McKesson Corporation (MCK) Earnings Call Transcript & Summary

Good morning. My name is Lisa Gill, and I'm the health care technology and distribution analyst of JPMorgan. It is with great pleasure this morning that I have with me McKesson. With me this morning is CEO, Brian Tyler, of McKesson; also with him is Britt Vitalone, who is the CFO, and will join us for Q&A. Before we get started, I also just want to plug we'd do that tomorrow. So I'm going to let you kick off your presentation, and I look forward to the Q&A component.

Great day. It's really my great honor to represent the roughly 80,000 talented and dedicated employees in McKesson and share the McKesson story with you. Before I start, Slide 2 is our full list of disclosures. More information is available in the Investors section of our McKesson website. Moving on to Slide 3. I'm coming up on 2 years in my role. This is my second JPMorgan conference as CEO. And obviously, this one is a little bit different than they have been in past years. What isn't different is our vision, and that is to improve care in every setting, one product, one partner, one patient at a time. We are one team, charity, efficiency, automation, connecting transactions and workflow and supporting all the care that goes on in the community settings that we serve. That, of course, changed this year as our nations battle the COVID-19 pandemic. Issues of medication and supply availability, PPE and vaccine distribution took front and center and became really part of our everyday conversation. I've just been so tremendously proud of our team's ability to consistently execute and deliver in support of our heroic caregivers and the communities that they serve. While it took all of the team McKesson, we all had to show flexibility and resiliency and empathy and creativity. I'm particularly proud of our essential frontline employees at McKesson. Those that kept the medicines and the supplies moving, physically moving through our distribution centers and our transportation professionals and to our pharmacists that showed up and continue to serve their communities day after day, I want to pass my biggest thanks on to each of you. Moving on to Slide 4. I know you'll hear plenty about overall health care trends this week, so I'm not going to spend too much time on this slide. We're in large-scale, growing markets with underlying trends that support growth into the future. Innovation and scientific advancements represented in the pipeline is so exciting for patient care. And it's exciting for us as we think specifically about oncology and generally about biopharma, whether that be innovator or biosimilar. Utilizing our channels, our connected networks and our presence in community care, we can help drive adoption, we can get patients started on therapies earlier, we can get them to be adherent to those therapies so that they get better outcomes. We have terrific assets, and they're very focused on supporting and accelerating these innovations that are driving this growth. Clearly, the patient is going to be more engaged in health care. And this past year, the COVID-19 experience has really only accelerated these trends. Helping our community-based providers meet the patients where they are is really at the heart of what we do at McKesson. Our strong focus is on community settings, medical providers, oncology -- oncologists, pharmacy, these position us well as care continues to migrate to improve access and affordability. Moving on to Slide 5. We're often thought of as a, first and foremost, as a pharmaceutical distributor. And it's true. But we're actually a very diverse health care services company. We have great scale and reach in our distribution assets. We deliver roughly 1/3 of all prescriptions every day, and we're a leader in distribution to the alternate site markets. But we also have key differentiation in what we've identified as our growth areas, oncology and biopharma services. Through our specialty presence, we're the #1 distributor in the community oncology space. And we help enable high-accessible care, high-quality care for patients in these low-cost settings. We continue to focus on serving our manufacturer partners. We refer to them as biopharma. We've invested in innovative solutions for biopharma with a single go-to-market strategy. And we're connected to the vast majority of U.S. pharmacies, providers and payers through our Prescription Technology services business. We have relationships with over 500 brands, covering almost all therapeutic areas. We transact 19 billion transactions a year, and it enables over $5 billion of patient savings. The COVID-19 pandemic has brought on many challenges, obviously, but also some opportunity. We'll talk about some of those opportunities over the course of this chat but, obviously, it's highlighted for us by our partnership with the U.S. government and Operation Warp Speed. Going on to Slide 6. When I was here last year, I talked about 3 key priorities: grow the core, investing in our growth and streamlining the business. And really, these are the same priorities that drive us today. We're very focused on growing the core business. Fundamentals in the business remain solid, and our execution has continued to improve. Success in the core enables strong cash flow generation. On our Q2 earnings call in November, we reiterated our expectations of $2.3 billion to $2.7 billion of free cash flow. Despite the fluctuations in working capital resulting from the pandemic and our role in Operation Warp Speed, we continue to look for ways to streamline the business. Some examples: we completed the Change Healthcare split; we formed a joint venture in Germany with Walgreens Boots Alliance; and internally, we focus on our operating model, centralizing back-office functions, looking for other ways to introduce cost efficiency through automation, things of that nature. We've also recently done some resegmentation of our business to better align us around our strategies and to introduce better focus and more speed. Leveraging existing core competencies to respond to the new demands brought on by the pandemic was a success for us this year, things like PPE, COVID-19 testing and Operation Warp Speed. We're well positioned in the markets we compete in with a clear strategy and a differentiated set of assets and capabilities. The areas of oncology and biopharma services continue to be differentiators for us, and that's where we're going to focus our growth investment. So let me expand a little bit on our growth strategies. On Slide 7, I'll get into our oncology and biopharma services strategies. We continue to focus our investments, both internal investment and external investment, in these 2 areas. We identified specialty many years ago, and we've made several investments looking back over the years. Our assets position us very well in this fast-growing oncology marketplace. Recently, we also brought together existing businesses to form a segment, Prescription Technology Solutions, a single go-to-market value proposition for our biopharma customers. While neither one of these -- them is necessarily new, what is new is our focus and our investment into these areas to accelerate our long-term growth. Let's go to Slide 8, and I'll start with oncology. I mentioned previously investments in M&A and oncology we've made over the years and evolved into the business that it is today. We started with distribution. We added scale and capabilities like GPO, specialty pharmacy and hub services. Our U.S. oncology network and our Vantage acquisition provided us with deep oncology expertise, gives us insights into the community practice needs. And most recently, Ontada is a result of our focused internal investment, pairing our existing expertise with our technology capabilities. These are really differentiated capabilities that have systematically moved us up the value chain. Let's move to Slide 9, and I'll just spend a minute on Ontada. This is a business that we launched just last month, and it's the most recent example of our innovation in oncology. We developed Ontada internally with the goal of transforming the fight against cancer, using technology to provide precise insights delivered exactly at the point of need, enabled by connecting the patient's journey all the way back to biopharma. Using real-world data insights, Ontada will help biopharma bring innovative products to market sooner, empower providers to deliver more informed and effective care to their patients. We're also excited about our new partnership with Amgen. Shortly after the launch of Ontada, Amgen and McKesson announced a strategic agreement to advance cancer care and improve outcomes by accelerating the development and access to life-changing medicines. Ontada is a cornerstone for McKesson's oncology vision and builds upon the existing capabilities we've created over the past 15 years in oncology. Let's move to Slide 10. The other pillar of our strategy focuses on the value-added services we provide to biopharma. Again, we've acquired and developed capabilities that, together, create a powerful biopharma services business and value proposition. Our RelayHealth Pharmacy business, which we retained when we spun out the Change business, processes over 19 billion transactions a year, and it gives us access to the majority of U.S. pharmacies providing value-added services right into the workflow. CoverMyMeds, which was a long-time partner of Relay, we acquired in 2017. That gives us access to the workflow of over 70 -- 750,000, I should say, providers by automating the insurance approval process for drug coverage. At their core, these are both technology businesses. The RxCrossroads acquisition gave us scale and new disease state expertise in our long-standing access and adherence businesses. These businesses together make up McKesson's Prescription Technology Solutions business. Bringing them together under one leadership team gives us a much more cohesive and comprehensive strategy and enables us to get to market with our value proposition at better speed. Together, McKesson Prescription Technology Solutions connect pharmacies, providers, payers and biopharma for next-generation patient access and adherence solutions that are automated and integrated into the provider workflows. On Slide 11. Of course, like everyone, the pandemic had a profound impact on McKesson. It's been a big part of the past year, and I'm so very proud of the McKesson team and our response. During this very unprecedented time, our first and foremost priority was protecting the health and safety of our employees and their families, that was our #1 concern. So we initiated lots of protocols in our distribution centers for safety. We extended medical benefits and -- to cover things like treatments and visits related to COVID. We moved our workforce to a virtual environment, literally, almost overnight. We put a lot of emphasis on taking care of our team and, in return, they really took care of us. We lost 0 days of production in our distribution centers in the U.S., an amazing accomplishment that I couldn't be more proud of. Of course, everyone was impacted. There was tremendous supply/demand imbalance, particularly in the early days. And we know that was a great concern to our customers, and we took steps to help mitigate those disruptions. That included things like putting together a critical care drug task force to review the flow of new guidelines coming out so that we can better forecast and respond to changing pharmaceutical demand. Our global sourcing teams work closely with manufacturers to understand their plans and to create new capacity or scale up production, where that was possible. And early in the pandemic, we collaborated closely with the federal government and stakeholders to get more critical PPE into the U.S. marketplace. Over the past several years, we've really been focused on strengthening our relationship with lab partners to better position us to serve our providers as it relates to these products. This investment was a big asset this year as we've been very successful in helping get new COVID-19 testing into the provider marketplace. And finally, our company's top priority is supporting Operation Warp Speed. We're obviously humble and proud to be operating as a centralized distributor of the refrigerated and frozen COVID-19 vaccines. And we're working with HHS to prepare and store ancillary kits to go along with the vaccines to aid in the administration. Our team quickly brought new facilities online so that when the COVID-19 vaccines, such as Moderna's, we're ready -- we were ready, too. We stood up new vaccine distribution centers and infrastructure in just 90 days, adding 3.3 million square feet of dedicated space, that's roughly building 2 Grand Central stations. All right. Before I move on, I do want to take a second and just clarify McKesson's role in Operation Warp Speed. As a third-party logistics provider, the U.S. government administers the program. They make all the allocation decisions, including what product is distributed to what sites and in what quantity. Today, from a distribution perspective, we remain on target with the U.S. government's plans to distribute all the doses that have been ordered by the providers and allocated by Operation Warp Speed. We're honored to serve the U.S. government in this dual role of vaccine and supply distribution, which will streamline delivery to the frontline and those administering the vaccine. Now on Slide 12. At McKesson, we continue to be guided by our ICARE and our ILEAD values, which includes a commitment to our local and global communities. We're dedicated to doing our part to eliminate bias and promote equality, justice and fairness. And we're investing into this. Recently, we appointed Dr. Kelvin Baggett to the newly created role of Chief Impact Officer. He's responsible for our strategy and execution related to diversity, equity and inclusion, ESG; and McKesson's overall social impact. We're pleased to see some of our work being recognized, for example, by Forbes in 2020 as one of the best employers for diversity. We also recently joined the UN Global Compact Initiative, a common framework to help businesses unite and collaborate on social and environmental action. We serve a broad range of stakeholders, and everything we do is a testament to our unwavering commitment to live our values in support of our customers, our communities and each other. Moving on to Slide 13 and just before I wrap up, maybe a final word on capital allocation. We continue to be good stewards of your capital. Over the past 3 years, our fiscal year ending in FY '20, we had strong cash flow generation and continued our disciplined approach to deployment. We generated $13 billion of free cash flow over this period and allocated roughly 40% to internal investment and growth M&A. More recently, about half of that cash has been returned to shareholders through share buybacks and dividends. We're disciplined to reflect on the market conditions, the value of our stock, and FY '20 is an example of us leaning more into share repurchase as a result. Our investments continue to be guided by our strategy, focused on the growth priorities I've detailed. We want to maintain our investment-grade credit rating. We think that's a key to further strengthening our balance sheet and supporting our financial flexibility. In closing, we're executing against our priorities: strong operating profit performance, transforming the culture, streamlining the portfolio. I really believe we're making excellent progress. We're focused on investing in growing markets where we have differentiated capabilities and continue to drive innovation. And of course, we continue to deploy capital in a disciplined manner and are committed to returning to shareholders through share repurchase and our dividend. We're devoted to the places we live and work, helping to create healthier communities in every sense of the word. Stable fundamentals across and focused execution against our strategic growth initiatives gives me great confidence that McKesson will adapt to the near-term uncertainties and be positioned for continued long-term growth. Lastly, and importantly, again, I want to thank the 80,000-plus employees for their unmatched dedication during these unpredictable and unprecedented time, for their dedication to each other and those that we're so privileged to call caregivers and patients. And with that, Lisa, I'll turn it back to you and ask Britt to join. And as you're coming back to set up the Q&A, I do want to remind everyone that we are in the middle of closing our fiscal third quarter. So with that in mind, our comments today will not include specific detail on the quarter's results or future outlook. Our earnings call is scheduled for February 2, and we'll plan to give that color at that time. Lisa?

Great. Thank you so much, Brian. And thank you for all the detail today. I promise not to ask any questions around the quarter. We'll wait until the second of February. But you brought up a good point around Operation Warp Speed. And I think that there's been all kinds of news, reports around the rollout, et cetera. What do you think they could actually do better? I mean I think if you look at the way they set up the program, right, it's allocated to the states, then the states allocate it to the county. I can tell you personally, here, living in New York, City that de Blasio and Cuomo are fighting every day about who should get the vaccine. You read stories about someone, who is 30 and young and healthy, but they had that 1 last vial, and she was sitting in the office and I said, do you want it, right? So how do we think about a better coordination around this? And are there ways that McKesson can help to better coordinate that versus what we see today? And will that change with the next administration?

Well, that was a lot in that question. So let's start by we're -- we really break this down into 2 pieces. So there's the distribution component, which is McKesson's role; and then there's the administration component. The way the distribution works is that jurisdictions, the states and various health agencies, based on their localized strategy and plan to distribute the vaccines, submit their orders up to Operation Warp Speed. They aggregate those, look at those compared to the inventory that's on hand. We'll make allocations. They pass those allocations to us and then we fulfill those allocations to the provider sites. That's going very well and on schedule. Now we've all read about the challenges in the administration component, and everyone's probably had a different experience based on where you live and the way it's being rolled out. Let's -- there's a lot of energy around this. There's a lot of anxiousness to get it there. This rolled out right in the middle of the holidays. These are new vaccines with handling requirements that are new. And I think as people get into the process, we'll begin to see improvements, and people will look at ways to accelerate that last mile. But from our perspective, the distribution has been working very effectively.

And how would you compare it to H1N1 for the distribution? Do you feel like it's been as efficient as H1N1 would be my first question. And then secondly, how do we think about the economics? I know you haven't talked specifically around guidance on the vaccine rollout. But should we think about the economics being similar to H1N1?

Yes. I'll let Britt take the economics -- economic component of that. But in terms of comparability to H1N1, I mean, obviously, the expertise, the experience, the playbook that we had had developed was a key foundation to enable us so quickly to get the COVID-19 vaccine program up and running. But they are actually quite different. And COVID-19 is much more complex. I mean there are more vaccines with more diversified handling requirements, certainly, much less certainty around timing, availability and quantities. And so there's a lot, a lot more complexity in the COVID-19. And so I'm very proud of what we've been able to do and the terrific results that are coming out of the distribution operation thus far. Britt, I don't know, you want to comment for a moment on just the economics?

Sure. So Lisa, thanks for the question. As we talked about on our second quarter earnings call, we've guided in terms of the kitting component of the program. We are paid and reimbursed, and we'll recognize revenue as those kits are completed and put together. So obviously, we started that process during our second quarter. We expect that, that will deliver between $0.15 and $0.20 of earnings contribution this year. We just started the vaccine distribution really at the end of our third quarter. We're evaluating that, and we'll provide more information on the impact to our third quarter. We would expect that we'll provide you some guidance for the remainder of the year in terms of the vaccine contribution. I would say that there are many factors that go into the vaccine distribution. This will not be -- you should not expect this to look like the same economics as H1N1, including the fact that there's a mix component here where we're distributing the refrigerated components of the vaccines and Pfizer is distributing the frozen components of that. So a lot of decisions that the government will make in terms of which products are distributed, we'll also go into that. But we'll provide more detail and color around that on our third quarter call.

Okay. Great. Brian, I have to say I just noted in your presentation today, really the focus on your portfolio of companies, especially around whether we talk about manufacturing services, we talk about oncology, et cetera, when you think about how the important role that McKesson plays here in the U.S. health care system and you look at that portfolio and what you talked about today, where do you see some of the biggest opportunities that aren't necessarily appreciated today? And then secondly, are there other areas that you feel that you need to make? Just given the size of McKesson, I would assume that they would be more tuck-in type of acquisitions.

Yes. Well, I think the areas we're most excited about are the areas that I highlighted. These tend to be places where we actually have terrific sets of assets, some have been acquired and some have been built and innovated over the years. I'm talking about oncology and biopharma services. These are markets that we think by nature of the pipelines and the evolutions that are going on in the marketplace have good growth prospects and tend to be more attractive margin businesses for us. So I don't think -- you put those together, it shouldn't be a surprise. That's where our strategy is focused. In terms of where we think we have "gaps," I don't think we per se have gaps. I think we're innovating, we're looking to acquire towards where the market is going, keeping ourselves on the forefront. Obviously, where there are capabilities that through our channels and our scale, we can bring some momentum to or get to market we're at, we're always looking to augment our capabilities to serve our customers better.

I think as we think about areas, especially around oncology, one of the things that have come out more recently is the opportunity around biosimilars. So can you talk a little more specifically around how that opportunity would flow from McKesson? And I think of McKesson as being somewhat unique because of U.S. oncology.

Yes. So I mean biosimilars are going to go through multiple channels. They'll go through hospitals, certainly go through community providers. And we have a leading presence in the community provider space and significant presence in oncology specifically. So -- but when we step back and look at biosimilars overall, there's less than 2 dozen that are actually in the marketplace today. We are seeing good uptake and adoption of those that have been in the marketplace for a while. And we do have great ability to participate in this through things like our U.S. oncology network. I mean we're a collection of over 1,000 community providers. And when the clinical decision is made and the therapy is appropriate, and that always leads to all choices, we do have the ability to promote the biosimilar adoption. And we think biosimilars are good for patients, they're lower cost, they're good for health care, they're good for providers. But I do think in the scheme of things overall, we're still relatively in the early innings of this and that there's probably more biosimilar launches ahead of us than are behind us.

And as we think about just from an economic perspective, my understanding is that they're not necessarily like a generic and the economics aren't necessarily like a generic, but they can be better than a branded product, they're better for the patient from a cost perspective. And so therefore, if you think about someone potentially skipping a treatment or something else that they're more likely to continue based on the cost of the product. So is that the right way to think about that? That the growth -- the profile is going to be a little bit better than branded, but not -- we shouldn't really think about this like we thought of the generic market?

Yes. Yes. I think that's right. I mean I think about it as 2 ends, right? If you have an innovator with no alternatives, a specialty drug, unique, right, I mean there is not much ability to influence demand, influence adoption. There's no competition, so you have very little leverage. Generics are the other extreme, right, where they are chemically equivalent products, there's really no preference per se. And so you have ability to aggregate and move volumes and demand, and you can get paid for that. Biosimilars are essentially therapeutic competition. So an innovator now can compete against a biosimilar or potentially multiple biosimilars. So now the physician preference, the therapeutic performance of the product, all those things will have to be factored in. But it is a little bit more competition, so it does move you away from that end point. It will not be to the extreme of generics because they are not chemically equivalent and there still is some mechanism of choice or preference clinically.

When we think about some of your other assets, more so on the distribution side, when we think about your EU strategy, and maybe we can talk a little bit more about the recent JV with Walgreens Boots Alliance, we also got the announcement that they're selling the rest of their operations to Amerisource. So just curious on when -- strategically, how do you think about the European assets. And then secondly, how do you think about the market competitively now that ABC will own those assets? Do you think it will differ in any way, that it will change the competitive marketplace?

Look, we're used to competing in all the countries that we're in. In Europe, we used to compete with Walgreens Boots Alliance. And it looks like in the future, we'll compete with AmerisourceBergen who we're used to competing with. So I don't think it really changes the nature of those markets. So I don't think it's going to change the nature of the competitiveness that are in those markets today. Look, we -- Europe, obviously, if you look back over the last several years, it's been a challenge for us. A lot of that really driven by difficult U.K. reimbursement environment. We've done the right things in that business operationally. We have looked at our footprint of stores, and we've exited many. We've done the right things in kind of the back office and streamlining the way that we run that business, and we've been seeing the performance recently reflect that.

And Brian, what -- can you give us any kind of update around reimbursement? As in the European market, I know that there was actually a boost, right, for NHS in the U.K. market recently. But I think that there's concerns about what reimbursement looks like going forward, especially post-Brexit.

Well, again, reimbursement over the last 3 or 4 years has been volatile and unpredictable and a pretty big headwind for us. In the last -- about a year ago, I think I may have the exact date a little bit off, we -- the pharmacy industry in the U.K. did reach an agreement with NHS for a long-term reimbursement structure that really brought some stability, brought some ability to eliminate that past volatility. So that's been a benefit. I mean COVID obviously introduces a whole new dimension. What the government is going to do in the future, TBD, but I do think it continues to highlight the important role that community pharmacy has in the health in these countries. And we would anticipate pharmacy will have a role in the response to this vaccine if that will ultimately be recognized.

Yes. And I think that brings around a great question as we think about the U.S. market and the health of that independent pharmacy. I think probably a lot of people that are listening today know about Health Mart, which is the McKesson's product that helps these independent pharmacies, whether it's contracting or private label or other products. But as we think about the competition in the marketplace, we hear from the largest players about reimbursement, and that's their biggest headwind. So how do we think about the health of the independents and what you're seeing in the marketplace? And as we've had new prescription volumes down 20-plus percent, what's been the impact on some of your smaller customers?

Yes. A great question. I've been in this industry for 24 years and reimbursement headwinds in independent pharmacy probably come up every year. And the viability of independent pharmacies is always in question. And I think there's 500 more of them now than my first day at McKesson in 1997. So it's a remarkably resilient segment. These are entrepreneurs. They know their communities. They understand and know their patients intimately, and they find ways to create value to those that they serve. And certainly, things like our Health Mart franchise is a big supporter of their success in that way by aggregating their scale, by bringing them programs, things like training, things like how do you participate and become eligible to ultimately then start a COVID-19 vaccine. Those are all the ways we innovate and invest to help keep that segment vibrant. And we really haven't seen a trend break in terms of store turnover or closings. Every year, we have some close, some sell and new ones start up and new businesses emerge, and that continues to be the environment.

Yes. I mean I think I've shared that story before that when I was a junior analyst back in those days as well, 1998, my first assignment was to look at the market and to make an assessment 5 years and 10 years later, how many independent pharmacies, and there were roughly 20,000 back then, right? And at that point, CVS and Walgreens were growing 7% or 8%, in some cases, double digits because of the store growth that they had. And I made the assumption that within 5 years, you'd be down 5,000 every 5 years. And that within 20 years, they would all be gone. And here we sit 20 years later, right, and to your point, there's the same, if not higher, number of independent pharmacies. When we think about independent pharmacies, it always leads to the question of generics, right, because that's your bigger buyer of generics in the marketplace. I remember at the beginning of COVID having conversations around API and the concerns around the ability to source products because of coming from Asia and other places. Can you talk about where you are today on your ability to source generics? Have there been any issues around COVID? How have you worked around COVID? And what has that done to generic pricing?

Yes. I'll start with that. It's a great question, Lisa. I think Brian talked a lot about that in his opening remarks. Our global sourcing teams have really done a phenomenal job. And I think it speaks to the breadth of relationships and partnerships that we have. The supply has been very stable. Nothing out of the ordinary from that perspective. And what we're seeing just generally in -- from a generics perspective is that our buy-side continues to perform well given the strength of our global procurement operations, and the supply that we're able to give our customers is allowing them to continue to buy at a relatively stable perspective. We approach the market in a very disciplined manner from a pricing perspective, and we're seeing stability generally in the marketplace, competitive but stable. So I think it's a combination of the strength of our global procurement operations and the relationships that they've developed over time. Our disciplined approach to pricing in the marketplace has really continued this stability within a competitive marketplace.

One of the other areas of your business that has been really stable and has done well for a number of years has been the medical side of your business. And I think that have not always appreciated the fact that this isn't a hospital business, right, that hospital business got sold years ago to Owens & Minor, that this is really to the physician office. And a lot of those physician offices aren't part of big practices, they're more stand-alone type of physician offices. We know that there's been -- the number of physician visits have continued to increase, and then perhaps we saw maybe a little pullback because of the resurgence of COVID. But can you talk about that business a little bit around where you see opportunities in that business that carries a nice margin? The growth rates, if we look back over the last couple of years, have been nicely accretive to the overall growth of McKesson. So if you could just maybe give us an update there and where you see some opportunities. And Brian, I don't know if you see any incremental opportunities because of COVID.

Well, the medical business is a very good business for us and has been for a very long time. And I do think it was a very good move for us back in 2006, 2007, when we exited acute care so that we could be exclusively focused on what we call alternate sites. That's a broad array of providers. That's physicians and surgery centers, nursing home, home health care. And it's a variety of product categories: it's core medical products, it's PPE now, we never used to talk about that, PPE; it's lab; it's specialty pharmaceuticals; it's vaccines and pharmaceuticals. So it's a very, very a broad business in the alternate site markets, which do continue to grow. Those are the lowest-cost places for care to be provided, and we think that's one of those macro trends in health care that's going to continue to push. So the business has really done a terrific job kind of following growth as it emerged. Urgent care clinics were not a segment when I was running that business. We have a leading share in urgent care clinics right now. So that really localized presence in the community. A sales force that's over 1,000 people strong is a great competitive advantage for us. And we've been very nimble in following the opportunity. I mean, this year, PPE has obviously been in very high demand, and we benefited from that to some extent. Several years ago, we made an investment into the lab business in the medical segment. And so we had those relationships. We've had the know-how around those products. And so as COVID lab testing emerged as a segment, we've been very well positioned to expand on those partnerships and take those new innovations and drive them into the provider channels. So it's a terrific business for us, Lisa.

When we sat together last year at your first conference or was that your -- last year was your second conference, right?

No. It was my...

Technically, you were the CEO, yes, but you were...

That's right.

So I remember when we sat down last year, I asked you this question, what do you expect over the next 12 months? And clearly, none of us have ever predicted a worldwide pandemic. But I'm going to ask you the same question now. I mean I think that McKesson has done incredibly well. Your stock did well last year. It's done well the last couple of years. But it still trades at a discount, for example, to the S&P. What do you think investors don't truly appreciate about McKesson that perhaps they can in the next 12 months?

Well, I hope over the next 12 months, people will come to appreciate that we've got, a, an amazing team, dedicated team, resilient team, creative team that's very focused on a strategy that's underpinned by a strong set of assets in growing markets. And that as we -- look, from my perspective, we continue to execute. We continue to do the things that we just talked about. We'll continue to see the growth and the success. And that's -- we're going to control what we can control. And we're going to respond to what the world throws at us, which hopefully is a lot less than this year.

I hope so, too. Thank you again for your time today, Brian and Britt. And Brian, we look forward to seeing you tomorrow for our keynote panel. Thanks very much, everybody.

I look forward to it. Thank you, Lisa.

Thank you.

All right. Good afternoon, everyone, and welcome to JPMorgan's 39th Annual Healthcare Conference. Sorry for the short delay getting started. My name is Cory Kasimov. I'm a senior biotech analyst here. And I'm joined by my colleague, Lisa Gill, our health care technology and distribution analyst; and Chris Schott, our U.S. pharmaceuticals analyst. And it's our pleasure to host this keynote on all things related to COVID-19 vaccines. We're very excited to have a really distinguished group of panelists today, including Dr. Moncef Slaoui, the Chief Adviser to Operation Warp Speed; Angela Hwang, Group President of Pfizer Biopharmaceuticals; Stéphane Bancel, the CEO of Moderna; Karen Lynch, the current President of Aetna and incoming CEO of CVS Health; and Brian Tyler, the CEO of McKesson. So thanks to you all for taking the time to join us today. And even more so, I think I should speak for everyone when I say upfront, thank you for all your efforts in fighting this pandemic. So our hope with this keynote is to cover all things, all aspects of COVID-19 vaccines, from development, production to distribution, logistics and to longer-term outlook for the pandemic. And so with that, Dr. Slaoui, perhaps you can take us a couple of minutes to set the stage for our discussion by providing some overarching perspective on where we are in addressing the pandemic and how you're thinking about the priorities at this point in time.

Thank you, Cory, and thanks for having -- putting together this panel. I look forward to a good conversation. Really, in a few minutes, I'd say to an extraordinary pandemic that hit us starting, say, in January of 2020, there has been an extraordinary response from the health care ecosystem globally and the biotech pharmaceutical ecosystem more specifically in that period of no more than 11 months that elapsed between identifying the sequence of the virus and having 2 vaccines approved and in use in the U.S. population. I think it's truly an exceptional achievement, thanks to the great efforts in the companies whether large biotechs or large pharma, great efforts, thanks to various U.S. government entities within the Human Health Services or the Department of Defense. And also, I think, thanks to a very, very aggressive strategy put forward to incentivize and support financially but also operationally the discovery, the development, the manufacturing and now the distribution of the vaccines. In May of 2020, there were, if my memory doesn't fail me, more than 120 different vaccine programs described in the world and there may still be close to 100 of them at different levels of activity. Within the U.S. Operation Warp Speed we're set up to try and accelerate the development of a number of vaccines. Without getting into the detail, 6 vaccines were selected. Fast forward today, 5 of these vaccines are in Phase III trials or have completed the Phase III trials. 2 are approved messenger RNA. And we have representative from Pfizer and Moderna, I think, that both spearheaded these programs to allow us to have vaccines approved and in use. 2 more have completed recruitment in their Phase III and are really accruing cases, 1 by Johnson & Johnson and should be coming to fruition very, very shortly by the end of this month or early next month, and 1 by AstraZeneca already approved elsewhere and completing Phase III trial here in the U.S., and potentially, getting an emergency use authorization in March. And then still a protein vaccine by Novovax is in Phase III trial. More than 8,000 subjects recruited and a Sanofi collaboration with GSK with a vaccine that's in Phase IIb trials. Great progress in terms of developing the vaccine clinically. Also great progress in terms of manufacturing the vaccines in parallel and at high risk, either within the companies as has been the case for Moderna and Pfizer or in manufacturing capabilities and facilities that have been accessed as part of the U.S. government contracting with contract manufacturers either for production of the vaccine. Drug substance are also critically for the finished activities are a major bottlenecks in same activities used for all vaccines. To date, as I said, 2 vaccines are approved, 40 million doses have been distributed already. Only 9 million people have been immunized. There is a need to accelerate the immunization. The distribution of the vaccine has been, I think, a remarkable also collaboration and partnership, which we -- McKesson, CVS, Walgreens, FedEx and UPS, and here, General Perna, my colleague in the operation and the DoD in general, I think what the companies have paid a critical role in delivering exactly on time as was described yesterday in over 14,000 different locations, the exact quantities of the vaccines on the date that were suggested. Where things need to improve is in the capacity of the health care system in general without getting into the politics of whether it should be at the states or the federal level [indiscernible] it is. And we need to improve the speed with which we are able to deliver these vaccines into the arms of people. That's our #1 key area going forward. I would say other areas that require absolute continuous focus are to continue to streamline and optimize the supply chain with the messenger RNA vaccine, but also with the other vaccine. I think it's vital that we have more variety of platform technologies underpinning vaccines for use in the population in general. It is, I think, very important in the context of a pandemic to be able to have a 1-dose vaccine. And it's a development that could take place, frankly, with the current messenger RNA vaccine given the performance observed over a short period of time with 1 dose. But that would be a new kind of challenge and development, but also vaccines that are being developed as one of those vaccines such as J&J vaccine. And finally, another area where we are very focused is identification of clinical correlates of protection. That's a really critical enabler for the future of older vaccines given that the availability of vaccines now, particularly in the U.S., is making it effectively impossible to recruit high-risk subjects into placebo-controlled clinical trial. It will be the pragmatic way to demonstrate the efficacy of yet more vaccines. We hope that the last vaccine that started Phase III, the Novavax vaccine, will not be derailed by the fact that subjects in the trial will leave the trial to get access to a known vaccine versus an unknown vaccine or a placebo, and therefore, through that, make the vaccine steady outcome highly improbable. So identification of immuno correlation protection, which will be available to all players may enable the development of a second-generation of vaccines that can support vaccinations here in the U.S. as well as on a worldwide basis. So all in all, I think this has been an opportunity for the industry as a whole to demonstrate to the world in general and to the U.S. population, in particular, its critical role in effectively saving the country and the world from a pandemic that has just brought our lives to a stop, stilled so many, affected so many, disrupted so many. And I think it's very important to highlight the level of collaboration of partnership, a focus of commitment, of selflessness that has characterized the work of the industry and the U.S. government in tackling this pandemic. I'll stop there. I just tried to refresh everybody's memory and mind on what has been done and the critical areas of focus going forward. And looking forward to the discussion with that.

Great. Thanks, Dr. Slaoui. Some great opening remarks. I thought I'd just kind of cut to the chase upfront here with a question for everybody. When do you expect the population at large to be vaccinated? And what do you see as the single kind of main gating factor to getting there? So maybe just -- we'll start with Angela, then go to Stéphane, then Karen and Brian with just that initial question.

Thanks, Chris. And thank you again for bringing us all together to have a very important conversation about a very important topic. I think that Moncef's introduction on sort of the state of where we are with the pandemic sheds a lot of light in terms of how we should think about where we are with the pandemic and how long it would take for us to vaccinate everyone. You've heard him talk about the complexities of this vaccination campaign globally. But we have billions of people that we have to be able to vaccinate because of the pandemic. And the ability for us to vaccinate at the speed that we need in order to gate -- to gain the herd immunity and to stop transmission is obviously of highest priority. So as I think about everyone coming together, and I think that this panel is a great example of this industry, private-public partnership that we all need because it truly needs all of us to be able to make the impact in the world. It's going to take time. There's a lot of people to vaccinate. Vaccinations are complex. And I think by virtue of that, I hope that in 2021, we will put a lot of this behind us. But I think that we should anticipate that there's going to be a lot of work to be done. And this focus on getting the rates of vaccinations up to be able to support the points of vaccination to increase the numbers of them, so that we can really increase the volume of people that can get through them, are going to be all important steps that will help us to achieve that.

Stéphane?

So Chris, thank you, and thank you for having us to on the panel. It's good to see everybody on this panel. First, I would have to really thank Moncef and congratulate him. I think, really, the U.S. has done an amazing job to build the portfolio of vaccines. I have a chance to talk to different regions in the world. And a lot of countries are scrambling because I think they didn't do it as well as what the U.S. did. So it goes to what the U.S. government has done and to the collaboration between all the agencies of the U.S. government, channel for OWS and industry. I mean, if you ask about the question about the U.S., Chris, but I think if it's a worldwide question or U.S. question, it's a very different answer. I think we've got a question about the U.S. and it is a question about people above 18 years of age. If you do the math at 70% vaccination rate, which would be wonderful, given some of the calls we are seeing daily, that's 150 million people. That's 200 million doses in arms of the boost. Of course, less if you assume a single dose. If you look at what, I think, Pfizer and Moderna have said, we will supply to the U.S. government by end of Q2. I cannot speak for Pfizer. Angela can. I can tell you for Moderna. We have said it. We will have, before the end of Q2, 200 million doses of the Moderna vaccine to the U.S. government. We are, so far, on track to the plan we have given them. And we confirm that almost daily with their team. So if you look at that number, I think if both companies can deliver a total of 400 million dose by the end of Q2, that will cover anybody above -- I mean, 70% of population above 18 years of age. So I think the U.S. will most probably be one of the first country of size to get its population protected. I think smaller countries like Israel, Switzerland and so on are going to go pretty fast given how much vaccine they have ordered and the size of population. I think Europe is going to be much later. We would not be surprised if it takes Europe potentially up to the end of the year to get a good immunization across the country and then where we can take them for other countries in the world. I will pass it over to you, Chris.

Karen, your thoughts on the topic.

Yes. So first of all, thank you for bringing this group together. I think it does demonstrate how we can collectively come together as an industry to address pandemic. And I think first of all, congratulations to Pfizer and Moderna for everything that they've been doing. I do think it is what Dr. Slaoui said. It's getting it into the arms of the individuals. And obviously, it all starts with the supply, and we know that people are working incredibly hard to get that supply. And then it's really, right now, it's the allocation decisions that are being made by the states to go after certain types of individuals, so that we get our frontline workers and we get the most vulnerable population. And then obviously, it's the education of people. There are certain people in the U.S. that are hesitant around the vaccine. And I think we all have a responsibility to educate around the efficacy and the importance of the vaccine. And then from a CVS health perspective, we have a large reach. We have 100 million people through our Caremark and our Aetna members that we have the opportunity to educate. We have 10,000 stores across the U.S. where 85% of the U.S. population lives within those 10,000 stores, so that the distribution and the access, we can play an integral part in working in the communities to get people vaccinated.

Brian, pull it.

Well, Chris, it's tough to go last after this esteemed panel. I do want to start though with my sincere appreciation for what the teams at Pfizer and Moderna have done, for their great partnership and also the great partnership with OWS and the U.S. government. I do think this really has been a partnership. And I certainly would echo the previous comments, right? It's going to take product. It's going to take patients, new kinds of patients. It's going to take physical people patients to get shots in arms and willing people to get shots in arms. And I think it's going to take a little bit patience in the early phases. I mean, this is a very new program. It's very complex. There's obviously a lot of passion and energy and some learning that is going to go on around this. And I think we'll continue to get better and better as we go through that. And I do echo Karen's comments that I think all of us, particularly as health care leaders and leaders of large organizations, have to do our part to convince people that it's not just safe to take this, but there's also an element of responsibility to yourself and your community that, inherently, this is a battle we're facing that we're in together. And it's not so much an individual as it is a community that will beat this back.

All right. So I have a question probably for Stéphane and Angela. One of the most discussed topics right now in this ever-changing environment is the emergence of mutations. So I'm curious how you're thinking about variance in the SARS-CoV-2 virus. And do you worry new strains could render the vaccines we have today less effective or even ineffective? Maybe Stéphane first?

Sure. So thanks, Cory. So first, the virus has been mutating since January. It's not something that happened in the last few weeks as reported by the media. The industry, again, with academia has been collaborating extremely well to document mutations for them, [ exchange ] sera and virus strength to help us assess things. I think it's important that people appreciate the difference between a monoclonal antibody and the vaccine, a vaccine when you vaccinate and remake [indiscernible] protein in your body. We're not going to make one antibody, but a super antibody is binding many epitopes for the virus. And so we are following very closely as we have the last 12 months. We, as we said, do not believe that the current strains in the U.K., South Africa, I know there's a new one being discussed from Brazil, cause a problem to the current version of the vaccine. As you know, one of the beauty of mRNA technology is how quickly you can go. I remind everybody, we went from sequence. We're shipping GMP product last year in 42 days. I believe we should be able to do even faster at this time, we will [indiscernible]. I think the question is not for the short term. I believe for those mutations, it's going to be fine. I think the question is going to be more midterm, which is you have a U.K. strain now, but you might have a new strain from U.K. strain and then another strain from [indiscernible] of it. So the question is, as you see the virus mutating over time is are we going to have in 6 months, in 9 months, in 2 years such a drift from, I would say, the original SARS-CoV-2 sequence that came out of 1 -- a year ago? Are you going to need to have a new vaccine and potentially combinations of vaccine? But is it a world that's going to evolve basically like what's happening with flu or what you see for example with a product like Prevnar where you keep adding -- Brian, I mean, the beauty of mRNA is you can combine several molecule in a vial. We currently have been going to Phase III of vaccine against CMV, cytomegalovirus with that 6 mRNA in Israel. We are demonstrative that we can get that done technically and as the regulator are comfortable just taking products from the get-go with combination. So I'm not worried for the short term, but we are watching that very closely. Because I think that we might evolve into a world where we need new strains of vaccines down the world, but not in the short term.

Angela, anything to add there?

Yes. No, likewise, Pfizer is closely monitoring and studying these new strains, these new variants and the mutations from these variants. Just last week, we published data that demonstrated that in vitro, the sera of those who are vaccinated with the Pfizer BioNTech vaccine was able to neutralize the immunity against the particular strain of the SARS-CoV-2 variant. So we know that in this specific instance, it's working. Likewise and continued, we are looking at other mutations as well, and that's being studied. And actually, very shortly, we'll be publishing on that. So all to say that I think all of this coming together, we're bullish about what our vaccine is going to be able to do and its ability to respond to the various mutations and the variance. That being said, what we have to realize is that the virus could change. And that we may need a new vaccine altogether. So it is important that we continue to monitor that as well. And to stay on top of whether it's really a mutation and a small change or whether it actually moves to a place where we need a new vaccine. But again, as we've said, that's where the beauty of the mRNA technology comes in. With the sequence, we're going to be able to make a new vaccine in very short order in as little as 6 weeks. And so that, together with working with regulatory agencies, to really understand what are the studies and maybe what are the data that they would need in order to create a regulatory pathway, authorization or approval. Pretty much what we've been doing for the last several months, we'll continue to do, but obviously, do it in a way that helps us to get ahead of it. But I think that we should anticipate that there's going to be changes, and we need to be ready for these changes, and we are.

Okay. Okay, great. And Dr. Slaoui, we obviously have representation here. The first 2 vaccines both based on this messenger RNA technology. Both have demonstrated pretty remarkable efficacy. I wanted to ask you, though, about your level of confidence in the non-mRNA approaches that are out there. And what do you think maybe the bar for efficacy is given what we've seen so far? So for example, what kind of role might the vaccine with efficacy on the order of 70% to 80%, not 95%, have in this market and the global fight against the virus?

So it's a very important question, and frankly, a very delicate and difficult one. Because I'm going to say having a 50%, just to change from 75%, and the regulators have put a bar at 50%, having a 50% vaccine is so much better than having no vaccine. It would allow with appropriate immunization throughout the population to save millions of life over the years. But of course, once the 95% benchmark has been set, the individual benefit dimension take somehow instinctively the frontline in people's minds versus the population benefit. So the answer -- the scientific answer to your question is the 70% or 80% vaccine can be highly effective in inducing herd immunity, particularly if the vaccine, for instance, has a very high efficacy against severe disease and decreases the -- I'm pretty sure studies are -- will define this, but I think it's a very reasonable thing to expect, that even a 70% or an 80% vaccine, effective vaccine, is actually going to substantially decrease virus with most people immunized, will induce herd immunity if 80% or 90% of the population is immunized. But you don't have the level of certainty that you have when you take -- when you have a 95% effective vaccine. Now my projection, as to the efficacy of the vaccine, I would say, is very high. I do remember in June and having said that I expect the vaccine to be 85% to 90% efficacious, and it was a shock, I remember. So it was very satisfying to see that efficacy was very high. And the number was not coming out of the blue. I actually believe that this virus -- fortunately, this virus is actually a somewhat slow virus from a pathogenesis standpoint. And if you are able to either have a low virus load inoculated or have immune responses able to control your virus load spread quickly, so that by the time the bulk of your destructive immune response against the virus is at its peak, not most of your lungs are infected, but only 5% of your lungs are infected, you are going to clear this virus out and most likely be asymptomatic or have very, very small cough, right, or, if your nerve in the -- olfactory nerve, that you may lose a little bit of smell. As is the case, in effect, in probably 85% to 95% of people that are naturally exposed to the virus, some have still no immunity. So the reason I went through that is just to say my expectation, frankly, is that most of that seems if they are immunogenic in -- particularly, in the elderly, will be effective at a high efficacy rate in the 70s or the 80%. I think some challenges observed with other vaccine may have other explanations than the intrinsic efficacy of the vaccine itself. My -- and this is one of the reasons why we felt that it was appropriate to select one of the vaccines and test it as a 1-dose vaccine. And as you know, the Johnson & Johnson vaccine is being tested both as a 1-dose and as a 2-dose vaccine in large Phase III trials. And the expectation is to have, I hope, 80%, 85% or maybe more efficacy. The -- what people need to realize is that in real life, a very large percentage of people immunized with the first dose will not get their second dose for various reasons. Maybe in a pandemic, at the height of the pandemic, this will not be so, but maybe in the month of May or April or June as the percentage of population becomes larger and larger, a substantial number of immunized people may not get their second dose. Having a 1-dose vaccine is, therefore, very important. And I believe that the Moderna vaccine and the Pfizer vaccine, if tested as 1-dose vaccine, are likely to also demonstrate very high efficacy. So my expectation is high efficacy. My expectation is that anything north of starting with an 8, I hope, will go through. I think a 70% or 65% vaccine that can be made into billions of doses very quickly can be transformative on a global basis. But I do think it will raise really in the North, South, Western world, developing world questions. But if you look at it, firstly, from a public health global health standpoint, any vaccine above 50%, 60% will make a huge difference if available very quickly.

Great. Maybe as we transition to discussion a little bit to logistics here. There seems to be something we're hearing from the media, almost on a daily basis, about the challenges of delivering some of these vaccines. So maybe just another quick comment from everybody about how much of a concern you see these logistic dynamics? Is there a short-term issue? Is this a longer-term issue? Maybe Brian, we'll open up with you for initial comments here, and then go to Karen, Angela and Stéphane.

Sure. Well, it's -- I think, top of everybody's mind for very obvious reasons, and not unexpected, getting a lot of scrutiny and commentary, I guess. I will say, we've had the chance. This is my Day 3 of the JPMorgan conference. I haven't had a lot of chances to talk about this over the course of the last few days. And one of the things that I've noticed is a little bit of confusion in the language between distribution and administration, and Dr. Slaoui actually referenced this. The distribution has actually gone quite well. And I think it's now that last inch, so to speak, of getting it from the provider site into people's arms. So just to maybe clarify the way the process works for everybody's benefit and to frame the conversation and the comments that will follow, the jurisdictions based on their local decisions on how they want to address this will filter up request, so to speak, to Operation Warp Speed and the CDC, who will then make allocation decisions based on a variety of factors, turn those allocation decisions into orders that are pushed down to McKesson. That's really when our role starts. We receive that order. We walk into the dedicated facilities that we built that are securely storing this vaccine. We do the pick, pack and ship, believe it or not, in a freezer to maintain the temperature controls around this virus, and we work with our partners, UPS and FedEx, to get those products out to the provider sites, usually within 24 hours. And I believe our accuracy rate right now is 99 -- in excess of 99.99%. So I'd say the distribution component has been remarkably well, and that's really kudos to the great coordination from all the companies on this call, Moderna, Pfizer, certainly Operation Warp Speed team. So we're proud of what we've been able to do. We just talked a little bit about the need to build the practice and refine the process to compress further the time to get that at the provider site, to get the administration, to catch up to the distribution.

Yes. And I'll pick it up from there. We've had a lot of experience with the long-term care facilities. We've obviously been working very closely with Operation Warp Speed and the launch and the CDC. How that process worked was that the nursing homes would select the pharmacy carrier that they wanted to administer the vaccines, over 40,000 selected CVS Health. Then what happens is the states need to determine the allocation to those facilities. So once the states turn on or activate those nursing homes, then we're able to go in with our pharmacy techs, our pharmacists and nurses, and put the shots in the arms of those in the individual nursing homes. So there's -- that's the way the process has been working. We're very hopeful that the federal program will open up soon. And then that will open up more of a direct distribution into pharmacies across the country. And then I think that will open up the ability for access of individuals to go to their community-based pharmacy so that we can have more people getting vaccinated. We -- I shared with Lisa yesterday, we have the capacity to do 20 million to 25 million of vaccinations a month throughout all of our retail locations. And what that means is we can do 1 million a day. And just to put that in context, we're just coming up to 1 million vaccines this week on all of our long-term care facilities, so we can open up the aperture to get more shots in the arms as soon as the federal program is fully in play.

Stéphane?

I mean just to add a quick word. I mean, we are not in charge of distribution of vaccination. So I will just speak from far away, saying that, first, the job that Brian and his team at McKesson have been doing has been fantastic in the coordination. And then I think you have some teething problem, I will characterize them as such. I don't think it's a good idea to bet against America. I think it was just because of very tight supply and mostly I can't talk about it. Because of very tight supply, the allocation was a big struggle. And in some places, I think people spend too much time thinking about allocation and staying in line versus shooting vaccine in arms. I think there's more and more supply available and as we use the enterprise like CVS and other pharmacy chains and stadiums and a lot of things just to get vaccination, then I think the numbers are going to go up pretty quickly over.

Angela?

Just to add more color to what was already discussed, just from a Pfizer perspective, to give you some numbers. To date, globally, we have distributed, so shipped out 30 million doses to about 10,000 different points of vaccinations, right? So this is through using logistics partners like UPS, FedEx, DHL, so on and so forth for us to take it from outside in Kalamazoo, Wisconsin or in Belgium to get it to the various sites. And I have to say that like everyone has been saying, consistent with what you've heard, it's gone remarkably well. All the doses have gotten to where they needed to get to exactly on time with almost negligible variances. And we had almost no product returns. We've had everything arrive on time at the right temperatures. The couple of boxes that -- where we had excursions, and literally, it was a couple, we've monitored, and we have tested those to realize that the product was still intact. So honestly, this has gone almost as perfect as it could possibly go. As you know, however, we've invested a lot in making sure that this works for us, right? We have our shippers that are temperature-monitored. We are tracking all of these boxes wherever they're going. And we've also provided a tremendous amount of training and support at the points of vaccination because we believe that our job ends when the vaccine is administered, not just where we drop off. So I think this entire infrastructure from beginning to end is what has helped us to really achieve the outcome that we had hoped for at the points of vaccination.

Great. I just really wanted to dig in a little bit, Brian, to what you talked about around this whole process and really maybe just better understand where the product is being delivered to the safeguards around that product. I think one of the things we hear about is concern around a potential counterfeit product. And then dealing with public health. So when you're delivering that, how does it determine that it's going to a hospital or to a CVS? And when we start to think about those logistics, how coordinated is that effort? Is that something that you're coordinating and if they just tell you here's the drop spot? Or is that something that McKesson has a more involved process when we think about dealing with public health?

Okay. There was a lot of questions. Let me kind of peel them back one at a time. You think you started with the safety and security. And I think one of the attractive features of the logistics design that was selected is there's very few points of handoffs. So -- and we're not handling the Pfizer vaccine. They're handling their own distribution. But with Moderna, we're picking it up right at Stéphane's factory on -- our controlled transportation vehicles bring it into our secured facility. The next place it arrives is at the provider site. So there are very little -- very few points of encouraging or opportunities for that chain of control, so to speak, to break down. When you asked about the -- where it end up going? I mean, remember, in the early phase, this is the 1a phase, the target for the program was really our frontline health care workers and the really elderly and sick, right? So Stéphane made a great comment about its teething pains and the administration in the sites, right -- well, we rolled out really literally in the middle of the holidays and the target audience was those who are most busy taking care of the sick patients. So maybe the teething pain should have been expected, and I do think we're continuing to see that get better and better. The way our program is designed and the reason another attractive feature to the model that OWS selected in our opinion is there is very little lost inventory filling up the supply chain. It literally goes from us to the provider site in 24 hours. And in early stages where supply is limited, that's really a critical feature. But McKesson has really no role in deciding who gets it. I mean, that's the role of Operation Warp Speed. So I think the local jurisdictions develop their local plan for -- I can tell you, I believe the state of Texas has 7,000 providers that, at some point, will be involved in this, but that's their decision. The allocations is the decision of the CDC. We view our job, and we built our facility and our infrastructure to simply take those orders and make sure we could get it out to hundreds of thousands of sites of care within 24 hours.

If I may add something there, just to complete what was said, which I completely agree. But it's important for people to understand that to realize -- to put into context the various discussions that happened in media. There are 70,000 locations that have been validated, and they had to meet certain criteria that were offered by the 63 or 64 jurisdiction in the country as potential recipients for the vaccine. Every single dose of vaccine that is shipped because there has been a pull, not a push. In other words, a state says I would like to have 257 doses of vaccine in address 255 blah, blah, blah ZIP code this, which is one of the 70,000 areas. And that's shifting to there. The assumption behind that is that whoever sat down, and we went and visited all the health departments of the various states and jurisdictions, the assumption is, when you decide I want to have X hundreds of doses in this particular location, is because you, at the same time, have organized to immunize those number of doses in the area. And this is, frankly, it is in that transition from deciding to ask for a number of doses in a given place and administering them that we need to optimize. Clearly, the holiday season wasn't a great thing. Clearly, the surge that's happening overwhelming the health care workers in the health care facilities and hospitals is a problem. And therefore, the decision to accelerate going to broader population, and as was said, open the aperture further is the right thing to do to decrease the pressure, continue working into the health care workers and hospitals, but also distribute elsewhere and immunize elsewhere.

Dr. Slaoui, I think most of us understand the different rankings by the CDC as far as when people should be vaccinated just at least the first 1A, 1B, et cetera. But can you reiterate that number one for people? And then I'd like to bring Karen into the discussion because one of the concerns that I think a lot of health care investors have is concerns about the underserved populations. And I think, Karen, you talked a little earlier about how you educate people around taking the vaccine, but less educated people have a tendency to not be vaccinated in the same way as educated people. And so how do you meet those underserved populations? So Dr. Slaoui, if you can start with just the understanding of who is getting vaccinated and then, Karen, if you can add to that, that would be great.

So very important questions, again. And very early on, we realized that it was going to be super important to have a well-thought-through ethically defined approach to giving access to vaccine into the population, because, obviously, you're not going to have enough vaccines quickly to immunize and [ treat ] 30 million people, let alone the global world. And we actually involved the U.S. Academy of Medicine to have a discussion, that was at that time a conceptual discussion, to suggest how to go about it. And that there was the first reports that came, I believe, in the month of August or something like that, describing the health care workers, the elderly and frail, first-line workers as the first 3 areas in 1A, 1B, 1C, and then looking after the overall population, the first dose with comorbidities at higher age and then at lower age, et cetera. And then that was further refined once we had the vaccines by the CDC and its ACIP committee. I think the issue about the minority population and underserved population is a critical one. And as Stéphane can attest to, the starting point of paying attention to that problem, which to that challenge, which is a real problem that we must address overall, was at the level of the clinical trials. And enormous efforts have been put and continue to be put to make sure that there is appropriate representation of the minority population and underserved populations in the clinical trials and in that process to have engagement at the level of the community leaders from those underserved population to engage with the population, participate into the trial and have appropriate representation. All the companies have worked very hard to achieve those objectives and to have at least double-digit representation in percentage of African-American, of the Hispanic population and in generality underserved population. I think that was a critical starting point, but we cannot stop there. I mean, at this moment, the key is to continue the engagement into the communities at the very local level. I mean, one of the learnings we got from the clinical trials is that, frankly, it is irrelevant for somebody out in national level to stand up and say something. I mean it's interesting, but it's interesting for 3 or 4 people to do it. What really is meaningful is for a church leader or a sports leader or just a community leader to whatever process to be engaged and understand what the vaccine is, why vaccination is important, to get the vaccine themselves and engage with their neighbors and other members in their community to be vaccinated. There was a challenge in this -- the work that took place to have the vaccine. There was a real challenge to engage the population before we knew we had the vaccine because it's really a double-edged sword to talk about what a vaccine can do when we don't know. And then once you know, you're going to have to change your methods, right? So for quite a period of time, it was very difficult to have a concrete conversation that is relevant to people that can understand it, feel it and sense it. I think once we had data on efficacy and safety and once discussions happened in the open at the FDA to through VRBPAC process, I think that opened the way for more engagement. We are talking to companies that are really experienced in simplifying, visualizing, translating into everyday's words complex medical or scientific messages in order to help, again, with the engagement process is critically important.

Yes. Lisa, I'll just echo Dr. Slaoui's comments. The -- I think it's an important responsibility and obligation of all of us to make sure that we are in the local communities, serving the underserved population. And it is all about working with community leaders about education. We've had a lot of experience during testing. When we were doing testing in the local communities, we've learned a lot about how to use the community leaders, how to work with the community leaders. And as Dr. Slaoui mentioned, it's about those local community touch points that people are familiar with. And as you think about -- even in our retail pharmacies, where the pharmacist is one of the most trusted clinicians in the local community, that is another avenue for people to think about how to get -- to use them to educate and coordinate the vaccines. But it is an important responsibility. I think as Dr. Slaoui said, for us to have that herd immunity, we need to make sure that everyone gets vaccinated. And it is a responsibility for all of us to make sure that we're local and in the communities and working with those community leaders to educate and ensure that vaccination process occurs.

Okay. So we don't have much time left. And we want to make sure that we get to another question we get all the time, and that's how long COVID-19 is going to persist as a significant public health concern? And I know it's kind of the unanswerable question, but we're going to ask it anyway, and kind of keep you -- we've been doing it. We're going go around [indiscernible] or at least what I see on my Zoom screen, maybe start with Stéphane, Karen, Brian, Angela, and then wrap it up with Dr. Slaoui. So Stéphane, on the duration here?

You should have started with the doctor before asking the business guy. So I mean, our thesis as a company is that SARS-CoV-2 is not going away. We are going to live with this virus, we think, forever, like flu and RSV and other vaccines. The key, I think, is going to be to stay really close to the mutation, as we talked before, and to be able to very quickly find a regulatory pathway to evolve our product so that we can keep protecting people. What I think is unknowable today is what's going to happen in terms of duration of vaccination. We just don't have enough data. As you know, the Phase III started in end of July. What -- we have a good sense now looking at neutralizing antibody, as well as what Moncef say, getting a surrogate is very important for all industry. But with the sense of the antibodies of at least our vaccine, I can speak that it'll go down slowly. So I think the nightmare scenario that was in the media in the spring like the vaccine might not even work 3 months, I think that scenario is on the table. But then a question of frequency of injection and what different strength you need of a vaccine to be able to protect people, I think it's on a different question moving forward.

Yes. Correct. I wish I had the answer to that, but I would agree that we'll have the virus for a long time. And it's important for us to remain vigilant. We're in the heat of it right now. And as a society, we need to remain vigilant about keeping social distancing and doing the things that we've been -- wearing masks and doing the things that we've been doing. But the most important part here, and that's what we've been talking about, is making sure that we get people vaccinated and that we continue to drive the education and work on getting people vaccinated all across the country, and quite frankly, the world. And that's my hope, that we can at least slow the pace that we're feeling right now. And I think the vaccine is our light at the end of the tunnel.

Brian?

I don't have any more informed opinion than my first 2 colleagues, other than to say I'm incredibly encouraged by what the industry has accomplished in a relatively short period of time to at least begin to arm us with the tools that we need to fight this back. Stéphane's comments about the science and its ability to adapt and I know our colleagues at Pfizer are tracking it closely are equally important. I mean the question for me becomes not -- will we ever live in a world where we're not battling some variant of this, what have you, but how do we get through this sort of crisis stage. And that is going to be as production comes online, and hopefully more vaccines get approved, as availability increases and then our ability to make sure that our teams and the people in our communities and around us are getting vaccinated and practicing the important social responsibility measures Karen just talked about, wash your hand, stay distanced, wear a mask, so -- because until that herd immunity comes, that's also very, very important. So I don't want us to get overconfident in the science and let go of these social behaviors, because I think we should be focused on those as well.

Okay. And Angela?

Likewise, I believe that this is something that is going to be with us for a long time. We know that it's a global pandemic. It spreads everywhere. We know that it's changing and whether it's changing a little or a lot, that is something that we're anticipating. So we may be in a place where we may need a new vaccine. And then we have to get so many people vaccinated. So I think that with all of this really generating the data that will help us to understand the course of disease is also important. And that's why, I think from -- at least from our perspective, the data that we have now in terms of where we are with our Phase III, but also the extension, right, following our patients for another 2 years and understanding that, is going to be important. The transmissibility, understanding the durability of response but also making sure that we are staying on top of the tracking so that if we do need to make a new vaccine, we can, like all of these things are going to add to the body of evidence that will give us the confidence to be able to manage this disease as it progresses. I think what's clear is that it won't be the crisis that we are in today forever. But what I think is also clear is that very rigorous surveillance and response is going to be absolutely important. And so I think from a business perspective, and from where we sit here at Pfizer, we see this as a durable business. And something that is -- and it's a business and a piece of research that we're going to have to continue to do for a long time.

Okay. And a final word from Dr. Slaoui.

Well, first, I completely agree that in the short term, social distancing, wearing mask, washing our hands, being aware and socially aware are critically important. I do want to remind us, however, that SARS-CoV-2 is only one of the very many viruses that are deadly viruses, which we have been living forever, that we need to also remember that without vaccines, to the many viruses -- pathogenic viruses that exist in the population, we would be living all our lives in a confined environment much more than we have experienced over the last 11 months. And therefore, this gives me optimism that as the vaccine gets more and more used, and, here, I'm talking about a global basis, not on a singular country basis, the circulation of this virus, the intensity of transmission will, by definition, decrease. And we will, little by little, get ourselves in a situation like we have with RSV, for instance, which is a virus for which we do not have a vaccine yet. Yet we live with this virus, and we have lived with this virus, and we continue to live with this virus. And people may not know, but the very frail elderly people for instance have significant morbidity and mortality associated to RSV infections. And a number of companies are working on an RSV virus, but did not slow the population. What's the difference? The difference is as we are born, we meet the RSV virus step by step. And as with SARS, when you're a baby, unless you're really a pretty -- very, very, very young baby, you are usually not ill with these viruses. You learn to live with them, you're primed. And once you're primed, usually, your protection from these viruses will last your life, long life, until you become frail or comorbidities interfere with your immune system, then it becomes susceptible. I do think that we will get to that stage with this virus. Thanks to the vaccination, we will get there quickly, which it will not be through birth cohorts, but we'll do it in a few 2 or 3 years. But what we absolutely must remember and -- how all the time, indeed, to avail this strain, this virus, new strains or other viruses, there is a very long list in the WHO of potential pandemic agents because they will come again. There will be more pandemics, impossible to predict when. We need to be even faster and better equipped for the next one than we have been for this one. So I'm optimistic we'll get this virus under control. It will not disappear, completely agree, but it will stop changing our life and turning it upside down. But we cannot forget. We forgot with Ebola, we forgot with Zika, which were orange lights. We got a huge red light here. We cannot forget. We should be ready.

Well, I want to -- on behalf of the JPMorgan Health Care team, I want to thank all of our panelists today. It was incredibly insightful. This is probably the most important topic going into 2021. And I'm really hopeful that we'll have the opportunity to see each other face-to-face in 2022, thanks to the great vaccines that are out in the marketplace. So with that, thanks again.

Thank you for having us.

Thank you.

Thank you.

Thank you.