McKesson Corporation (MCK) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to the McKesson Sell-Side Update with our CFO, Britt Vitalone. Today, we'll kick off the morning with the presentation. You can find those slides on our Investor Relations website, followed by a live question-and-answer session for those that are here in the room with us. We do ask that you please hold your questions until the end of the presentation. And as a reminder, today's remarks may include forward-looking statements about McKesson, which are subject to risks and uncertainties described in McKesson's SEC filings. Those risks and uncertainties could cause actual results and events to differ materially from those projected in such statements. McKesson does not undertake any obligation to update any forward-looking statements. Information about non-GAAP financial measures that we discuss today, including a reconciliation of those measures to GAAP results, can be found on our website. With that, hand it over to you, Britt.

Great. Thank you, Rachel, and good morning, everybody. So it would be a good opportunity to spend some time with you in person. We normally do our post calls after the call. I thought it would be a good opportunity for us to do this in person as we also have some other investor meetings in the area. And I really wanted to interact with you in a live format. And I thought halfway through the year, this would be a good opportunity to just give you a little bit of an update. I'll do that today as well as answer your questions. So those questions could be on the business. They could be on modeling. I'll try to answer all the questions that you might have today, and we'll go from there. So Rachel covered the cautionary statements. So again, I'll go through Q2 here pretty briefly, talk a little bit about the implications for the full year. We are going to do a little bit of a business update. I'll try to provide you some insight into our growth areas and some of our financial considerations, and then we'll do Q&A. So as Brian and I always like to start, any time we talk about the business, we have a senior leader meeting going on right now in Dallas. And yesterday, Brian and I kind of kicked it off. We always like to do like strategy on a page. And I think this is really important grounding. Over the last several years, very consistently talking about where our strategy is it always starts with the purpose of the company. And our purpose for the company is really try to help advance health care outcomes for all. The things that we do from distribution services all the way through our technology businesses are focused on that. And we're always grounded in the principles that we live by. So our principles are ICARE. When I joined the company, ICARE principles were in place. They've been in place for as long as I've been with the company, and they really are very meaningful in how we actually operate and how we think and how we behave in the company. Brian always talks about the first strategy for the company is to focus on people and culture, and that's really important. And Brian talked yesterday about the 50,000 employees or associates in McKesson. Again, our focus is on developing people and providing an environment where they can be their authentic selves. And that, we believe, has been a differentiator for us in terms of the culture of the company in driving the growth that we've been able to do over the last several years. We very consistently been focusing on the areas where we think that we have clear differentiation in the marketplace, and that's in our oncology and biopharma platforms. We'll talk a little bit more about that today. We have some really great, what we call, core businesses. So you think about our distribution businesses in the U.S. and Canada, our Medical-Surgical business. These are really strong businesses. In some cases, they drive tremendous cash flow, which we've been able to utilize in a very efficient way in the company. And we look for opportunities to continue to strengthen those core businesses because they support and reinforce our growth platforms. And then finally, we've talked about this really over the last few years as strengthening the portfolio. We're diversifying the portfolio. We're focusing on the portfolio. And that has really been -- a primary focus has been on some divestiture activities for assets that are good assets but better in the hands of somebody else, allowing us to focus on our core strategies and devote the time and [ treasure ] to oncology and biopharma services. And so we've done some divestitures over the last few years, whether that was the Change Healthcare, a spin, whether that was getting out of Europe, which we're primarily through -- or recently the announcement of our intention to divest Rexall and Well.ca in Canada. What really we're focused on now is how do we now accelerate the portfolio that we have, how do we modernize our technology stack and our technology footprint, how do we continue to make investments in digital, in automation, in AI to leverage customer relationships, but also how can we do better business internally. How can we be more efficient? How we can drive better cost efficiencies? How can we think about demand planning and working capital management in a more effective way? And so there's a real opportunity for us to really focus investment on that type of innovation, that type of automation and digital footprint. And so that's where we're focused now over the next few years. Over all of this, what it really has done is set a framework for us to deliver long-term adjusted EPS growth of 12% to 14%. That's our target. That's what you'll see in a few minutes, we've been able to meet or beat over the last several years. We feel really good about that target. It allows us to not only perform operationally, use our balance sheet and deploy capital but continue to invest back in the business. And so that continues to be our long-term adjusted EPS growth target. We'll talk more about that in a few minutes. So I just really wanted to ground us on how we think about the business, how people is important to us, the principles that we operate by, the pillars that we have that really drive the business, very focused. We're not doing 12 things. We've been very focused on areas where we have differentiation, and we think that that's driven really good financial results. Let me talk a little bit about Q2. We thought that we had a very solid Q2. And if you look at the metrics here, just kind of boiling these up, our revenues grew 21%. Now a part of that, certainly, was the onboarding of a new strategic partner. Outside of that, our revenue still grew 8%. We think that's a healthy metric for us. We're certainly pleased with the growth that we're seeing in U.S. Pharmaceutical. We're certainly pleased with the growth that we're seeing in Canada, and we believe that the long-term growth algorithm still exist for our medical and our technology businesses. So 21% is a good foundation to start from. From an adjusted operating profit perspective, 7% growth year-over-year is really good solid performance, and it's right in the middle of the long-term growth rate targets that we provided you. And so we're really pleased to be able to continue to grow and grow consistently in that 7% range. And that turned into EPS growth of 13%. So the strong operating performance, the ability for us to continue to use the flexibility that we have with our balance sheet and redeploy that capital turned into solid adjusted earnings per share growth. Here's a little bit of the walk. So I pulled the pieces out for you. The primary driver of EPS, again, was operating performance. Significant strength in our U.S. Pharma business as well as our Canadian business. Our Technology Solutions business performed a little bit better than we had anticipated kind of mid-quarter. When we gave an update mid-quarter, we saw the trends a little bit more favorable than we had anticipated at that point in time. And our medical business performed in line with what we had anticipated when we updated our guidance. We had a venture loss in FY '24 and FY '25. So there was an incremental $0.03 impact. We had held-for-sale accounting, which is a pretty small impact in the quarter. But again, when we announced the sale of Rexall and Well.ca at that time, we stopped depreciation and amortization. That drove about $0.04 in our International segment. We had a more favorable tax rate than the prior year, although the tax rate was in line with the guidance that we updated mid-quarter. And then we had some other below-the-line activity, mostly related to deploying capital towards share repurchases. So a pretty good walk here that is driven mostly by operating performance. And we had a strong quarter in delivering cash flow. We'll talk a little bit more about cash flow later on, but we're certainly pleased that the operating performance turned into good operating cash flow. And we continue to invest in the business in terms of investing in automation and distribution centers and the things that are necessary to support the growth that we have. We continue to be committed to our dividend. So we've raised our dividend now 7 straight years. We're committed to raising the dividend in relation to earnings growth. And in July, we increased our dividend 15%. And of course, share repurchases. We talked at the beginning of the year that we will continue to consistently be in the market to repurchase shares. We believe that the -- there's good value in our shares, and we are committed to continuing to return capital to our shareholders. We had a little bit more acceleration of share repurchases in the quarter than we had anticipated. And as we talk later on, and as I mentioned yesterday, we're increasing our full year guide in terms of the number -- the dollar amount of share repurchases for the full year. So that was a big part of returning capital to our shareholders in the quarter. We finished the quarter with a strong cash balance, $2.5 billion. And over the last 5 quarters, again, I mentioned that we're consistently allocating and returning capital to our shareholders. You can see over the last 5 quarters, we have returned capital to our shareholders in the form of share repurchases of about $4.3 billion. So this is a part of our capital deployment program, and we'll continue to do that as we go forward. So that's the quarter. I'm sure we'll have more questions later on. I'm happy to go through those, but I just wanted to kind of run through what we talked about yesterday. Let me talk a little bit about the implications for the back half of the year. Again, we raised our guidance or our outlook for the full year on revenue. Part of that is being driven by the onboarding of a new strategic partner. We called the number out for you. We anticipate $31 billion from that customer over the last 3 quarters of the year. Again, we onboarded that customer beginning in July. We're pleased with the onboarding. We think the transition has gone quite well. That will drive about $31 billion over the last 3 quarters of the year, and that will be in our U.S. Pharmaceutical segment. We're really pleased with the performance that we've had on operating profit and adjusted EPS. We've raised both our adjusted operating profit outlook to 13% to 15%. So that is well above the long-range target that we've provided. And from an EPS perspective, we've raised the outlook to 18% to 20% growth, again, also well above the long-term rate guidance that we've provided. So we're really pleased with the performance that we've had. And I'll show you in a little bit the consistency that we've had of that growth over the last 6 years when we really started to focus in on the strategy. We anticipate that the second half -- and I'm sure you can do the math, but we anticipate that the second half will be higher weighted than the first half. Historically, we've seen a little bit higher weighting in the second half than the first half. This year is a little bit more around 55%. We anticipate that the tax rate -- we're not changing the full year effective tax rate. But in the back half of the year, we do anticipate that from a timing perspective, the third quarter will be higher than the fourth quarter will be. Obviously, that's going to be dependent on the timing of things like discrete items. And then from a cash flow perspective, we still anticipate that we're going to drive between $4.8 billion and $5.2 billion of cash flow. We're really pleased with the working capital management and the focus that we have on that, the efficiencies that we're gaining from the investments we're making in our distribution network. And as I mentioned, we're raising the full year guidance on share repurchases to $3.2 billion, and that had an impact on the weighted average shares calculation for the year. I won't go through this. It's kind of an eye chart anyways, but really, a couple of tweaks to some of the outlook. We've raised the consolidated revenue that's being driven in large part by U.S. Pharmaceutical. We've raised the operating profit outlook, again, in part driven by U.S. Pharmaceutical performance and then the adjusted EPS. This is a strong performance, 13% to 15% adjusted operating profit growth. And then as I mentioned, the adjusted earnings per share growth is also quite strong. So we're really pleased with the performance that we've had in the first half of the year. We anticipate that will continue through the balance of the year, and that really sets us up for another year of strong performance as we think about FY '26 in the back half of the year. I thought it would be helpful to really just kind of walk through what's happened over the last few quarters. I think this is really important. We had a strong FY '24, another strong year that we've had over the last several. We provided you a guidance that we were really excited about. And again, on an annual basis, we provided EPS guidance that was growth of 14% to 17%. Now how we get there? Quarter-to-quarter, we do have variability in our business. But after our first quarter performance, which was in part driven by some strong operating performance, we raised the guidance. We raised it $0.50 at the midpoint, and we raised it to 16% to 19% growth for the full year. And then we had a strong second quarter. And a large part of that was driven by operating performance. A part of that was deployment of capital through share repurchases, but we've now raised it another $0.55 at the midpoint. So we've been consistent in terms of the growth that we see in this business on an annual basis. We've been raising this based on the performance that we've had in the first 2 quarters, and that gets us to 18% to 20% growth. So we've been pretty consistent. We see a strong FY '25. We've performed well as an enterprise in both the first and second quarter, has led to increases in both of those quarters. And we're excited about 18% to 20% growth year-over-year in adjusted EPS. And this isn't 1 year. We've done this now for 6 straight years. And so this is consistent strong performance. The momentum in the business continues to be very strong and very high, and that's reflected in the walk that we've had in the guidance. Okay. I'm going to switch gears and talk a little bit about our businesses. So again, we're really focusing -- we focus on managing the business for the long term. We don't make decisions for next quarter or for 2 quarters. The decisions that we make are to support the long-term growth of the business. And we think over the last several years, we've been making the right investments in areas that we have clear differentiation, trying to grow those and scale those. We believe that we have very strong core businesses, and that's led to good earnings growth over the long term. All of this is on top of a strong balance sheet and financial position. We have a strong credit profile. That gives us good capacity and flexibility to deploy capital. So again, we're focusing on what are the things that we can do to bolster the differentiation that we have, to support our core businesses and continue to invest for the long term, not for next year, but for 5, 6, 7 years out and do it consistently. So there's a couple of places that we think that we do have clear differentiation. Oncology, for sure, we'll talk about that in a minute. That was built on a long track record of building this platform, starting with distribution capabilities, moving to the U.S. oncology network. We've added quite a few providers over the last several years. I'll talk about that in a minute. Florida Cancer, we think, builds on that or subject to regulatory approval and clearances, but it fits really nice and it reinforces the platform. Ontada is a nice asset for us that provides a tremendous amount of data for clinical purposes but also upstream to manufacturers, and we're pretty pleased with what we're seeing out of there. And then Sarah Cannon, the joint venture that we have there, focusing in on clinical trials and clinical trial research and management of clinical trials and providing expanded access to clinical trials. We're really pleased with what we've seen there. We have over 250 locations now, where we're doing clinical trials. We've seen an increase in accruals approvals of clinical trials this fiscal year of about 20%. So this is starting to pick up a lot of momentum. This has been a really good venture for us, and we're excited about how it fits into the platform. And then on biopharma services, again, over a long period of time, we've built this platform. We've added to it. Rx Saving Solutions was the most recent addition that we made to the platform. But we think that we had differentiated, automated solutions here to drive better access, affordability and adherence solutions, and we'll continue to invest in this area as well. And then I talked about the acceleration and modernization of the portfolio. We are a large and complicated business, and one that has been built over time through acquisitions as well. And so there's an opportunity for us to continue to simplify, to continue to automate, to continue to provide investments in our cloud footprint, investments in our network footprint. But all of this will build so that we have better customer centricity. Ultimately, what we want to have is the right foundation that's automated that really is going to help us connect with the customer in a more efficient way. Brian talked a little bit about this yesterday with the Azure partnership that we have, which is going to provide better opportunities with our U.S. oncology practices. So talk a little bit about oncology. So again, we think that we play a really important role in supporting community oncology, which we believe is the most efficient low-cost setting of care. And again, we connect biopharma, providers, payers. We provide lots of information and capabilities to the providers to practice the most efficient cancer care possible. Cancer care is becoming increasingly complex. So a company like McKesson with all the assets and capabilities that we have, we believe that we play a very important role to support community oncology. This is the platform that we've built over time. And I think this is pretty instructive. We didn't go out and make one big acquisition and say, here we go, we have a platform. We really have thought about this very logically over time starting with where we are most efficient, and that's in distribution. And so we started with the OTN acquisition, where we really focused on building scale around distribution and specialty distribution. We built a GPO around this to provide better cost opportunities for our customers as well as more efficiency from McKesson. We added the U.S. oncology network, and we've grown that network over time. You heard us talk yesterday that in the last -- this fiscal year, we've added another 185 providers. So this is a very strong network now that's helping our providers focus on practice of -- cancer practice, while we are providing all of the services and capabilities to support that. We have a specialty pharmacy that's really focused on oncolytics and rare therapies, again, to support the oncology and specialty provider platform. Ontada, we've talked about. So our providers within the network are all practicing on the same EMR. I think that's very efficient. Because it provides a lot of insight for clinical care. And certainly, we can add insight and analytics to this to provide insights to biopharma as they're developing their drugs going forward. The joint venture that we did with SCRI to advance clinical trials and clinical trial management, expanding access to clinical trials. This has been a good success for us, and we're excited about the opportunities here. And then as I mentioned, the proposed transaction with core ventures and Florida Cancer, we think that, that reinforces all the things that we've been building over the last 10 years, and we're excited about the opportunities there, subject to regulatory approval. This is the platform. So what I try to do here is give you a little bit of a sense from left to right, the margin profile, lower margin opportunities and capabilities to higher margin. We've got specialty distribution and specialty pharmacy capabilities supporting our oncology business, all the way over from practice management, our data and insights business and clinical trials. This platform represents approximately $35 billion of revenue in this fiscal year. So it's a sizable scaled business, from distribution all the way across to clinical trial capabilities. And we're excited about the opportunities that we have to continue to grow the right side of this page. We did a great job on the left side. It's really our -- one of our core businesses. We think that the cell and gene opportunity that Brian talked about yesterday is going to continue to grow. The InspiroGene allows us to bring the capabilities that we have across the company into one offering that we think is very exciting for biopharma. This is an area that we believe that over the next few years, you could see 10, 12, 15 therapies launched each year. So there's a great opportunity here. Some of these are pretty complex. The commercialization can be quite long. And so the capabilities that we have to help support that and help bring those drugs to the patients, we think that there's a great opportunity for us. And so cell and gene is a new area for us that over time, we believe, represents a growth area. So again, left to right from lower margin, more distribution type margins over to the right, where we have clinical trial capabilities, higher margin. And overall, this is about $35 billion in revenue this year. We think we have tremendous reach in supporting community oncology care. You can see represented here at the U.S. Oncology network. The focus here is on how can we support community providers, which we believe is the lowest cost of care opportunity to expand patient access, the most quality care, closest to home for them. We believe, again, that community oncology provides the best care and at the lowest cost. And McKesson can help support that. You see the growth over the last several years from 1,300 providers 10 years ago, to over 2,700 providers today. We've given you a look at what Florida Cancer would add. Again, if we can get this over the finish line, the number of sites that would be focused on and again, in 31 states. So we're excited about the U.S. Oncology Network, certainly our role in helping support community care. Just a brief view of Florida cancer. Again, we think that it really fits very well with the platform and the strategy that we've been building over the last several years. We think that there are attractive financial returns, both down to the clinicians and lower cost for their patients as well as good returns for McKesson. Again, about 530 providers and 100 sites. We -- as we announced, $2.49 billion for 70% ownership. So there'll be 30% that will be enrolled by the physicians. There will be an opportunity over time to increase our ownership. And as I talked about yesterday, first 12 months post close accretion of about $0.40 to $0.60. And over time, at the end of the third year, we would anticipate accretion of $1.40 to $1.60. So we're, again, subject to the regulatory process and clearance requirements, we think this fits really nice into the platform that we've talked about here in the last few minutes. Again, so just to sum up, we think we have a broad and differentiated platform given the breadth of services and capabilities, the scale that we have with U.S. Oncology, the scale that we have with our distribution footprint, we believe that we play a really important role in an important area, which is the community setting. And we believe that investments in this area will continue to make investments to support the growth and to support the success that we've had over the last several years. Okay. We talk a little bit about our biopharma platform. Similar to our oncology platform. It's one that we've built over time. It's scaled differently in the sense that we connect a lot of components and a lot of stakeholders across pharmacies, providers, payers and biopharma. You can see some of the stats here. We connect 50,000 pharmacies that are doing over 23 billion transactions through the RelayHealth network on an annual basis. We have over 950,000 providers that are connected through automated workflow. And we certainly continue to connect with payers and support their programs. And then over 650 brands are supported with biopharma through our platform. So a very wide breadth of services and capabilities to all the stakeholders in health care. And we do this focusing in on how we can connect them in workflow through automated capabilities. Again, we've built this platform over time. We've been very thoughtful about adding components that we think will drive differentiation. We retained the RelayHealth network from the change spend. We thought it was really important. And it certainly has been important to us in terms of the connectivity to pharmacies, the number of transactions that are going through this, the types of work that are done in terms of the adjudication of claims and so forth. We added CoverMyMeds in 2017, and this was, in my view, is a little game changing in the sense of the types of solutions that they provided to support access and affordability programs and doing this in a more automated way. Again, over 950,000 providers are connected through workflow through our products and services. We added RxCrossroads to support 3PL and logistics and other hub services capabilities. We did that in 2018. In 2020, we brought all these businesses together, and created one coherent and cohesive segment and called RxTS. And then recently, we added Rx Savings Solutions, which is really helping provide prescription price transparency and other benefit insights to employers and their employees. So again, a very thoughtful build over time, and this is the platform and the foundation that we'll look to continue to add to. So I really wanted to break this up into 3 verticals here. Our third-party logistics business, our affordability solutions and our access solutions. Again, on the bottom here, we've gone left to right in terms of the margin profile. The lower margin profile in third-party logistics, those are more distribution like margins all the way over to our automated technology solutions on the right. We've also given you a composition of the revenue, and we walked through this a little bit. Again, this is based on FY '25, so we'll update this over time as this might change. Our third-party logistics business represents about 50% of the revenue for the segment. And as I've talked about previously, it has the lowest margin profile in this segment, but it also represents less than 5% of the operating profit for the segment. So good business. We provide lots of capability. You see the number of transactions that go through here represent a lot of the revenue, but really a fairly low contribution to profit in this segment. Our affordability program. So we support lots of different discount programs and other voucher programs on behalf of pharmacies and biopharma as well as our intelligent network. So RelayHealth Network is part of the affordability program. And you can see the types of savings that we're helping generate for patients over just under $9 billion in savings, out-of-pocket patient savings through the programs that we have here. And we think that also what we're doing is helping increase adherence. So not only helping patients afford their medications but helping them stay on their medications. And you see we've seen over a 25% improvement in patient adherence. And this represents roughly 25% of the revenue of the segment in FY '25. And then our access set of solutions, which gets a lot of the focus, is really made up of our hub services and our specialty solutions as well as prior authorization. And you can see the number of times that we've helped enable patient access, almost 100 million times annually. Maybe just talk a little bit about our access business for a minute. In general, in this segment, we do see a lot of variability, and I don't get that question a lot and probably -- and you're probably tired of asking me that question and why do we have so much variability in this business. Well, first of all, we have the third-party logistics business, which generates a lot of revenue. and that is really dependent on product availability, program availability. So we certainly provide the programs and the services and capabilities, but we've seen some product delays. We've seen some program delays, and that's impacted revenue. Again, it hasn't had a big impact on the profit in this segment, but it has created some variability in the revenue of the segment. We've talked about some of the other factors, whether that be utilization trends or product shortages and supply. We've talked about the maturity of a product over time and the requirements that a manufacturer may have to support that program. We've talked about payer management and payer utilization requirements. Certainly, our seasonal verification program that we do in our fourth quarter. So there's a lot of things that go through here. Maybe just talk about a couple of those as examples. So if you think about utilization is an example. Over the last 12 months, according to IQVIA, there are about 625 million brand prescriptions or transactions that happened. As you probably know, roughly 90% of those are generic. And so the remaining portion that may require a prior authorization, not all of those do require prior authorization. So there's a component of that, that require a prior authorization. And that's where our services come into play. And so there's variability just in terms of the mix of the prescriptions, whether it be, again, 90% of those being generic and the remaining part being, some of those require prior authorization and some of them don't. So that's one aspect that I would give you. The other one that I might talk about here is we'll talk a little bit about GLP-1s. So we've talked about the fact the payers require different things for supporting a GLP-1 prior authorization. And even within GLP-1s as an example, there's different requirements for diabetes therapy versus a weight loss therapy. So on average, and this varies -- this can vary quite substantially across the different payers. If you think about a diabetes type product, on average, payers require a PA for that about 70% of the time. And the requirement in terms of renewal can be as low as 12 months, as high as 24 months, depending on who the payer is. For weight loss, the requirement for a prior authorization is on average, about 85%. Some payers, it might be 55% and some payers we've seen are 90%. But generally, for weight loss, prior authorizations are higher. And in terms of the renewal requirements, what we have seen is that for weight loss products, the renewals on average are 8 months. So there's quite a big difference just within GLP-1s between the requirements for a diabetes therapy versus a weight loss therapy. The other thing that we see is that the payers may choose different times to do their verification program throughout the year. So we've seen a lot of transaction and obviously, this is one of the biggest therapies we've seen in a long time. And within that, the prior authorization requirements are different between a diabetes therapy and a weight loss therapy, and the renewal requirements also vary quite substantially in terms of time, but even across the different payers. So I just wanted to give you a little insight into why is there so much variability in this particular portion of our business. That's one aspect of it that I just wanted to call out in addition to some of the other things that I talked about. So as we step back, we've invested quite a bit into this business to continue to build our differentiation. We think that we have a clear winning positions and capabilities from an automated perspective, to continue to build on that, to support access, adherence and affordability programs. Again, a focus of getting patients on their medicines and helping them afford their medicine and stay on their medicine. We think that our core capabilities are leading. We're looking to invest in adjacencies, and we'll continue to do that. And we've had a long track record of building this business, investing in this business and adding to this business. And we think that this is a very differentiated and leading platform. Talk a little bit about our medical business. So I'll just give you a little history here. I've been with the company almost 19 years, which is hard to say out loud. It's gone very fast. And I started in this business, I started McKesson in the medical business, very different today than it was 19 years ago. But conceptually, we've been building this business over the last several years. And this has been a great business for us. We are focused on the alternate sites of care. We've been investing in our capabilities and our services, whether that's building out lab solutions. Four or five years ago, we bought a small company that had some lab solutions that were -- would help us deliver lab capabilities into physician office. We've continued to build our Rx capabilities. So for primary care sites, ASCs and other, we think that we have leading Rx distribution capabilities. There's a question yesterday on the call to talk about our private brand. We do not manufacture products. We focus on partnering with manufacturers to help us bring to our customers products that they need. Brian, I think, talked about this very well yesterday. Our customers like to have choice. And so what we do is we provide them choice. We provide them a private brand alternative as well as partnering with the national brand. Over time, we have continued to build our McKesson brand portfolio. It's continued to build over time. And that's really been driven by opportunities that our customers are seeking for choice. We now have over 5,000 products in McKesson brand. So there's a lot of opportunity here for our customers to choose, whether they want to go with a national brand or they want to go with the McKesson brand. And we're really proud about the capabilities that we have here. Generally speaking, the margins that we have in our private brand portfolio are roughly 1,000 basis points higher than the national brand. And so at the same time, it's good for McKesson, it's also a cost opportunity for our customers. We have scaled distribution. We've been investing in our distribution assets over time. We believe that we've added automation. We've had regulatory capabilities to this network. And our service level is second to none. We're very proud. Stanton will talk about the Net Promoter Score of 72, I had to look up what -- how 72 compares, but 72 is a fantastic number for a Net Promoter Score. We did one several years ago where we asked the company to do a Net Promoter Score on finance. We weren't 72. So we believe that our customers respond really well to the services that we provide and the choice that we provide. And so we think we're well positioned from the breadth of services and capabilities. We think we're well positioned from the solution set that we have in terms of the choice and certainly the service that we deliver to our customers. Over the last 5 years, we've delivered an operating profit, CAGR of 10%. And so we feel that this business is resilient and durable and it's one of the strengths that we have in our core solution set. Okay. Maybe just move on to some financial highlights here. Talked about what are -- we think very much we are always very focused on how do we create shareholder value and pretty simple formula. We think about the operating components of the business and driving operating profit growth through good performance. We try to drive leverage in the business. We think that leverage is important to help McKesson be more efficient and also drives lower cost for our customers. We have, as I've mentioned before, a strong balance sheet. We drive a lot of cash flow in the business. We think we're very efficient in terms of how we deploy that capital. And all that leads to good sustainable and consistent earnings per share growth. On the operating leverage point, I think I've mentioned this before, but what we think about is, what is our operating expense ratio to gross profit. And we've measured that over time. And over the last 5 years, we've driven 800 basis points of leverage from an operating expense to gross profit ratio. That's getting more efficient, that's adding automation, that's adding more insights into how we manage our business. That's accelerating some investments that we've been making. And we think that there's an opportunity to continue to do more. That's this acceleration and modernization program that we talk about is continue to focus on accelerating investments in the infrastructure, in the technology stack and automation and data and analytics that will continue to drive more operating leverage into the business. If we think about our segments, so this is a slide that I think I've shown before maybe at Investor Day, but we -- today, we have 4 segments. And when I joined the company, we had 12. So we have simplified the business and we've simplified it around where we have differentiation and strong core capabilities. These are the 4 segments. I know Canada is not a segment. It's international, but majority of what's in international is Canada, so I wanted to pull that out here. You can see where we started on this journey in FY '20. That's the operating profit for each of those segments. Over on the right, this is the long-term target growth rates that we've provided to you. Now we've increased some of these over time, particularly I'll just use U.S. pharma as an example. The original operating target rate was 4% to 6%. So we've increased that over time. It's now 5% to 7%, and we're performing above that. In fact, in most of these segments we're performing at or above consistently. In the middle, you can see what our forecast is for this fiscal year. Again, these are long-term target rates for a reason. But year-to-year, you might see some variability. But again, for the most part, we perform at or above these long-term target rates. And then you can see what is the CAGR for these segments been over the last 5 years and very strong. Again, a 5-year performance track record that is at or above the long-term target rates that we provided. But we're pretty proud of the focus that we have, the investments that we've made, the position that we have in each of these segments. This has consistently performed well. In fact, again, if you look at FY '20, today, we will exit -- the exit rate for 3 of these segments will be $1 billion operating profit segments. So again, we're really pleased with the performance and focus that we've had here. This just gives you the reported adjusted operating profit for the business over the last 6 years, and it's consistent. Now what I will tell you is inside here, there is COVID related income in '21, '22 and '23, but it's still consistent growth within here. I would also point out that in FY '20, we had our Change Healthcare investment which drove about $250 million of profit, and we had our European operations. So again, we don't have those operations today. If you extracted those and looked at what would the CAGR be excluding Change Healthcare in Europe, it'd be 10% and again, this is consistent year-over-year. There are not spikes in between. We manage the business for the long term, and we believe if you look at this business annually, the performance is consistent growth. Similarly, on adjusted EPS. Again, this is reported, so it has COVID in the middle here. It has changed health care in Europe at the beginning. But this is very consistent performance as well. 6 years, 17% CAGR. Now if you pull change health care in Europe out of the front of this because it's not part of our business today, that CAGR would be 26%. And let that sink in for a minute. This is not just a distribution company anymore. The things that we have done, the focus that we've had, the investments that we've made, excluding change in Europe, which are out of our business today, which we think have delivered a lot of value back to our shareholders at the same time, 26% CAGR consistently growing. But we feel very good about our business, we feel very good about the position and we feel very good about the performance that we've had over a long period of time. It's also delivered good cash flow performance. So you can see the free cash flow on the left, very consistent. Again, day of the week that the year ends on, sometimes it ends on a Tuesday and we get a large payment from a customer on a Wednesday, it happens. But if you look at this on a moving average, very consistent free cash flow generation, and we're pleased that we think we're going to generate between $4.8 billion and $5.2 billion this year. So we've used the midpoint here. And then our efficiency, our ability to operate the business effectively, generate good cash flow and turn that cash flow and convert it, and returned that operating profit and convert it into free cash flow, pretty high rates here. We've also managed our balance sheet very effectively, been very focused on creating a balance sheet that is not only durable, it has a lot of flexibility. It's -- our credit ratings have improved. So it's flexible. It has plenty of liquidity that we can do for growth. Again, we're going to be very thoughtful and very disciplined. You've probably heard us, Brian and I say this for 7 years, but we think that it's turned into good performance, and we're going to look to continue to deploy capital to our shareholders. So on top of really good operating performance, we have a strong balance sheet, and we're in a good position in terms of our leverage. This is our framework for how we deploy capital. Again, it hasn't changed. We think about first, our first priority is to grow the business. But again, we're going to do this in a very disciplined way. We're going to first look for opportunities to grow our oncology and biopharma services capabilities. Sometimes, we will look to do those through internal investments. We've done a lot of internal investments in terms of building out Ontada, in terms of building adjacencies into our biopharma services businesses. Certainly, acquisitions. Again, we announced Florida Cancer, a big acquisition. But again, it fits, if you think about the platform that we're building. And of course, returning capital to shareholders. And I talked about our commitment to increasing the dividend in relation to earnings growth, returning capital through share repurchases. And we think we've done that in a very value-creating way over the last several years, and we've reduced the weighted average shares by 30%. We've done that with great operating performance. So we think that that's been very value creating for our shareholders. We'll continue to look to do that. Management and the board have a lot of confidence in the business going forward, and the Board authorized an increase in the share repurchase authorization. So it's there and available for us so that we can be efficient with our capital. And of course, the strong balance sheet. As I mentioned, we have good financial flexibility and high credit ratings. And that sets up the framework that we've talked about before. Again, these are guidelines on the split between operating performance and capital allocation. We may, at some point, have a year where we do higher and 6% to 8% on the operating profit, maybe it's 4% on capital allocation. But we think overall, 12% to 14% is a good target to grow these businesses while still investing in these businesses. We don't want to just grow these businesses and just leave them without continuing to invest in creating further differentiation. So we're always looking for ways to invest, it could be acquisitions, it could be internal investment, it could be investing in our modernization acceleration program. So we think 12% to 14% is healthy. We've been able to do that consistently, and we're really pleased with the performance over a long period of time. So the takeaways, again, we believe we have a strong business, it's well positioned. We think we have leading positions in differentiated areas that are growing and higher margin. And we believe that we're creating good shareholder value, and we think that this investment that McKesson is a good investment, it's compelling for the long term for its strategic reasoning, for its positioning in the market and its ability to create financial value. So that's what I have. So I thought I might go a little more than 50 minutes, but we have ample time for questions. So how do you want to do this, Rachel? Just raise your hand and go.

Yes. We do have mics on the table. You have to speak into the mic and [indiscernible].

Go George first. That's okay. I've been taking on him all morning.

Britt, first, I want to say thank you for doing this, and this has been super helpful, and I hope this is the first of many of these that we do together. What I would start off with is the oncology business, and thank you for the color and transparency that you provided there. I guess as we think about the oncology businesses as you laid them out, I won't ask you to quantify, but can you kind of rank order how McKesson monetizes the business from a revenue and from a profit perspective? And I'm thinking of the buckets as you lead them out USON, OTN, Onmark, Biologics and Ontada.

This slide. Well, the foundation of this business is distribution. And so the -- I think if you thought about these in rank order, certainly, distribution would be the lion's share of this business. Our ability to create value through our GPL but the growth is coming -- while the growth has come from distribution as we add new providers to the network, certainly, though, we're growing more on clinical trials. We've talked about the 250 sites, the success we're seeing with Sarah Cannon JV, the 20% increase in accruals. So we're certainly -- the lion's share of the business is distribution. I think that's probably not surprising to you but the continued growth in adding providers and what those providers are doing in terms of focusing on clinical trials and clinical trial research, that area is continuing to grow pretty fast. Lisa first.

So if I look at the numbers that you put together today, the one that stands out to me is the medical supply side. I know you talked about coming from that side of the business, lower end of the 6% to 8% this year, but you kept the long-term growth rate. Can you walk through just a couple of things. One, why you have the confidence in the long-term growth rate? Two, do you think anything has really changed in the market competitively? And then lastly, you talked about some of your products that you don't manufacture, but you do have a private label product. So I would assume some of that is coming from China. So what will be the impact when we think about tariffs going into '25?

That's a good question. I'll try to unpack them. If I skip one, just to make sure I come back to it. So look, these -- again, I repeat myself, these are long term for a reason. We don't want to get into the habit of reacting to a quarter or even a particular year. And certainly, we don't want to do that midyear. We want to let the year play out. We'll get to the annual guidance, and we'll evaluate it at that point in time. This has a history, a very strong history of growth, though. So I don't want 2 quarters to have us go, what's happening here? Certainly, the cost optimization program, we will continue to look at all of our businesses for optimization opportunities, and we certainly took that one with medical. We had some cost opportunities that we thought this was the right time to do it. So that's the way I would answer the long-term target. It's just not an appropriate time for any of our businesses really to increase or to decrease in the middle of the year. It's just not the practice that we're going to take. So ask me again in a few months. In terms of the private brand component of this, we have a number -- we have dozens and dozens of suppliers in many different countries. I don't know the exact number off the top of my head in terms of percentage in China, but it's low. We've tried to continue to diversify our supplier base over time, whether that's China or any other country, we want to have as much diversification as we can. We're looking for quality suppliers. They have to meet rigorous standards in terms of -- from an audit perspective, a compliance perspective and so forth. So we think that we're well diversified from that aspect. I forgot your third question.

Yes. The third question was just around the competitive landscape. Has that changed at all in your opinion?

It's been a competitive market for as long as I've been in it. You'll see competition in pockets, sometimes you'll see more competition in the extended care side. maybe earlier in my career, you might have seen more competition in skilled nursing, and that would be over specific products. So I don't know that there's any more competitive intensity. I do think the market just generally speaking, is perhaps a little bit softer than pre-COVID. And I'm saying market now. We're pretty excited to see that foot traffic was a little better than we anticipated at the end of the second quarter. I think part of that might be driven by the illness season. Last year was a pretty soft illness season. This year, thus far has been a little bit stronger. So if you get a better illness season, you have more people go in to see their primary care physician or a retail clinic, and that will drag with it medical/surgical supply. So little early to say. We're not banking on a strong second half from a sales perspective. I think this was asked yesterday, our sales are pretty consistent in the second half with what they were in the first half. From an earnings perspective, I think, Eric, you might have mentioned this maybe in your note. In terms of the earnings year-over-year, if you pull the cost optimization part out, and again, we talked about $100 million of savings in the back half of the year. But what we're anticipating is flat AOP year-over-year. Now the point is from first half to second half, there is a little bit of a ramp. But I would go back and look at many years, the second half is generally higher than the first half. Again, it will depend on the illness season. But typically speaking, we see a little bit more contribution in the second half than the first half, and that is typically driven by the illness season. So every illness season is different. And if you kind of plot it out like those hurricane models, it will be all over the place. We'll see how it plays out. But I think we feel like we're in a really good spot. We've taken the right actions, and we're not looking for a fantastic growth in the back half of the year to meet the full year. I'm going to go this way, if that's okay.

Sorry. It's Erin. So just the impetus for this meeting, and it was extremely helpful in terms of highlighting biopharma and your relationships there and also in oncology. But as we think about the genesis of all of this? Was it just because you think that those are misunderstood or underappreciated or just to think about how you think about the long-term growth profile? Or is it to help explain future stepped up acquisitions in this particular area? Will we see some sort of acceleration in external investments in the space? Or how do you think about kind of the pipeline there from an acquisition standpoint?

It's a great question. So let me try to answer that pretty similar way I started, which is we do have other investors that we're meeting. So we're going to be in the area, and I thought this would be a good opportunity. These -- the calls that we do afterwards, they're not as crisp as I'd like them to be in the sense that there's 15 of you on the call and you're all asking good questions, and I want to make sure that I give the right answers to help you in terms of your modeling. I just thought that a more expansive set of time would be good in terms of giving a little more clarity on the size of our oncology platform. So we've talked about that today. Giving a little bit more insight into what really drives the variability in your RxTS business. So I'll give you a little bit of examples around that and really give the opportunity to ask some more questions so that it does inform the way you think about our business. Because the business is continuing to grow. We're continuing to make investments in it. It's not -- these are not small businesses. And so I really wanted just to provide the opportunity to just answer those questions, make sure that we get it all in the room together. And if there's any concerns, we can have that discussion here. And I find that the one-on-one, the live meetings are just more effective. And so while we're meeting with other investors, I thought this would be a good opportunity. You're all for the most part here. So I thought I'd come to you. I'm going to go into Elizabeth first.

Thanks for the question. Thanks for hosting this. If we think about the community oncology and sort of the growth [indiscernible] many of those providers have faced a number of challenges over the years. How has -- what the oncologists have been looking for from McKesson change? And sort of do they kind of, in general, like how do we think about the full scope of that slide that you were talking about before and versus maybe most of them are just using part of it and as we think of it more as like a future evolution. Could you help [indiscernible].

Yes. It's a really good question. So as we've gone on over time, we have been investing in some of these areas, and we've been improving some of our capabilities. So as an example, just a few years ago, we made some significant investments in Ontada. Now we've had an EMR for a long period of time, but there were opportunities to improve the EMR and opportunities to take some of the feedback that we've got from clinicians and to make those investments in that. Once we were able to do that, and there's a lot of data here that clinicians are saying, this is really helpful in terms of how I practice, but there's also an opportunity for that upstream to the manufacturer. So over time, we got a lot of feedback in terms of how we could improve the EMR, and we made those investments. Certainly, we had U.S. Oncology Research, which did clinical trials. But we thought there was an opportunity to expand clinical trial access. We thought that certainly Sarah Cannon does this in a very good way that we could partner with them, create a joint venture to increase clinical trial access to increase our capabilities around clinical trial management. And so as we've done that, we've seen more sites doing clinical trials. We've seen a higher accrual rate. And so I think over time, as we've improved our capabilities, as we've made these investments as the providers have told us what they need from us, really, the way you build a good business is by listening to your customers. And so as we listened to our customers over time, we've reacted and we tried to build those capabilities for them. And we think that it has resulted in some good outcomes. And again, the clinical trial capabilities and the volume that we see there is a good indication of that.

Daniel Grosslight with Citi. Thanks for hosting us. This is great. I just had a question about the overall market size of oncology. I think in your Investor Day, you sized it at around $55 billion that was what, 4 years ago now -- so 3.5 years -- you're kind of get into around 50% of the TAM in oncology. Curious how we should think about the overall growth of your oncology platform and if there's perhaps any desire to go outside of oncology. One of your competitors bought a practice management in ophthalmology. Is there perhaps a desire to build what you've done in oncology in other areas?

Yes. That's a great question. So first of all, I think the 55% is larger today. Certainly, we've got a business in here around cell and gene therapy, that wasn't contemplated in that at that point in time. So the market has grown. Certainly, our growth rate has been quite good in terms of the number of providers that we've added and capabilities that we've added. If you look at our specialty distribution to specialty providers, we are providing to a lot of non-oncology providers already. In fact, we made a small acquisition of a retina GPO within the last year. So it's an area that we're already providing distribution services and capabilities too. We like oncology from the sense that we think that we can bring a lot of capabilities and assets to bear where there's really a lot of innovation from the drug pipeline. So to me, as we've thought about this, it really starts with is there a good healthy drug pipeline. And it allows us to leverage the foundation that we have in terms of the relationships we have with biopharma and our drug distribution capabilities. And from there, then the practice management capabilities that you're providing, whether that's helping them with research and -- retina and ophthalmology, there's a lot of research, and there's new drug innovation that certainly is happening there. So we look at those areas. When we're building out a platform like this, it has to kind of check off some of those items to build a platform. Now we continue to provide services and distribution services and GPO services to urology and retinology and ophthalmology. We're already in those spaces, that's part of our specialty distribution. But in terms of when we think about how we're going to build an oncology platform, they are all a little bit different in terms of what they need and what they require and the scale of that. But it starts with the drug pipeline and the innovation there and certainly what you can do around research and clinical trials.

I wanted to ask about the U.S. oncology business. As we think about the growth drivers there, like could you help contrast add-in providers and the opportunities to improve earnings contribution on a per physician basis? How should we think about the relative importance of those contributors over the next few years?

Yes. So we've added providers for a few reasons. First of all, providers want to come and join the platform. We've seen as we've added these capabilities, particularly around I think the Sarah Cannon joint venture, which has expanded clinical trial access and research, the Ontada asset that we have and practicing with 2,700 other providers. We see that oncologists want to join network. Providers want to be part of this. So that's number one. Certainly, as the scale has gone on, we can use that scale to leverage better buying opportunities, biosimilar opportunities, and that drives better cost for the clinicians and their patients. So it's really kind of a virtuous cycle here, whereas we've added scale and capability, more people want to join the network because they see the clinical aspects of it that are going to be beneficial, but also the financial aspects. And so we think that this is -- and by the way, not every provider is going to make the cut to the U.S. oncology network. There's things that they need to do that we require. They have to be on our EMR or they have to buy through our GPO. And there are certain things, there's quality standards that we have. So we kind of go through that process. But where we have a good fit, we would like to add it because we think it helps clinical care and the community.

Britt, maybe I can follow up on Lisa's questions, which in medical, right, you got out of the hospital distribution business decades ago, have been focused on alternate site. And it seems like the market is largely bifurcated that way when you think about some of the big players. You have a large private player in the market that kind of serves both extensively growing at a considerable clip yard. Is that a change in the market you think? And I know they've been around for a long time as well, but do you think there are any changing dynamics. So I guess it's this competitive environment question where, particularly when you think of like large IDNs that have both assets, both facilities and alternate sites. Is that an area where you might want to rethink of how you're approaching the market on a go-forward basis, particularly in light of where you think potential growth is?

Yes, good question. So I think you need to differentiate between a hospital and hospital-associated physicians. They're not the same thing, right? So we do service a lot of physicians today that are part of a hospital system. But they're not part of an acute care IDN necessarily. Thank you for reminding me that acute care was decades ago. I'm not that old. But I do remember that. And the decision that we made was the buying practices, the margin profile, what was required to service those. It just didn't fit for us. Now today, you still have physicians that are associated with the system, but they're practicing sort of independently, and we service a lot of those customers today. So that is not something new for us, and that's not a change for us. And I think that's still an opportunity for us to bring our value to bear, bring our -- the choice that we have for our customers. And I think it still represent an opportunity going forward. So I don't -- the market will change over time. I mean it changed when I joined the company, and we were a very acute care distribution focused medical surgical business. In fact, I remember these numbers like it was yesterday, about 80% of the mind share of that segment was acute care, and it was more than 1/3 of the revenue. So that was a big part of the business. But -- so it's changed over time. And I think we've continued to change and meet our customers where they are, whether that's retail clinics. As retail clinic started popping up, we were there helping them set retail clinics up and the equipment was needed and they became customers of ours. We've continued to follow the customer, whether that's in the primary care space, or whether that's an extended care, whether it's skilled nursing facilities or assisted living facilities all the way out to home care. And we'll continue to follow the customer, and we'll continue to provide the breadth of services and choice that we have, and I think we're well positioned to do that. Eric?

Perfect. Maybe I'll just start with a follow-up there. You did such a nice job with RxTS and biopharma laying out the different elements of the business. And so when we look at MedSurg, we're calling it all outside. But I think maybe post-COVID, can you give us an update of what those different elements you just laid out 3 or 4, because I do think some of them have different growth components.

Yes. So we've talked before about the primary care channel represents about 60% of the revenue of the business. Certainly, you're going to have medical surgical supplies are going to be a key part of that. What we've seen is growth in Lab Solutions. We've seen growth in Rx, particularly to ASCs and even to some primary care sites. So that's continued to be a big part of the business. And then you've got the extended care side where we continue to serve skilled nursing, some assisted living and home care, whether that be DMEs or other components of home care, even down to consumer. So that's how I would break that up for you. Certainly, we could, as a takeaway, think about how we show you how we build this business over time. That's a pretty good add. If you think about that, it's about 60% primary care. Again, one of the things that we've seen is that during the COVID period, we had great fluctuation by the way, in terms of test kitting that we are providing not only to the government, but test kitting to some of our retail clinic partners as well. And as that kind of has normalized outside of that, we're seeing less incidences of testing. And if you see less incidence of testing, and you say, I don't think this is COVID, it is probably just a cold. So I'm not going to go see my doctor. Well, you don't see your doctor, you're not going to use the table paper and the tongue depressors and all the other supplies that are core to what we provide to a primary care site. So we've just seen a little bit lower volumes there. We still think that there's -- the foot traffic is going to be good. It was a little bit better than we had assumed mid-quarter. So I think we're well positioned to continue to benefit from those trends. And we'll see how the illness season goes. The illness season will also drive -- if there's a strong illness season, that will drive people into either a clinic or their physician, and that will drive MedSurg supplies as well.

That's helpful detail. The non follow-up question I wanted to ask you is actually on cell and gene. So when we look at the development pipeline this year for the first time we're seeing a large number of these products, and it seems like they don't have the same demands for distribution and the fulfillment and managing receivables are going to look different. And so I see you creating a business that's really focused on commercialization. Can you speak to how you expect to serve these organizations? And is there a major role in fulfillment and a monetization opportunity? Or is it really going to be tied to helping them in commercial and particularly oncology?

Well, first of all, I think the -- what we'll lean on is our capabilities in oncology. So that's a natural place for us. We have a lot of these assets already in the company, whether that be 3PL and logistics capabilities specialty pharmacy capabilities or just the specialty distribution network that we have. It will depend on, first of all, us winning an RFP with one of those manufacturers for that particular drug and then what are the requirements for that particular drug? Is it a title program? Is it a flash title program? Is it managing the receivables, as you mentioned? I mean it could be a number of different things. And then, of course, each drug will have a different length of commercialization process. These are complex and some of these could take 2 or 3 years to commercialize. So it's an answer and kind of a nonanswer, but it really will depend on the drug and what's required for that drug. But we're positioned based on the capabilities that we have to service a whole range of services for cell and gene.

Britt, your leverage ratio is much lower than it's been over the past few years. I think as we think about that 6% from capital deployment, it just feels like there's more M&A going on. I think you and a lot of your peers just didn't do M&A during COVID. The focus was on the customer. As we think about this post-COVID period and that 6% from capital deployment, is it different now as we think about the M&A opportunities and maybe 24 months ago? Trying to get a sense, should we think a little bit more of that 6% from M&A versus share repo moving forward?

Well, it's a good question. As I mentioned before, we will continue to do share repurchases. We believe in the long-term growth of this company. And we have confidence in the long-term growth of this company. We have confidence in the growth of the company over the long term, then your shares will have good intrinsic value. So we'll continue to be consistent in that aspect. We do want to grow the company. That's our #1 priority. And with the announced acquisition of Florida cancer. That's an indication for us that, that -- first of all, it fits on strategy. You heard Brian and I talk all the time. It has to be on strategy or it has to advance a leading position that we have. So that's on strategy, it's clearly on strategy. And it has to be the right financial return. We -- it hasn't -- it's not that we haven't been active in looking at assets over the last few years. We have -- and we've certainly been looking at assets that fit our strategic pillars. But it also has to have the right financial profile for us. And we're not going to just go out and stretch for an asset because, well, that seems to fit your platform, so why wouldn't you buy that. But it has to have the right profile because there are other things that we can do with our capital. And again, at the end of the day, what we're focused on is how do we create the most shareholder value. And that could be an acquisition that extends the growth of the company. It could sometimes simply just be returning capital to shareholders. So we have been looking at assets. There are probably fewer assets than everybody believes that really fit the profile that we want. I think there's this belief that there's hundreds and hundreds of companies out there. if you're looking narrowly at our strategies, I think the opportunity set is not quite as wide as everybody believes. And then we -- what we do is we spend a lot of time with those companies trying to understand and learn what do they do? How do they do it? What's their culture? What would the fit be? I mean we spend a lot of time doing that. And when we pull the trigger, we want to pull it on fit and return profile.

I know over the next 5 or 6 years is a lot of oral oncology going generic. How should we view that over the next 5 years, meaning -- is this a scenario that will probably get you to the high end of your long-term guidance when these generics go?

It certainly could. Generics, as we've talked about before, certainly, they are a better cost opportunity for the provider and the patient. We have a sourcing engine at ClarusONE that we think drives tremendous value for our customers. We think that we do it as well as anybody. And in terms of the focus that we have on providing stability of supply, we think that will be additive to the oncology platform and to the clinicians. So as drugs launch, either generic or biosimilar, we think that it provides good choice for clinicians, good cost opportunities for patients. And certainly, for McKesson, there's a better financial profile. And if it's generic, we can utilize the strength and capabilities we have at ClarusONE. Rick?

Just had a question on the competitive environment within electronic prior offs like any changes there? And then kind of as a corollary to that, it looks like CoverMyMeds added about 200,000 providers that you're integrated with from your Investor Day to now. So any color on like what drove that growth would be great.

Good catch. It was 750,000. Yes. So we've continued to grow the network over the last few years. We think that we have the best position and certainly the best capabilities. But there's going to be AI-like capabilities around prior auth. But we think that the connectivity that we have right in the workflow and the scale that we have, the number of services that we provide. So it's not just initiating a prior auth or getting a sponsored submission to prior auth. And in many cases, it's ensuring that we are there to help do reporting and denial conversion and there's a whole host of services that you can provide to help the prior auth get through to a full sponsored submission. So the great work that we do, we think is AI can maybe do some of that, but it certainly can't replicate the breadth of services that we have. So we're certainly watching that. And look, we're looking as part of our capabilities around our modernization acceleration, how can we digitize and automate and create a footprint to be more efficient around those services as well. George?

Kind of the other part -- the other side of Charles and Eric's questions in Medical Surgical, as you talked about the customer type exposure. Is there any specific product exposure that you would call out. So like how should we think about like is it I'm thinking about when I walk into my doctor's office, and I see the McKesson stuff everywhere. So it's gloves, it's caps, it's gowns, it's the little things that go in.

You've chosen the right doctor, good for you.

I would not go to a McKesson doctor, Britt. Britt, like so how should I think about the product exposure? Is there anything you'd call out on product exposure as -- like building the matrix like customers and product?

The only exposure that I would point to is if we have -- supplier has some disruption and there have been disruptions over time on that. Our service levels have continued to improve over the last several years as some of the networks and supply channels have continued to build back. So there's nothing that I would call out specifically other than some recent supply disruptions that we've seen with manufacturers. We've managed through that, I think, really well. We have hundreds of partners that we've chosen, not only national brand, but to support our private brand. And we think the diversity that we have in that partner base helps us manage through to keep a high service level. It's a good question.

Can I follow up on Dan's question, which is CoverMyMeds. Can you remind us -- because I think all the big PBMs also run their own kind of prior platforms. Like when does the prior auth flow through CoverMyMeds versus maybe through like an in-house kind of platform? And if you could remind us what the revenue model is for the prior auth business?

Well, prior auth could be at the pharmacy counter, it could be at the provider base. Again, that's why this connectivity that we have in the workflow is helpful. So it could either be kicked off when the provider kicks it off. It could be kicked off right at the pharmacy counter. So it could be either one of those two situations. In terms of the revenue model, again, it depends on the services that we're providing. Certainly there's a program component to this. There's a transaction component to this. And then if there's other services that are looking for like denial conversions or reporting or some of the other adjudication is going to help increase the sponsored submission rate, there's also revenue opportunities from that.

And do manufacturers typically sign up for all of that? Or do they kind of choose?

They will change depending on what the requirements are based on the maturity of that particular product. So products will go through evolution, obviously. And there's the launch time frame where you got the first 2 years of a product and you're trying to get as much adherence and uptake as they can. And so they'll look for a certain level of services for that. Depending on the product, you'll go through an evolution phase and then sort of a maturity phase. That could be 6 to 8 years. It could be 4 to 6 years. It really depends on the evolution of that particular product. So as a program -- as a product matures, the program will mature with that. Along the way, we've seen manufacturers change the types of services that they're looking for. I've talked about one of the things that creates variability. Is that program maturity? So sometimes manufacturers will shift dollars from -- I'll just use this as an example, we want you to just do initiation. They'll say, okay, now we want you to help us with increasing sponsored submission. Now we want you to do more reporting. So as the program and the product matures, oftentimes, the funds will be allocated across -- against that maturity. In other cases, they just terminated the program. It depends on how the manufacturer looks at the return that they're getting on that program.

Going back to the M&A question. I was wondering if you can talk about how you're viewing the forward product road map in RxTS. And if building or buying is the best way forward for that?

Can you repeat that last part?

If you're thinking more of a builder or buyer?

Got you. Yes. So this road map here. I think what we first look to do is, we have great products in the marketplace today. So are there adjacencies. Now if you have an affordability program, are there additional adjacencies that you can have for whether it be a voucher component to the program or a discount component to the program. Those types of things will often will look to build ourselves. In other cases, like Rx saving solutions, where they bring a different type of solution, where they're bringing price transparency and it's more focused on the employer and the employee, we will look to buy that solution, again, for the right price if it fits into the solution set. So I think what we're looking to do here is what services and capabilities are required by biopharma? What are they looking for? What kind of technology and solutions can we provide there? There are a lot of spot solutions out in the marketplace. What you generally don't see is the combination of a really health network with that connectivity to the automation around adherence and affordability and access programs all the way over to the hub services. So there's lots of spot solutions out there. We've looked at many of those. We're trying to find what is going to advance the company. Acquisitions could be a part of that.

So a couple of years ago, there was a lot of speculation around potentially pairing a CRO with your business and I think a lot of harper around where things were financially there in terms of multiples. That's obviously flipped in a lot of cases. But you went with Sarah Cannon. So maybe -- I'm not asking you to comment on it financially, right. But strategically, are there things that are incremental to what you've accomplished by bolting on Sarah Cannon to the business that are still out there with a CRO or maybe just a broader approach to the clinical trials landscape.

So I do remember that time period. It was over a summer, everybody got all excited we're going to buy a CRO. And my answer to that was we've established for you what our strategies are. It's built around differentiated capabilities and assets we have. And so what we want to do is build around that. We're not looking to add another leg to the stool, and I would repeat that here today. What we have is a great foundation of assets and capabilities. That doesn't mean though that we won't add certain capabilities that a CRO might do to enhance what we already have. So just going to this slide, you talked about these capabilities here. So in oncology, which is a strategy of ours, we can continue to advance our capabilities to help provide better service and cost outcomes in the community if we can provide a component like clinical trial research and expanding clinical trial access, that makes sense to add to the platform. So there may be certain areas that are part of a larger CRO, but we'll look for where in oncology can we put that to bear. We're not looking to be a general CRO, not sure that we -- that that's the right fit for us. What would we bring to that? But in oncology, we certainly would. So to your point, we already do some CRO-like services within oncology. If there are additional that are going to add to this platform and expand the opportunities for community oncology care, that's something we'll look at. I'm going to go to George first.

All right. I'm going to ask one of my problematic questions, which is [indiscernible] has a report out recently that says that the IRA for Part B oncology drugs could send pricing down 12% to 19% come 2028. There's another consulting report that says the impact on community oncology practices could be to drive their margins down 20% to 15% reminds me a lot of the sequester a few years back when you saw the pricing on Part B drugs and reimbursement get slashed. Admittedly, we just had an election yesterday or 2 days ago, which could throw the whole -- which could throw this whole future look up in the air. I guess, is it too early to think about this as a problem? And what can you guys do to proactively work with practices to think about how to protect them from the Part B IRA impact on oncology.

So what we try to do is engage on the issues. And I think Brian said this yesterday, we don't -- whether it's a Republican or an independent or a Democrat, that's not really what's important to us. What's important to us is what is the issue, how does it affect our customers and what can we do to educate and try to be influential to the outcome so that people understand the decisions that we're making. Beyond that, it's really outside of our control. What we try to do is be informed. We try to educate and we try to work with, it doesn't matter what side of the aisle that it is. I think it's a little too early to see how this might all play out. But we know what the issues are. We know what the outcomes could be, and we'll continue to educate and try to be a part of that. Eric?

Yes. A question on GLP-1s and kind of what they tell us about the brand model. So I think we know that you're not making a lot of money, but it's a lot of revenue you protected yourself on the sell side. But when you look at them, do you view it as reimbursement is adequate on a basket level? Do you view -- I'll just say, is reimbursement adequate. And if it's not, what is the mechanism to get it to a point where it is adequate, both for you and for your downstream customers?

So for -- in terms of reimbursement for our customers, I don't want to speak for them, whether they think that it's adequate or not. And I'm sure that there's variation in gradation amongst the providers. In terms of our own focus, we have, I think, two legs to this. certainly of the distribution side, but we also have the automation and support of the PA program itself. These require a lot of inventory. There's a lot of volume. There's a lot of inventory. There's a lot of logistics capabilities that are required for this. There's a lot of volume for here. So yes, it is a headwind to margins on distribution. I'll sort of leave it at that. The opportunity for us is we're providing a service on the other end from the PA side in our technology business. That's differentiated. So what we have to watch here is what does the next few years look like? Because if you listen to companies that are manufacturing these products, you're going to see a tremendous increase in these products. And so what we try to do with the manufacturers is understand what's your pipeline, what are the indications that you're trying to solve for? What do they need us to do to support that and always get a fair value for that service. So you want us to do cold chain or special logistics services, that's fine, but here's what it costs us to do that, and here's what the fair value is for that. We've always operated that way. We'll continue to operate that way, and we'll see how this kind of continues to grow over time.

And I guess that suggests that you're taking a total customer view and you're willing to look at profit across segments and...

Well, what we -- we're a full line wholesale distributor. So what we try to do is provide all of the products that a customer needs. So if a customer wants to buy GLP-1s and we provide all their other medications through distribution, that's what we do.

I meant on the manufacturer side. I meant on the manufacturer side. When you look at support, you've got what you need in place to be able to manage across their enterprise.

Yes. I mean, look, we have long relationships with these manufacturers, and we've always supported their product pipeline. And what we try to do is -- I mean this is you have 3-year manufacturing distribution relationships. But within those, there are always changes. They're adding new products or they're moving products, sometimes they're moving products between channels. In some cases, they're looking to do different things to those products. We're always having the conversations with them in terms of what is it that you need us to do to support these products, and we're trying to ensure that we're getting paid a fair value for that.

And maybe one more follow-up on the topic, which is -- so you're serving them with RxTS, you're serving with distribution. Would you ever go so far as to facilitate direct-to-consumer digital pharmacy?

We have -- we do have customers in the digital pharmacy space. And we certainly will help them where we can. It's a model that we'll have to see how it evolves over time. We think we have capabilities certainly in our RxTS business to support some of that. So it's -- we'll see how it evolves, but we do have capabilities to support that channel as well.

Can you provide an update on the Rx Savings Solution acquisition? It's sort of a unique channel for McKesson going to the employer. Just curious, as we think about that business, is there an opportunity there to impact either drug pricing or the type of drug that's being kind of pushed through that channel? Just trying to get an update on that acquisition and I guess, how it fits in with McKesson's strategy?

Yes. Look, it's part -- it's -- I think it's done a nice job over the last few years. I mean, it's certainly a smaller part of the business. What we're trying to do there, though, is add a capability. So there's a channel here with the employer that we can serve. In terms of impacting price, that's not our goal. That's not what we're trying to do. But we are through this service trying to provide price transparency. And so if that's helping patients understand what their costs are, are helping employers have a better understanding of what their employees are choosing in terms of the impact on their health plans. That's one of the things that this asset does. And so we think that the price transparency is good for the employees, and we think that it's good for the employers as well. So that's how it fits.

I had a follow up. Back with the Change Health cyberattack happened. You guys obviously stepped in and helped many customers with sort of RelayHealth and some of the capabilities in there. Is that something that was sort of like a onetime sort of situation? Or as we sort of step back maybe 6, 8 months later, is that something that gave you sort of additional opportunities down the road?

We didn't look at it that way. Our goal there was really just to help customers through that issue. As we were providing those services, some customers decided to either have dual accounts. In other cases, some customers stayed with us. In many cases, they went back to change health care. Our goal really was just to help smooth the transition through that particular issue.

Just wanted to check in. I think on the 4Q '24 call, you talked about like a 2% headwind to MedSurg EBIT growth on some investments you're making in the business. Are those like proceeding at pace? Can you talk about what those investments are a little bit? And then should that like -- is that just a 1-year investment cycle? Or how should we think about that?

Yes. So those investments were really around some data and analytic capabilities and some automation opportunities. Yes, that's certainly still having the impact that we assume that it would. This is a business that we've continued to invest in. We've invested heavily in automated distribution centers. We've invested in automated capabilities and some data capabilities. So yes, that's an intentional investment that we made. And as I mentioned at the beginning, we managed this business for the long term. So we're going to make investments along the way, could create variability in one particular quarter or one particular year. But -- you look at the performance of each of these segments over the long term, we're pretty pleased with it, so. Even if a business is going through a softer patch, we are going to continue to invest in it as long as it fits the parameters of being strategic or strengthening our core.

Can we come back to the revenue growth on just drug distribution for a minute? I mean, 8% excluding the OptumRx business is incredibly strong. If I look at IQVIA data, it's probably about half of that. So is that specialty that's helping to drive that growth? Is it -- like how do I think about if I'm looking at a third-party source like IQVIA versus what your growth rate has been, what the key differentiators are?

So there are a couple of other pieces in there. So certainly, I've talked about GLP-1 growth. We try to be very transparent about what we're seeing in terms of GLP-1 growth. That was higher this quarter than it was the last quarter. So that's a component of it. We did talk about -- we had a national account customer that chose a biosimilar, and we had the innovator. So we lost a portion of that business. We're still serving about 20% of the innovator program part of that business. So we lost some of that business on the switch to the biosimilar. So net-net, I think if you look at all that, the growth is in the 6% to 8% range. Specialty is a big driver of that. Certainly, the plasma biologics channel is a part of that, specialty continues to grow. Certainly, the growth that we've seen in adding providers to oncology has been a big part of that. And I think what we've seen is pretty consistent with our business over the last several years.

And then just a follow-up for the GLP-1s, I think you said on the call yesterday, you did not see changes to inventory, but yet we heard Eli Lilly talk about wholesaler destocking. What do you think is the disconnect between -- I think all three of you have now said it wasn't materially different from an inventory perspective.

I can't speak for Eli Lilly. I can tell you that we manage our inventory very closely based on the demand that we see. There have been changes in demand, variability in demand for GLP-1 products over many quarters now. Our role here is to be efficient but to make sure that the product is available for our customers. And we've heard from many of our largest customers that we can't have a patient show up at the counter and the product is not there. But we're really thoughtful about that, and we work very closely with them on that demand. So I can't speak for Eli Lilly. I've actually not read what our competitors have said, but I think we probably all manage this the same way.

If we think about next year with IRA and then the PDP changes, and I think a lot of people are talking about with seniors having only a $2,000 cap, right, we can see an increase in utilization, particularly in specialty. From a cash flow perspective, does that change for -- like can you talk about sort of how receivables work in the specialty channel for you? Is it longer cycles to get reimbursed or paid particularly if you think through either U.S. oncology or just in your distribution contracts? Or is it similar like on the retail side where you're invoicing very constantly versus payments to pharma.

So it depends on the customer channel. It depends on the customer. We have different arrangements with our customers. We have some customers that pay in 7 days. It depends on the channel. There's some customers more strategic that are 25 days. So I think that's really going to be a reflection of where the product goes through and who the customer is.

And on the Medicare side, it tends to be faster? Is that...

Again, it really depends on the customer. So I wouldn't say that there's any faster or slower on the receivable. We have arrangements with our customers. We set the receivable expectations with that in the contract, and that's how we manage to it.

So you wouldn't expect any real change to or from a cash flow?

Not from the cash perspective.

Same question, but for demand. How are you guys thinking about the demand response to these changes over the next couple of years?

I don't know that we've really thought that far out in terms of demand, but we would expect that our growth rate would be very consistent with what we've seen over the last few years.

Just kind of a follow-up to Lisa's question. Is there any spec buying opportunity, like what I would call it the legacy spec buying opportunity exist at all in GLP-1s, because I'm trying to put like your response together kind of with what Lilly...

We don't do spec buying.

Okay. All right. Quick answer to that. And then as I think about GLP-1s and the macro, it's made the generic purchasing compliance requirements for your customers harder because GLP-1s have grown the brand, like the brand purchasing requirement, like the ratio has made it harder for your clients to maintain. I guess can you talk about the discussions with clients there? Are you seeing a lot of clients pursue carve-outs as it relates to GLP-1s as on their purchasing compliance requirements and kind of -- how is that impacting the margin profile of the -- like what I call the regular way business?

I don't want to get into specific customer by customer. We work with all of our customers and if a customer is having some pressure because of changes in their mix, certainly, we sit down and talk to all of our customers about that. But you're right. There's an outsized growth of the specialty product versus the generic product, and that does impact certain compliance requirements. But like we do with all of our customers, if there's an impact there, we'll sit down, and we'll have a discussion. We're running out of questions. I can't believe that.

I can keep going.

I know you can.

On the RxTS slide that you put forward, you talked about how 3PL was less than 5% of operating earnings. Is there any chance that you would share? What's the mix between affordability and access? I think they're close to 50-50-ish, but I don't know if I'm wrong on that.

So what we've shared with you is the revenue. I don't want to get into the specific margins because there is a lot of mix in these. So there's a lot of products within both affordability and access. We've given you half the equation here. They are higher margin products. And as you think about FY '25, there's about even split in terms of the revenue. These are technology-based products. So you would anticipate that they have higher costs. The other thing that I would say that goes into the margin here is we do invest back in these businesses. So there's a margin that you're going to make just on the transaction, but we're continuing to make investments into this business. So that's part of the margin profile. And sometimes, we'll make more investments in the access suite just really depends on where the opportunity is.

And how about what drives the big step-up in FCS accretion from year 1 to year 3?

Yes. So again, assuming that this is approved, there is a distribution contract that -- let me step back. So one of the things that I mentioned earlier is there are certain requirements that we have with our customers within oncology, and one of them is that they need to be on our buying program. So if we are able to get through the transaction clearance, there is a distribution contract that is somewhat in the middle of our year next year, and we'd anticipate bringing that on. And then over time, we'll continue to leverage the capabilities and scale that we have, drive more efficiencies and cost benefits down to our customer. And just like we do with many of our customers, over time, we'll continue to grow the capabilities and cost efficiencies that we have. A lot of that will be on the distribution side.

And the last part of that question is I assume that, that accretion is included in the nonorganic growth contribution as to how you think about the earnings algorithm and it's not additive.

Well, first of all, we haven't put anything into any of our expectations. But yes, obviously, that would be part of -- that's why I say sometimes you'll see 6% to 8% could be 7% to 9% and 6% could be 4%. Yes, that would be part of the capital deployment component. Erin.

Follow-up to George's question on those 3 buckets, just what is the growth rate, though? And like, inherently Access is going to be inherently a little bit lumpier, right, like in terms of how we think of growth rates, and I'm talking about, I guess, [indiscernible].

Yes. Access has been growing the fastest because of the GLP-1 component of that. So one of the things I didn't talk about is within Access. Roughly 70% of the revenue within Access are prior authorizations. And within that -- within prior authorizations, about 55% to 65% of prior authorizations are GLP-1s. So we've seen pretty good growth on the access component. Our affordability programs, though have had nice growth. And again, this is working closely with the manufacturers on discounting or voucher programs that they have. So they've both been growing at pretty good rates.

Can I ask about Rexall. I mean, you talked on the call that you'll keep the distribution relationship going forward. But what's going to be the financial impact when you exit that business? You talked about a sale price, I think, of about $148 million. So but there must be some contribution from the actual retail component of the business today.

Yes. So we'll continue to service them as their distribution supplier. That's already in our numbers today. So the incremental impact is immaterial.

It's immaterial. Okay.

I guess when you buy a community oncology practice or add one to your network, like what does provider turnover look like, if any, you think they would stay because they have equity in the practice. But just curious like how to think about that?

We've seen -- I can't say this blanket, there's been no turnover, but it's material. Again, think about this, in many cases, the providers want to join our network. And so they want to join our network and they know that they need to be on our EMR, they need to be on our buying systems. So it's not like we're just going around and saying, we're going to buy this practice and this practice. And we're looking for a fit and we're looking at those are going to advance the things that we're trying to do around research. And in many cases, they want to join the practice.

On the FCS EPS accretion, $0.40 to $0.60. Can you talk about where that accretion is coming from? Is it the core MSO business? Is it the incremental distribution business you're getting from there, and then as we think about the growth to $1.40 to $1.60, can you help bridge us to that EPS accretion? And then anything you can say on margin relative to the overall pharma business would be very helpful.

Fair enough. So I don't want to go too far into this again because this is all subject to regulatory review and approval. But what I can say to you is that there's a component of this that is distribution. There's a component of this that will utilize the GPO services that we have, which is mostly distribution based. Over time, we believe that they'll continue to use some of our clinical trial capabilities as well as some of our data abilities. But the majority of what we're assuming here is going to be distribution and drug related. And those are synergies that we're driving back to the providers and to their patients. So it's very synergistic that way. But primarily, it would be drug distribution and the growth in drug distribution, the growth in GPO services and taking advantage of some of the capabilities that we have.

Just one follow-up on the accretion, $0.40 to $0.60. Is that just the actual earnings of the business? Or is there financing costs underneath that as well? Just how are you thinking about? Like how do you calculate the accretion?

Yes. So we have made an assumption that we will use a portion of cash in the balance sheet and finance the rest. I haven't gotten into the specifics in terms of the numbers, but for modeling purposes, you can assume that we'll finance 75% of it. So yes, that is -- the financing cost would be a part of that, yes.

Can you talk about Health Mart a little bit? Obviously, we look at the challenges in the retail pharmacy market and maybe talk about your strategy with Health Mart and what the state of independent pharmacies are for you? And any kind of characteristics around the contribution from independents at this point as we think about the total pharma business?

Yes. So Health Mart continues to be a pretty resilient group of independent pharmacies. And as long as I've been with the company, we've been talking about, geez, Health Marts are going to go away, independent pharmacy are going to go away. And it's a very resilient group that obviously are facing some of the same challenges and reimbursement challenges that other retail is. But our focus there is to provide them the best sourcing and drug distribution cost capabilities. And they find other ways to continue to operate in an effective way. And our job is just to be there for them. We also through Health Mart Atlas provide them opportunities for reimbursement. And so we try to do the best that we can there through our scaled network to provide good reimbursement opportunities as well. So we haven't seen a lot of change. You've heard me talk in the past that we will see Health Marts either a pharmacist will sell their practice or they'll transition the practice to another independent pharmacy and some cases, we lose those competitively to another competitor. In many cases, as many as we see either retire or sell, we kind of bring in as new. And that kind of natural net churn of not much has continued for many years.

You've had sort of an interesting retail pharmacy strategy historically. I think you owned pharmacies in Europe through Celesio, obviously, Rexall. As we think about U.S. retail pharmacies, obviously, the big players are closing stores. As you think about the evolution of the pharmacy landscape in the U.S., your decisions have been different domestically versus internationally. I guess this is sort of a bold question to ask, but would you ever consider owning a virtual pharmacy in the United States? Have you thought about something like that? I'm curious on the puts and takes of that type of strategy.

You are correct that we have applied different strategies internationally. When we bought Celesio, it was a combination of mostly wholesale distribution businesses. The retail business was primarily concentrated in the U.K. In Canada, we made the decision many years ago to buy Rexall and operate retail pharmacies. We have historically always decided that, that's not the best strategy for us in the U.S. We have lots of great large customers and independent customers. And we have always believed that they will run pharmacies better than we can and that their -- the conflict is really unnecessary. And so we have decided that our best opportunities are to support retail pharmacy, whether that's through sourcing and distribution or other capabilities that we have. And so that's the way that I would answer that. And the U.S. is a little bit different market for us. And certainly, the -- there's a customer conflict aspect to it. And secondly, it's just not something that we've really been good at or think that we're going to be good at. We think that we're much better at building sourcing capabilities and platforms to service oncology and community care.

McKesson used -- I'm looking at like the affordability and the Access slide again, and it's McKesson used to be big in like pharma patient assistance programs and discount carding programs. And I feel like we don't hear about those anymore, I guess. Could you talk about the evolution...

Those are still a component of these businesses. Yes.

Britt, can you -- we're looking at the back half of the year, right? It's 55% of the adjusted operating profit, slightly higher than what we've seen historically. Can you just talk to the level of visibility that you have at this point?

I have a lot of visibility. Brian and I have recently gone through normal operating reviews that we always go through. And as we've gone through that, certainly, we talked about the medical cost optimization program. The annual verification program that we expect will be another successful year. The continued growth in our U.S. pharma business. I think we have a high confidence in the back half of the year. I think that confidence has grown with the performance in the second quarter. It's certainly grown as we've had discussions with our business unit presidents. So we have a lot of visibility to it. Look, there are some variables. There's the illness season that could impact medical. There's things that could go against us. There's many things that could go for us. So I think when we net it all out, it's a strong second half of the year, but we have high confidence in it. I mean we've raised guidance. So that's an indication that we have good confidence. How many questions you have left?

More than you have time. in RxTS, we talked a little bit about the balance sheet and kind of the life cycle of the drug. And the way I think about it is like, how manufacturers allocate gross to net dollars through the life cycle of the drug. In CoverMyMeds, you guys have the prior auth program. From your perspective, as you look at like that life cycle of manufacturer services and prior auth is on the front end. Is there any significant white space to the manufacturer that you guys see in McKesson's offering that you guys would like to fill? And like I think of like there's prior auth, there's dollars that manufacturers invest in formulary. They invest in discount carding. They invest in patient support services, like is there anything that you guys don't offer that you would like to offer like is there a white space in the manufacturer services offering, but it's not like GPO-related or anything like that?

So our prior authorization services are mostly retail based, not the medical benefit. So there's certainly -- there's an opportunity...

They're provider based?

Yes, provider based. Yes, there's an opportunity there. I think the other thing that we think about is given the array of capabilities that we have, if you think about it, CoverMyMeds could be really the starting point for all -- for the medication journey. And as you think about the journey that a patient would go through, there's lots of points in time there that we could fill in. So I think as we've continued to invest here and build out these connected capabilities, being the focal point and the start of that medication journey is an opportunity for us. And one that I think that we're best positioned to meet.

Just a quick one on COVID vaccines. I know it's like a little lumpy, and I think maybe the cadence this year could be different than it was last year. Can you just remind us, was Q2 the peak for COVID vaccines in the P&L? Or is that Q3 this year?

We did -- so are you talking about the Medical segment or just overall?

Well, I guess overall, I was thinking pharma distribution actually.

It's not a material driver to pharma distribution. So it's not one that I'm particularly focused on. In medical, COVID vaccine distribution started in the second quarter last year and really peaked in the third quarter of last year. And obviously, depending on the severity of the illness season, we're seeing some COVID vaccine in medical as well. So that's probably the best way I would answer that. Probably have time for 1 or 2 more questions.

So you've been acquiring oncologist for 14 years. It seems to have sped up, and we're seeing all sorts of ologies. Do you think something has changed relative to providers need to sell? Do you think that those buying can pay more because of the platform you've built? How do you think about that? And then how far through this cycle do you think we are? Is there a lot more opportunity to consolidate?

Well, I mean, it's a good question, Eric, but I'll come back to what I said, and it really starts on what is the drug innovation pipeline. That's really important. Oncology is still seeing a lot of investment and innovation. That sort of bolsters that argument to continue to invest in oncology. There are other ologies where we're starting to see some more product innovation. We talked about that. I think that's going to drive some level of interest and investment. From a provider perspective, I think what we see from providers is they look at where we've made investments and where we've created capabilities, and they want to be a part of that. So it's not just, gee, I'm going to join U.S. Oncology because, yes, they'll manage my practice for me and I'll get some benefit from the drug GPO. It's -- they certainly have a scaled opportunity to drive down my cost on drugs. They're really good at managing practices. But look at all this, they got an EMR with 2,700 providers in it. It's going to help me practice better, and they've got these clinical trial research capabilities and through Sarah Cannon they've expanded access to clinical trials and doing more clinical trial. I think people are attracted to the platform and the capabilities that are in that platform because it helps them practice better. It helps them practice more efficiently. It helps them see more patients. So I think that's the attraction now. I don't want to speak for others, but as we think about McKesson, it's where do we have those strengths and differentiators, that's where we want to make that investment. There will be other opportunities. But certainly, oncology has provided the greatest opportunity to really help community cancer care be more quality and lower cost.

A follow-up on that. What do you think of moving into -- do you see any kind of shifts more into like value-based care models in oncology? And how do you see U.S. oncology -- how would you support that?

Well, we have supported it. We were part of some government programs already, and we saw some success with that. A lot of -- I shouldn't say a lot, there were a number of providers within USON that participated in that and drove a tremendous amount of savings. What we've seen and sort of the conversations we've had with Florida Cancer, they participate in value-based care initiatives as well. So I think you're seeing more providers do that and participate in that and it's something that we'll support if it makes sense. So we've been a part of it. We've seen some savings being driven from that. And we'll take the providers lead on that and support it. Okay. Well, I appreciate your time and all of your great questions. Hopefully, this has been helpful. And hopefully, I was able to clarify a few things and provide some insight. Appreciate all the support that you guys have given us. Again, McKesson is well positioned. We had another really solid quarter. And our full year outlook is -- and we're really pleased with the type of performance that we're able to generate and the value that we're able to provide back to our shareholders. So thank you for your time today, and we look forward to talking to you soon.

Thank you.