. And then as you get clinical comfort, as a practitioner, I think your comfort level grows, and therefore, the penetration of the biosimilar continues to grow. So I think a little bit of it is just kind of the natural evolution. Obviously, over time, what we've seen is an innovator with no competition goes to an innovator versus a biosimilar and then ultimately, multiple biosimilars within a therapeutic class would start to give some more element of choice as well. So I think -- I would say the general thing is some of these have been in the market longer, so there's more comfort, more data, more clinical -- even mouth to mouth, I've had good success with this. So the comfort level is rising, and that's helping adoption a little bit. And I think that will probably continue. But if you look at the pipeline for biosimilars, overall, it still remains mostly ahead of us. There probably won't be another big biosimilar launch until HUMIRA in 2023, 2024, I believe. And so I think the growth between now and then will probably continue to be this adoption.

Got it. Yes. So I guess just to be clear on that last point, Brian. You don't necessarily see this being a material driver to the business for the next several years. Is that [indiscernible]?

Yes. I wouldn't describe it as material driver today. Look, it's good for us. I mean, it's constructive. We think it's good for health care. We think it's for community practices. Part of your first question was to ask me how can we help in this area. So we work with the biosimilar companies on commercialization strategies. We have a GPO in the community pharmacy that has good access to providers that can help get uptake. And in U.S. Oncology where we have over 1,000 oncologists as part of that network, when their clinical committees make decisions to go with innovator or go to biosimilar, you can get pretty rapid adoption. So we've got a lot of assets and tools. I think we've got a good story to help both the innovator but the biosimilar. And so those are the kinds of things we will bring to bear to help, but it really isn't material to the business when you look at where we stand today. I think most of the opportunity lies ahead.

Bob, maybe the last thing that I would just add to this is that the drug itself, depending on the site of care and what services McKesson can bring, and Brian talked about the GPO services. But the site of care will also have a difference on the profitability, whether it's in the community space, like in oncology, community oncology or it's a health system with predominant biosimilars. So as the pipeline continues to evolve, as the sites of care become more clear on where the predominant setting will be for these drugs and what services McKesson can bring to bear to support that, I think that will also shape the economics.

No, that's helpful. You kind of led into my last question on biosimilars. It was just around how should we think about the margins as they do become a bigger and more important part of the overall business? I know one of your competitors has kind of said it. The margins were higher than a biologic but lower than a normal generic. Is there anything you could share to just kind of help us think about how to frame this as they start to become a more meaningful part of the business?

Well, I mean, I think that's a general good characterization in terms of margin rates. I mean, if you think about a generic, I mean, these are chemically equivalent, purely substitutable, sort of no preference, if you will, and usually multiple competitors. So that's going to be your best opportunity to extract channel power and margin and leverage. On the other side, a pure innovator, a drug class of one, you -- there are no alternatives. So you don't have as much leverage in that discussion. I think biosimilars are going to be somewhere in the middle, based on, what is the therapeutic competition? What's the level of interchangeability? What's the clinical comfort? The more you have choices and the more those choices are viewed as equivalent, the more you have an ability to leverage something like the U.S. Oncology Network to pick a partner and to drive share to that partner and to get rewarded with better margin for that. So I do think it will be a spectrum between those 2 boundaries. And I think to Britt's point, depending on what segments and how much competition and how therapeutically equivalent they're viewed, those kinds of things will determine where it shakes out.

Got it. Yes. I guess just one last one within the pharma business before we maybe move on to a different segment. I guess, if we take a step back, obviously, there's been some pretty healthy growth at the EBIT level within the pharma segment. If we try to break down the 3 components of it, let's think it's brand, generic and then specialty, in general. Is there any context you can give us as far as kind of what those different 3 components, and I know we're oversimplifying, but what those 3 components have contributed to growth? And how we should think about them continuing into 2021 to continue to grow?

I really think, Bob, we try to manage it as a mix, as a portfolio overall. And obviously, there's going to be different dynamics in each one of those segments in any given year. What we really are trying to do as a business is make sure we're well positioned against the pipeline of where that future opportunity will come. At specialty, that's oncology, that will be biosimilars. We've got a large base. In generics, we've got an excellent sourcing engine, a partnership called ClarusONE that's very focused on making sure we're leveraging that sourcing competency, both for the benefit of our customers and their ability to stay price competitive, but also for us to be able to maintain a buy-sell spread. That spread has been pretty stable over time. Britt talked about the brand price inflation environment we're seeing, and now really kind of multiple years feeling like it's been steady. So I think they all kind of work together.

Yes. And Bob, I think to that last point, what's really been important is we've seen stability in the pricing environment. We've seen continued good execution on the sourcing side. We've seen just good execution and disciplined approach to how we price our business and how we bring value to our customers. I think all of those things, in addition to just better execution and focus overall, is really leading to more stability and stable growth. So I think it's stability. I think it's execution. And I think it's discipline.

No. No, that's helpful. I guess, maybe switching over to the MedSurg business. You have an interesting lens just given health care utilization and how many different centers of care, sites of care you touch within that business. So I guess just for starters, how have you seen utilization trends through the lens of your MedSurg business to date?

It's probably not all that different of a story than what we've seen on the pharmaceutical side with a little bit different metrics. So if we think about physician office visits early in the year when we kind of shut down the economy, so to speak, and people retracted from or discouraged from seeing health care providers, we saw a pretty big drop. As economies opened up, that tended to bounce back relatively quickly, not to pre-COVID levels again. And then we saw that stabilizing, whether it's elective surgeries or physician office visits. In fact, the only thing that probably got back to COVID levels at one point was oncology office visits combined with the telehealth piece, which is good because that's -- cancer doesn't go away. So we know that those patients were still out there. Then, we saw a little bit of weakness again when COVID spiked -- tended to spike in some communities, again, again, elective procedures dropped a little bit. Physician office dropped a little bit. But we really have, to your point, a very broad business in the alternate site marketplaces, serving nursing homes, long-term care facilities, physician office, surgery centers. So I think, in some ways, the strength of the balance of that portfolio positioned us to take advantage of new opportunities that presented themselves to us. Obviously, PPE demand has been pretty elevated all year. Lab COVID testing has been good for us this year. That's something that 1 year ago would have been -- no one would have been imagining. But the prior investments we've made in our medical business, building a lab channel and lab network and relationships with that lab manufacturers really positioned us well to take care -- to take good advantage of that market opportunity.

Yes. You mentioned, Brian, 2 of the variables that come up quite a bit, as people try to think about the impact from COVID on the MedSurg business to the positive. You mentioned testing and PPE, clearly, a lot higher demand for both. Is there anything you can help us with as far as just order of magnitude or ring-fencing of just how much that's helped to date? And as the vaccine now becomes more and more available, how should we think about the contribution from things like PPE and testing over the course of the next year or so?

Yes. Great question. I'll -- Britt will, I'm sure, build on my comments. I've been in this business for 24 years. And I think prior to COVID, I'm not sure -- I bet if you look back at all these calls we've ever done, you probably never heard a mention of PPE. I mean, it really wasn't just a fundamental or material -- it was a core part of the business, but it didn't really drive the business. Obviously, this year, PPE is elevated. It's been good from a gross profit dollar progression. I mean, it's been a little bit of pressure on gross profit rates. As we've tried to insulate the best we could some of the price activity we've seen in the marketplace, it certainly had some impact on our investments in inventory and working capital metrics and things of that nature. The test kits was more new demand. I mean that was kind of a new market segment that I give a lot of kudos to the team for going out, building those relationships, getting the tests in, getting them through our channel. That's been a good win for us. Where it goes from here, I think, is a little bit difficult to forecast, to be quite honest. I mean, it's going to depend on how health care is practiced. I mean, will hospitals and physician offices and long-term care facilities go back to the way they used to do business once they feel comfortable and there's a vaccine? Or will they keep some of their modified protocols and more masking and gowning and face shields? I think a lot of that is difficult to project right now because a lot of it will depend on the efficacy and what the speed and the rate at which this comes out. And then on the vaccine front, does it -- does this become a chronic thing? We're going to test for this and administer vaccines every year. Does it get integrated with a flu? There's a lot of questions. A lot of things that we're tracking closely right now. So I think I'd just summarize by saying, look, it's been good tailwinds for the business this year, a little bit TBD on how fast and at what rate it kind of trips back.

Bob, maybe just 2 other points that I would just add on to what Brian pointed out here. But first of all, we do have the $0.15 to $0.20 contribution from the kitting component of the centralized distribution with Operation Warp Speed. That is in the medical segment, and that is in our full year guidance. And then the other thing that I would point out, in addition to the new and elevated demands that we've seen around PPE and COVID test kits, which really leveraged a lot of the investments that Brian talked about, we do have core growth in the business. And we saw core growth in our Q2. So while the year-over-year growth was very impressive and a lot of that was driven by new and elevated demands for COVID tests and PPE, there is underlying growth in the business, and we continue to see that. So you've got the new volumes. You've got the elevated volumes. You've got core growth. You've got the kitting opportunity that is gone along with Operation Warp Speed. All of these things are adding to the growth that we're seeing within the medical segment.

Got it. I guess, maybe again switching gears a bit. Another topic that comes up quite a bit is just around policy -- on the policy front. And I know there's a lot out there, so we'll try to narrow it to the things and topics that probably are most relevant to McKesson. But one that sparks a lot of debate is any talk around any kind of model around Part B pricing. The Most Favored Nations rule had come out. Clearly, the industry have opposed it. There's still a lot of debate on whether this will ever really have any legs. But, in general, I think it kind of brought back to the forefront this idea that is there some partisan way to get after Part B pricing? And so I guess, ultimately, the question is, how do you think about a change in Part B pricing affecting McKesson's business? How should we think, if there wasn't a -- I guess, first off, do you think it's viable or likely that you could see some kind of policy change in Part B? And then if there was, obviously, how should we think about the implications to the McKesson business?

I mean, a couple of pieces to that question. It's a good question. I mean, first, how likely is it? I mean, we got the executive order. We've got the restraining -- the temporary restraining orders. We've got a new administration in 16 days -- 15 days. And while we're working very closely with the buy and transition team, I don't think anyone's got full visibility into how they're going to -- what moves they're going to make as they walk into this situation. I mean, I do think you saw industry very broadly come out against this policy, really on the, first and foremost, I think, on a patient access issue. I mean, CMS themselves projected that within 3 years, Medicare -- 19% of Medicare patients would lose access to these 50 products that were part of this executive order. I mean, I don't see how that's a good outcome for our citizens. I don't see how it's a good outcome for cost of health care in this country. And then the second concern was really the impact on providers. And you saw the community provision of these health care services is the most cost effective, highest access, equally good quality place for this care to happen. So it just seems to be in conflict of where we're trying to go overall with bigger health policy to put up structures that push care out of the community-based settings, the challenged community practices. And so that's been our position, is to advocate that. We've got to find a way to do this that promotes access, that promotes lowest cost of care setting. So that's our policy position, and I can't really forecast what the next month -- my opinion is probably no better than all the pundits out there. So I will say though, if something were to happen that pressures community-based providers, that, in turn, pressures us. If your customer comes under pressure, you come under pressure. So we'll follow our normal playbook to be highly engaged with the decision makers, at the agency level, the administration level, to educate, to make sure that we're making an informed policy that supports the provision of care in the communities where we think it best happens.

No, got it. And I know it's a very difficult thing to predict. I guess, maybe another thing...

It's been a issue for 3 or 4 years, and we're still talking about it.

Yes. Yes. No. No. It's fair. I guess, another topic that came back to the surface late last year was Amazon, which I felt like maybe we had a bit of a reprieve for a few years there. So I guess just generally, the announcement around some of their initiatives within pharmacy, just in general, I'd be curious to get your thoughts on how significant or how meaningful you thought that announcement was.

Yes. So look, first, I would say, we weren't surprised to see an announcement. We were probably surprised how long it took. If there was a surprise in it for me, it was a positive surprise, I guess, in the sense that after all that time, the way they came to market really was kind of -- had to be underpinned by existing industry players and structures. Like they needed a PBM, they needed a network of pharmacies, they needed a drug discount card. I mean, none of those are really novel or new. So look, I mean, you never underestimate a company with the capability of an Amazon. But I do also think that this last year has been good for the retail pharmacy base in terms of accelerating their initiatives and abilities to get to patients where they want, whether that's in the home, home delivery, online. They had to really address the way they serve their customers, too, not because of an Amazon threat, because COVID changed the way customers needed to consume those services. So I mean, I think it's something we'll keep watching. But as that announcement could have went, thought it was somewhat benign for the industry.

No. And I think we would agree to as far as all the possible scenarios that we were all outlining a few years ago. That one -- that seemed like kind of the base case. So I get -- sorry, go ahead, Brian.

I was just going to say, I just do think that speaks a little bit to the moats and the stickiness around some of these business models. And the community pharmacies are very resilient. They're very innovative. They're very adaptive. They're very integrated in their communities. And we think the -- they will continue to find ways to create value that's difficult to do in the other model.

Well, just 2 quick ones on those points, because there was 2 other topics that I wanted to at least throw out to both of you. One was just around mail delivery. Online pharmacies, in general. I mean, I think the Amazon announcement was something that's shown the light on that. But clearly, COVID was something else that kind of maybe had people rethink the way they get their medications. What is -- what would a more significant shift to home delivery look like to McKesson's model from an economic standpoint? And then relatedly, as we think about that independent pharmacists, have you sensed that they have come under even more pressure, obviously, as a result of COVID, to the extent that you're seeing more of them have to shut down or sell their files? Anything that you would highlight on those 2 fronts because of what played out this past year?

So I'll start, and Britt, feel free to jump in. Well, I think the independent segment has been remarkably resilient. When we laid out our original guidance at the beginning of the year, you'll recall we had flagged 2 big assumptions. One was that we wouldn't face a period where we had to shut the economy down or restrict people from consuming health care again. And the other was we had made no assumptions around customer solvency and credit health, so to speak. But I would say, as we look at this point in the year, I mean, our customers have been resilient. We have -- it's not been a typical year really, in any way. I mean, in a normal year, we would see a couple of hundred openings, a couple of hundred file sales or closures, but the aggregate level has really stayed remarkably constant over the last 20 years. And so I think we've seen some of that, but it's nothing that I would characterize as a COVID impact. It really hasn't fallen outside of the parameters of what would look normal in recent prior years. What was the other part of your question, Bob?

Just the online pharmacy piece. I think there's a view that a lot of folks are willing to maybe do more stuff from their home, clearly, as a result of what happened last year. I mean, just as you -- have you seen that trend pick up? And would that -- if it did pick up and continue, how meaningful of an economic impact would that have on the business?

I mean, we've certainly seen kind of the same volatility we talked about earlier with mail or 90-day scripts flexing up and then returning back to more normal. So -- and if you think about the shift in mail order over the last decade, right, it was at a really high spike. And once you equalize the cost of mail versus cost of 90-day in pharmacy, then you saw a big shift of those scripts back towards pharmacy. So I think the economics and the economic model will matter a lot here. In terms of what we're seeing in the online pharmacy space, so to speak, I guess, in my mind, if you're going to talk about it, you've got to really bifurcate it into kind of pure online, I have no physical pharmacy, I'm a [indiscernible] or a HIMSS or a Amazon. We really haven't seen that as a material segment emerge yet. But let's not forget the other, which is I'm a community pharmacy and I'm doing home delivery, and I've been in doing home delivery for 10 years. Or I'm CVS or I'm Walmart, and I'm building my online capability too as a complement to my physical pharmacy. So we've talked about this omnichannel model for a long time, and I think you're really starting to see it come to fruition.

Got it. No, that's helpful. I guess another topic that I'd be remiss not to ask about is opioids. I know you're limited in what you can actually share at this point. But just given the overhang it's been on, on the group and the stock, worth checking in. Any latest thoughts? I mean, it felt like we were getting close, based on some recent press releases, some mentions within filings. Just wanted to check in on your latest thoughts on where we are with the potential opioid settlement.

Well, I don't know that there's anything substantive I can add since our Q2 earnings call and our 10-Q disclosure. We did reference that a set of AGs had developed a framework and that we were in negotiation. That framework calls for about $21 billion for ourselves and 2 other large pharmaceutical wholesalers over 18 years. McKesson's share of that would be about $8 billion. It's -- I think that kind of ballparks the economics for you. Obviously, within the framework, there's all kinds of mechanisms and things that need to be worked out. We -- look, we're continuing to be optimistic that we can find resolution. That resolution has to be the best thing for our shareholders, and that's our first focus. But we would -- more optimistic we can get this driven in. We're hopeful that we can do that, so then we can get funds into communities that particularly now really have people and families and patients that need this kind of help.

Got it. Got it. Now we just have a few minutes left. I just had 2 other topics I wanted to touch on. One is just contract renewals. It seems like -- it doesn't seem like it's been as big a focus lately. But are there any that we should be paying closer attention to for McKesson specifically in the coming year?

Typically, we renew roughly 1/3 of our book every year. In a year where it's a big name, it's public and people track it, contract renewals tend to get a lot of focus and scrutiny. But we have a really good track record of renewing our customers, and we would expect that track record to continue. So I would say this is a normal renewal year for us.

Okay. Got it. No, that's helpful. And then the last one just around capital deployment, which I think for a lot of folks has been maybe not as big a focus given all that played out in 2020. Clearly, McKesson has a very strong balance sheet. Just wanted to get your latest thoughts as you look into next year and hope to be a more normal backdrop not only just what are the capital deployment priorities in your mind? I think we know what the avenues are, but just maybe -- what rank order kind of what the priorities would be. And then from an M&A perspective, specifically, is there kind of a general priority list in your mind? Obviously, not naming names, but more naming types of areas or businesses that would be higher on the list?

Yes. Maybe I'll start, and then certainly, Brian can add on. We have a very balanced approach to capital deployment, and it starts with good solid operating cash flow. And we've demonstrated good operating cash flow for a number of years. This year, a little more volatile given COVID and some of the PPE volumes that we talked about, but our operating cash flow continues to be solid and strong. And that's where it all starts for us. We balance it across growth and returning capital to our shareholders. To answer your question, we prioritize growth. And we prioritize growth along the strategies that Brian talked about, our differentiation in the areas of oncology and biopharma services, those rise to the top. So where we can accelerate those strategies, either internally or through M&A, that's where we would like to do that. And of course, we have high return thresholds for investing in growth because the other option that we have is to return capital to our shareholders. We have a modest but a growing dividend. And certainly, we have demonstrated the ability to return capital to our shareholders through share buybacks. So we'll continue that balanced approach, prioritizing growth but remain committed to returning capital to our shareholders. And then the last thing that I would point out is all of our capital deployment is really underpinned by our solid investment-grade credit rating, which we're really proud of and we're committed to. So I think we've demonstrated this good balanced approach now for many years, and that's how we're going to look forward in the coming years.

Great. Brian, anything to add? Or did Britt summarize that pretty well?

No, I think he and I are very well aligned on this point.

I would hope so. Well, look, that's all the time we have. I really appreciate, Brian and Britt, you guys taking time out to do this. Hopefully, if we do it again next year, we'll be back in person. And thanks, everybody, for joining. Really appreciate it. And stay tuned for the next session. Thanks again.

Thanks, Bob.

Thanks, Bob.

Happy new year to everyone.