AmerisourceBergen Corporation

Hello, and welcome to the AmerisourceBergen Q3FY20 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Bennett Murphy, Head of Investor Relations. Mr. Murphy, please go ahead.

Thank you. Good morning, and thank you all for joining us for the conference call to discuss Amerisource Bergen's fiscal 2020 third quarter results. I am Bennett Murphy, Senior Vice President, Investor Relations, and joining me today are Steve Collis, Chairman, President, and CEO, and Jim Cleary, Executive Vice President and CFO. On today's call, we'll be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release and are also available on our website at investor.meritsworthbergen.com. We have posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will make forward-looking statements about our business and financial expectations on an adjusted, non-GAAP basis, including but not limited to earnings per share, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-K. Merit Search Bergen assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the express permission of the company. You'll have an opportunity to ask questions after today's for Marks Land Management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I will turn the call over to Steve.

Thank you, Bennett, and good morning to everyone on today's call. Amerisource Bergen delivered strong results in the third quarter of 2020, driven by the resilience of our business and our associates who worked diligently to ensure continued patient access. Our teams are leveraging AmerisourceBergen's scale, expertise, and culture to deliver collaborative and innovative services and solutions to our partners as they navigate the complexities of the current environment. My remarks this morning will center on two key topics. First, I will highlight how AmerisourceBergen continues to protect and support our associates. specifically how we remain focused on advancing our talents and culture through development, career growth, and diversity initiatives, and why this is a clear competitive advantage. Second, I'll discuss how Marisol Spurgeon is positioned to deliver value over the long term for our shareholders and also for our associates, customers, suppliers, and the communities we serve. As we shared last quarter, the health, safety, and well-being of our associates continues to be our top priority. We have taken a number of steps to support our associates, particularly those on the front line, guided by our purpose and value at every turn. We have prioritized the safety of our associates. We have continued to work diligently to facilitate patient access, supporting our manufacturer and provider customer, as well as navigating these challenging times. I remain incredibly proud of the work our associates are undertaking across all areas of our business. As I discussed on our earnings call last November, our talent is one of AmerisourceBergen's biggest competitive advantages. Our associates power our culture and are driven by our purpose. We are united in our responsibility to create healthier futures and this is demonstrated across the entire organization. We know the experience of our associates is enhanced when they believe in the values and purposes of their employer. And as a company, we have prioritized this by focusing on talent development, career growth, and diversity initiatives. In May, AmerisourceBergen was named a Diversity Inc. Noteworthy Company for the fourth consecutive year due to our hiring, retention, and promotion of women, minorities, people with disabilities, LGBTQ people, and veterans. While I am proud that AmerisourceBergen has been recognized for our diversity and inclusion efforts, we are committed to fostering an even more diverse and inclusive workforce. We are dedicated to growing, learning and shaping our approach to diversity and inclusion for the betterment of our workforce and the communities we serve. With this in mind, we took time over the past several weeks to discuss social injustice and racial inequity and fostered a candid dialogue to discuss topics including racism and unconscious bias. We facilitated all associate town halls where black leaders and other leaders of color volunteered to share their insights and personal experiences in dealing with discrimination and systemic racism. These discussions, though somewhat difficult, are a necessary step to foster true change. We recognize this is an ongoing effort and we are committed to continuous improvement. There is significant intrinsic value created for all our stakeholders by having a strong culture and diversity that mirrors society as a whole. I look forward to sharing more about the progress we are making in this important area in the quarters to come. Now turning to our results, the June quarter demonstrated the resiliency of our business. As we successfully manage through the new challenges across the global healthcare system. The supply chain has become the invisible pillar of medical innovation. During the COVID-19 pandemic, AmerisourceBergen and our industry as a whole have become understood for what we truly are, a strategic asset as awareness has been heightened around the importance of pharmaceutical security, channel data, and sustainability of supply. AmerisourceBergen is taking this opportunity to deepen our relationship with our partners and expand on our value proposition as we continue to execute on our pharmaceutical-centric strategy. The four key differentiators that serve as pillars of our company continue to position us for continued value creation. First, our broad and strategic relationships provide stability and partnerships with key customers in each segment of the healthcare system. Members of our Good Neighbor Pharmacy Network demonstrated the essential roles they play within their communities during this difficult time. Thousands of independent pharmacists, pharmacy technicians, and staff members have been working tirelessly on the front lines to ensure their patients continue getting the care they need, even when things are at their most chaotic. They have all adapted at lightning speed to combat the pandemic and serve their communities in new and inventive ways. Whether through delivering care packages to the immunocompromised or offering a meal to those who lost their jobs during this crisis. Independent pharmacies have supported patients while maintaining the highest level of customer service. We are proud to partner with these frontline healthcare providers to deliver care to those who need it most. Second, we continue to build on our leadership position in specialty distribution and services. Our industry-leading specialty distribution businesses have a Merisource Bergen position to leverage our relationships and expertise in a key part of the market. We continue to see increased biosimilar utilization particularly in oncology, where our ion business differentiate our value proposition for both our provider customers and manufacturer partners. The growth we are seeing in biosimilars uptake is encouraging for the future, not only for AmerisourceBergen, but for patient access and the US healthcare system overall. On the distribution side, we've been working closely with our provider customers as they take the necessary actions to improve operability. Community-based practices have adapted to continue treating patients through telehealth visits and by implementing new safety protocols to treat the most critical cases in the office. In order to minimize patient care disruption, healthcare providers have implemented new distancing protocols, enhanced office cleaning procedures, and acquired additional PPE for staff. The value proposition of community-based care has never been clearer as the past few months have further illustrated the vital role of specialty practices in the treatment of critically ill patients in controlled environments. Patients are keenly aware of specialty physician practices' ability to provide safe, effective, and convenient treatment at a time when health and well-being have never been so important. I mentioned last quarter that the initial restrictive measures negatively impacted necessary patient access to things such as screenings and testing. As the country continues to navigate the complexities of this pandemic, it is vital that care is not deferred. Providers are more equipped to operate in the current environment to the benefit of the health and well-being of all patients. Third, Amerisource Bergen Associates. continue to focus on providing innovative services and solutions for our partners in the healthcare system to navigate these challenging times. Amerisource Bergen is uniquely positioned to help our customers in the current environment and is focused on providing them with important resources. For example, our sourcing and distribution teams are leveraging our commercial expertise and data and analytics capabilities to provide manufacturing and government entities with actionable channel insights. We are able to provide significant transparency into the pharmaceutical supply chain and related end markets, which is an important resource as stakeholders seek to be fully informed by data as they face new challenges. AmerisourceBergen is focused on being solutions oriented and continuing to identify ways to add value. particularly at this time of heightened focus on the pharmaceutical supply chain. And at our MWI animal health business, we announced two new offerings designed to help veterinarians manage the financial impact of COVID-19. The offerings allow practices to provide flexible financing solutions for clients who may be struggling to afford quality care for their pets or who may just want more certainty in an uncertain economic landscape. The offerings ease the financial burden of both routine and emergency pet care, while also helping practices achieve more consistent revenue, long-term client engagement, and most importantly, better outcomes for their patients. Finally, turning to our fourth differentiator, we continue to focus on strong corporate stewardship in order to create value for all our stakeholders. In addition to some of the initiatives I mentioned earlier, During the quarter, the Marisol Bergen Foundation brought together more than 60 nonprofit partners and peers during a virtual conference to facilitate collaboration, share best practices, and learn from one another. The event focused on developing strategies to address some of the most difficult issues affecting society today, including pandemic resilience, social justice, and racial equality. health, and community improvement. Marisol's Bergen is committed to strong corporate citizenship and continuous improvement. We are driven by our talent and culture, differentiated by our vast customer relationships and leadership in specialty distribution and services, and united in our responsibility to create healthier futures. Our values, strategic partnerships, and market leadership position Amerisource Bergen to continue to create long-term value for all of our stakeholders. Thank you again for your interest in Amerisource Bergen. With that, I will turn the call over to Jim for a more in-depth review of our third quarter fiscal 2020 results. Jim?

Thanks, Steve, and good morning, everyone. My remarks today will focus on adjusted non-GAAP financial results unless otherwise stated. Growth rates and comparisons are made against the prior year June quarter. For a detailed discussion of our GAAP results, please refer to our earnings release. As we enter the fourth quarter of our fiscal year, I can say without hesitation that I have been profoundly impressed by the execution and dedication across AmerisourceBergen as our businesses have proven resilient as we continue our essential work of enabling patient access. I am even more proud of the engagement and commitment by our associates and leaders as we come together to address systematic racism and commit to progressing towards equality and justice in everything we do. The actions we are taking to improve diversity, equity, and inclusion will make Amerisource Bergen an even better company. Turning now to discuss our third quarter results, I will provide commentary in two main areas this morning. First, I will detail our adjusted quarterly consolidated results and our segment performance. Second, I will cover the upward revision to our fiscal 2020 adjusted EPS guidance. Moving now to our third quarter results, We finished the quarter with adjusted diluted EPS of $1.85, an increase of 5%, primarily due to solid operating income slightly above prior year, a lower effective tax rate, and a lower share count. Our consolidated revenue, gross profit, operating expenses, and operating income were each up only slightly as the timing of COVID-related impacts dampened our growth rates in the June quarter. Rather than spending time discussing these small year-over-year increases at the consolidated level, I will instead focus on the segment-level items and provide incremental color in the guidance section. Net interest expense increased $2 million to $38 million, primarily due to a decrease in interest income resulting principally from a decline in investment interest rates. Given the current interest rate environment, we expect our fourth quarter net interest expense to be in line with the third quarter. Moving now to income taxes, our effective income tax rate was 18.8% down from 21% in the prior year quarter due to a benefit resulting from a discrete tax item. Our diluted share count declined 3% to 205.5 million shares, primarily due to share repurchases, net of stock option exercises. Regarding free cash flow and cash balance, year to date, our adjusted free cash flow was $715 million. Our cash flow guidance for the fiscal year is unchanged, as we expect the fourth quarter will generate meaningful cash flow. We ended the quarter with $3.4 billion in cash, of which $490 million was held offshore and generally in US dollar-denominated holdings. This completes the review of our consolidated results. Now I'll cover our segment results. Beginning with pharmaceutical distribution services, segment revenue was $43.6 billion. up only slightly due to the increased March quarter customer purchases associated with the onset of COVID-19, which resulted in fewer purchases in the June quarter. Segment operating income increased about 3.6% to $427 million, with our operating income margin up three basis points as we benefited from lower administrative expenses and higher gross profits. As a reminder, this segment's operating income had a $9 million tailwind due to the exit of the Farmedium business. While the timing and complexity of the impact of COVID-19 somewhat distorts the comparability of our numbers this quarter, it is abundantly clear that our pharmaceutical-centric strategy, deep relationships, talented associates, and leading businesses have enabled Amerisource Bergen's resilience. The teams and associates across our pharmaceutical distribution businesses have done commendable work to deliver on our purpose of being united in our responsibility to create healthier futures, ensuring safe and secure patient access to pharmaceuticals and supporting the evolving needs of our manufacturer and provider partners. I will now turn to the other segment, which includes businesses that focus on global commercialization services and animal health, including World Courier, AmerisourceBergen Consulting, and MWI. In the quarter, total revenue was $1.8 billion, up 4%, primarily due to growth at our consulting group and World Courier. Operating income for the group declined by $12 million, or 13%, primarily due to impacts from COVID-19 at our MWI business. In May, we called out expected volume pressure for our MWI business associated with COVID-19-related impacts. During the June quarter, we saw MWI's companion animals business rebound very well as vet visits normalized. However, MWI's production animal business stepped down meaningfully in April and again in May and then leveled off. the production animal business continued to see pressure stemming from a decline in food service demand. This completes the review of our second results, so I will now turn to our fiscal 2020 guidance. As we said in this morning's press release, we are raising our fiscal 2020 adjusted EPS guidance range from $7.35 to $7.65 to our new guidance range of $7.80 to $7.95 as Amerisource Bergen's business has proven even more resilient than we had incorporated into our previous range. When we provided our guidance back in May, we anticipated that June quarter EPS would decline due to the March pull forward of pharmaceutical sales and negative COVID-19 related impacts on our various businesses throughout the quarter. We characterized the expected disruption stemming from COVID-19 as manageable. But our teams and businesses exceeded our own expectations and worked diligently to successfully meet the needs of our customers. We have seen stability and return to growth in both our full line and specialty distribution channels as our business saw a return to growth over the course of the quarter. Our distribution businesses saw sales increase from May to June based on the average weekly sales in each month. These positive trends as we exited June set us up well for the fourth quarter. For example, Our specialty physician business has proven resilient as practices adapted to operating in the current environment, allowing them to meet the needs of their patients. Even our non-oncology physician business saw a steady return to pre-COVID levels across therapeutic areas. Additionally, we have seen increased demand from our health system's customer base as hospitals and clinics have adjusted their operations to provide care in the current environment. In our global commercialization services and animal health businesses, World Courier has continued to prove its value during a time of increased complexity, with June being a record month for the business as volume and weight were up globally. Turning now to our updated financial guidance metrics for fiscal 2020. Revenue is now expected to be in the mid-single-digit percent growth range as the June quarter proved to be resilient as doctor-patient interactions returned and patients focused on adherence and well-being, allowing for continued care and pharmaceutical utilization. Turning now to operating income, We now expect to grow operating income in the mid to high single digit percent range as a result of raising our pharmaceutical distribution operating income guidance to the same range and to reflect our improved expectation for the other segments operating income to grow in the low single digits instead of a decline for the fiscal year. As a reminder, due to exiting the farmedium business, the pharmaceutical distribution segment has a tailwind of $35 million for the fiscal year, and $18 million of that tailwind is in the fourth quarter. Regarding tax rate, entering the last quarter of the year, we are narrowing our tax rate guidance from a range of 21% to 22% to guidance of approximately 21%. Lastly, we are slightly lowering our expectation for CapEx to approximately $375 million, down from $400 million. As it pertains to fiscal 2021, our corporate planning process remains unchanged. We will provide comprehensive financial guidance at the end of the current fiscal year. This approach allows for guidance to be fully informed by the output of our year-end business planning process. In closing, I continue to take great pride in being part of AmerisourceBergen and am inspired by the commitment, sincerity, and focus on execution that are embedded in AmerisourceBergen's culture. The resiliency of our business and the determination of our associates to leverage AmerisourceBergen's knowledge and reach makes us even more confident today that we will emerge from this unprecedented time with enhanced capabilities and innovative solutions for the healthcare system. Our company is strong and well-positioned, and we are committed to making it even better for all our associates, which will enable and accelerate long-term value for all stakeholders. Thank you for your interest in Amerisource Bergen. Now I will turn the call over to the operator to start our Q&A. Operator?

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To draw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. And the first question comes from Steven Valliquette with Barclays.

Oh, thanks. Morning, everyone. Thanks for taking the question. I guess I was curious just on the strength of all the results, just to hear whether or not there was any notable changes in the generic pricing trends, particularly on the buy side part of your ledger. Is that any factor in the increased profitability and just better outlook for the remainder of fiscal 20? Thanks.

Yeah, sure. I'll handle that. Thanks for the question. Yeah, as we've indicated previously, in fiscal year 2020, we have seen generic deflation moderate compared to prior years. We think there's probably, you know, focus by manufacturers on maintaining supply in the current environment. And so, you know, overall, while we still are seeing generic deflation, we've seen it moderate. And that certainly has been a benefit compared to the past years.

Okay, and then also as far as the profitability of biosimilars within fiscal 20, is that kind of also accelerated as the year has gone on?

Yeah, Steve, hi, thanks for the question. You know, we're very pleased with the progress in biosimilars. You know, we actually are quite proud of our role. You know, a couple, about two years ago, I wrote an editorial saying that it was too early to throw in the towel on biosimilars. And, you know, I think that subsequent events have proven that it's really increased patient choice. And I think it's the role of biosimilars will be to make role for the new way for the new innovative drug. So it's a very important part of our business. And our ION contracting and physician services organization has been very, very profound in the influence that they've had in the education to the provider community, especially provider community, customers, and we really are seeing them having an impact on our customer base. Thanks.

Thank you. And the next question, customer Eric Caldwell with Baird.

Thanks very much. Good morning. A couple of questions. First one, I'm curious of any cost or efficiency actions that were taken in response to COVID, how much of those might persist over the next few months, quarters. And then secondarily, new markets. You've mentioned some new offerings in MWI to help their accounts with challenges their customers have faced. I'm curious if you've seen any other new market opportunities that have arisen due to COVID. Does it change any of your strategy or long-term thinking on where you're investing and how you're going to market? Thanks very much.

Yeah, I'll start, and then I'm sure Steve would want to add. In terms of cost efficiency, really in this environment during the June quarter, we were really focused on not skimping on costs. We had some extra compensation that we invested in our frontline associates who really were heroic in their efforts in our distribution centers, and that's worked out very well. We've had additional cleaning costs and those sorts of costs in our distribution centers. So we've had some additional costs, but really we've also had natural savings in other areas, such as travel. Travel expenses were well down during the quarter. So those things, to a large extent, offset each other. And you can see we did quite well during the quarter. from an operating expense standpoint. Some of the things you said that what are we doing from a customer standpoint, you mentioned that Steve commented on MWI during his script. There are really a number of value added services that MWI has been rolling out to customers to help in this environment, whether it be telehealth or digital payment plans that Steve talked to, or social distancing tools like parking lot drop-offs. So these are value-added tools that MWI is providing to customers. Same type of thing, we've just seen businesses like World Courier be able to provide even more services and managing complexity in this type of environment. And as air transport capacity was limited, customers put more value on the types of services that World Courier can provide. So those are just a couple examples of additional customer services we were providing.

Yeah, the only other thing I'd say is that we've looked for ways to expand our services and be innovative and responsive to this new environment. So some of the innovation has really been internal, the way that we communicate with our associates. So we do these global calls and we have usually 6,000 to 7,000 people on them every second Friday and it's a great opportunity to communicate but We've also done a lot of things like, again, I talked about Ion earlier. Ion has been able to transfer their meeting environment to online. A lot of companies have done that, but it's still been very important. We have that strong sense of continuity with our customers. I think we've been able to manage in this digital environment with both large and small customers, and that's been very important. The small customers really appreciate that. that touching base, that connectivity. So thank you.

Yeah, thank you.

Thank you. And the next question comes from Lisa Gill with J.B. Morgan.

Good morning. I just had a couple of questions, and I don't know if it's maybe a little too early to start thinking about your 2021. How about the moving as we go into 2021 quarter, then into... It looks like your guidance for your fourth quarter is fairly conservative, given what you were able to do. Can you maybe just think about the moving pieces going into 2021? And then I just want to know how things are going to do. Are practices fully back up? You know, what were the types of bullying even in July? And as we think about, you know, specialty going forward.

Yeah, let me, Lisa, address the first part of that is we're looking at 2021, and then I think there was a follow-up there on specialty, which, of course, Steve will address. And I will say that you were breaking up there on the telecom, but I think I caught most of the... So heading into 2021, we're in the midst of our internal planning process like we always are at this type of year. Some of the things that we're looking at as we're doing our 2021 planning are COVID impacts and what could be the COVID impacts on the healthcare system. We're looking, of course, at all of our business unit expectations. We're looking at OpEx. We did have some benefits to OpEx in the most recent quarter, which might be hard to get that level of OpEx benefit in fiscal year 21, particularly if we look at things like reentry costs. In fiscal year 21, of course, we're looking at brand and generic pricing, and we've talked about some of the moderation of generic deflation that we've seen this year and what happens there in fiscal year 21. So we're really focused on expanding our value proposition, deepening our relationships, and growing operating income as we progress. as we look at fiscal year 21. And then also, you know, one thing that is important to note as you look at fiscal year 21 growth when we do come out with guidance compared to fiscal year 20 is we did have a meaningful far medium benefit in fiscal year 20. It was, as I said in the prepared remarks, about $9 million in the June quarter, about $18 million expected in the $435 million for the fiscal year. So that's another thing to take into account. And then I think you had a follow-up on specialty.

Yeah, I'm not sure if you can hear me, but just on the specialty, I just want to understand going into July, the recovery that the marketplace, you know, any drivers around the specialty business would be helpful.

Yeah, hi Lisa, and I have a question for you. I hope we're going to have your conference in January, but I guess we'll see. So yeah, it would be a good chance to see everybody again. So specialty is, you know, if you look at oncology, obviously our biggest business is You know, we were off a couple of percent in April and then recovered very well. And we're back to the levels, you know, we're back to pre-COVID levels, basically, in oncology. In some of the other businesses, it was a little bit different. You know, some of the Bessie businesses, they were a bit weaker, but we're now seeing them really lift up. And I'd say that just, you know, going into July, the trend has stabilized. So there was a pent-up demand. we saw some, you know, really strong numbers and it's not like that, you know, it's not like we saw a U where it's going to keep on going up high. So it's back to, you know, pre-COVID levels and, you know, I think that, again, if you have MS, if you have macular degeneration, obviously if you're having chemotherapy treatments, those are incredibly important and as soon as you feel at all safe, you're going to return. You know, one thing that's very interesting is that The distribution of services into the community for specialty is unique in this country, and it's proven, I think, very durable for the patients. And that's what we've always tried to make the point, that it's very important that patients can access care where they need to. And I think in this crisis, a lot of patients feel a lot safer going to their physician's office than they would into a health system or even a larger outpatient system. So it's a good example of the resiliency of the U.S. healthcare system, the way that we have such strong community practices. So thank you.

Thank you. And the next question comes from George here with Deutsche Bank.

Hey, good morning, guys, and thanks for taking the questions. Maybe two brief ones, given how you guys adjusted the guidance. I assume that the trends in the core pharma business from July kind of reflected what you saw at the end of June, so strength in July has been good. And then maybe just a quick comment on what you've seen in the world courier business as it relates to the ability to deliver products and samples to clinical trial sites. I would just be interested in any commentary around that business. Thank you.

Sure. Sure, this is Jim. I'd be happy to answer that. You know, before talking about July, you know, I think what was really interesting notable and important is we saw really all our distribution businesses grow from the month of May to the month of June. And so we really saw a very nice growth in June compared to May. And then what we saw is the businesses stabilize in the month of July, consistent with June. And so, you know, we are pleased by the trends that we're seeing, but of course, as Steve said, you know, what we saw in July was more of a stabilization. And then, you know, World Courier, as I indicated during the prepared remarks, World Courier had a record month in the month of June. Just very strong results. Customers really placing value on World Courier's service. World Courier, as I've said before, we've said before, really excels at managing complexity. And as air transport capacity was limited, customers valued the service. There were some COVID-related opportunities, like direct to patient. And so overall, just seeing positive trends at World Courier that, like our other businesses, we saw good growth in June, and it's continued in July.

Thank you.

Thank you. And the next question, Constance Charles-Ree with Cohen.

Yeah, hey, thanks for taking the questions. Maybe just two questions here. You guys didn't really touch on sort of the current opioid litigation. Any updates there that you could provide us with? Obviously, some of the recent news there that the judge had kind of shut down a request for some fees from the plaintiff's attorneys. Any kind of update you can provide us there? And then secondly, I think there's also been a lot of talk recently about, because of the crisis in part, but on-shoring production of either generic drugs or API for those drugs. Can you give us your thoughts on what that would mean, either more broadly for the generics market, or more specifically, what it might do on the distribution side of things? Thanks.

Hi, Charles. First of all, on the opioids, there's no substantive update. We said on the last call that we've been focused on the pandemic, I think a lot of the counterparties have also been, and given the complexity and the issue of the number of parties involved, we continue to prepare for trials, obviously. We continue to hope that the counterparties, the other parties, will see the merits of a potential global framework. And we remain focused on the essential work we do in the supply chain to meet the critical needs of patients during the pandemic. And then just repeat the second part of your question, please.

Yeah, it was, you know, yeah, there's been, you know, some talks about bringing onshore manufacturing of API, et cetera. Yeah.

Yeah, sorry. And, you know, I was just on a call this week with, you know, one of the senators who's involved in this, and they were talking about PPE, but also API. And, you know, it's There is some discussion in Washington that, this is just from the reading I do and different calls that we're on, that parts of PPE and maybe even API are essential security infrastructure needs of the country. Of course, these things don't happen overnight. There's also a lot of environmental issues. There's the cost issue, which I think everyone is always taking very seriously. The global supply chain has become incredibly complex. And of course, AmerisourceBergen will work with policymakers, offer our services as we have, offer our expertise, and also work with industry to see if there are any problems any major changes. And if they are, then it would have to be done through statute. So it would have to be done through the legislative process. So we would be involved in that. So thank you.

Thank you.

Thank you. And the next question comes from Ricky Goldwasser with Morgan Stanley.

Yeah, hi. Good morning. So there's some headlines last week on the government working with the private sector on the distribution administration of the COVID vaccines once it comes to market. Can you talk a little bit about kind of like your capability? How do you think about available capacity? And when we think about the channel that vaccines will be administered, where does it fit with your infrastructure and relationships?

Yeah, Ricky, hi. Good to hear your voice. You know, we are... We are deeply involved in the supply chain. I mean, I actually was on a panel for the World Economic Forum a few months ago, and I said, look, I can't speak for the rest of the world, but in the US we have deep cold supply chain capabilities. Now, some of the reported temperature storage requirements are quite significant. We'll see what the final dosage and performance requirements are, but I'm confident that we would work with the manufacturers to make sure that we can meet the needs in the U.S. market where, of course, we have a very large market share in other countries. We probably wouldn't play as prominent a role. You should know, of course, that we have been involved in active discussions with manufacturers as we start to plan. It's probably, to be honest, it's an event that I think AmerisourceBergen would be very galvanized and excited around just as part of the healthcare community and as part of Global Citizens. You hear that there could be emergency authorization for the first candidate for healthcare workers You know, whatever it is, we have the capabilities. You know, we have good insights into where the hotspots are. We have a good capability to blend those data sets together. So I feel confident that, you know, if asked to serve, Marisol Spergen will be strongly positioned to be able to do that. So thank you.

And then just one follow-up on the seasonal flu vaccine. We had an earlier call today with a discussion around this being – high-end or normal flu vaccine season. How is that incorporated into your guidance on a normal year? Can you maybe give us some sort of guideline of what is the contribution from the flu vaccine on a normal year versus what it could be this year?

You know, Ricky, so vaccines are much more distributed than other products because there's so many different points of service. You know, physicians' offices, for example, that do not use specialty products, so they're not typically a Marisource person, customers, and they would access products through their med-surg distributor often. So, you know, there's a lot of other companies besides our two best-known peers that do vaccine distribution. Also, the manufacturers do do some of that direct, but Plumax is not material to ABC. It's not a very expensive product. It is somewhat difficult to manage. I had responsibility for managing it for years because it was in our AST division which reported in to me. We would literally start working on it as the season ended. We'd start working on bookings. you know, the issues with the manufacturing, the strength, but it's not material to ABC. About 40 to 45% of the country, as you know, gets the vaccine, and we expect that it could be higher this year, and we hope it'll be higher this year, so that's really it. Jim, anything to add on the materiality?

I think that's... Yeah, it's a very relatively small part of our plan for the balance of the year in our guidelines.

But it could drive business in our community pharmacies, you know, as they do inoculation. So that could be a good way for patients to start getting used to going back into pharmacies, those who've been reluctant to do it. So I think that could be a positive benefit from this flu vaccine here. But, you know, that's just an idea. So thanks, Ricky.

Thank you. And the next question comes from Eric Percher with Nefron Research.

Thank you. Question on the health of the independent pharmacy marketplace. It sounds like the move to 30 to 90 day and cash discount cards has been a pressure. Have you seen those pressures? And then within your assets and the PSAO, do you offer any tools for offsetting particularly the cash discount card pressure?

If you look at the overall, the grand scheme of the marketplace, there's not very significant market share shifts. Of course, in March, we saw a mail uptick quite significantly and it's well documented that there was an increase in the 90-day scripts. However, you know, the counter argument to that is that it's an increase in patient adherence, which is very good for business. And certainly one of the things, you know, when I remember when I first became CEO and I talked to our good neighbor pharmacy group, I said, you guys have to do 90-day scripts. And at that time, you know, 10 years ago, most people weren't, pharmacists weren't that interested in doing 90-day scripts. But it's certainly something that has become more common in the market, as you know. And again, we would point to the unique role that the community pharmacists have today as one of the most trusted and accessible healthcare professionals and literally with very good value. I mean, you can go pick up your generic prescription and pay a $5 copay in most cases and get access to a professional at your independent pharmacy. We know that independent pharmacists have some headwinds, but we're working well with them. We think we add a lot of value, and we think that they, again, will carry on differentiating themselves by the customer service and the entrepreneurial approach to the business. Jim?

Yeah, Steve, the one thing I'll add, Eric, is that Kind of the shape of the rebound in independent pharmacy sales over the quarter was comparable to many of our other distribution businesses with pull forward in March, lower sales in April. But then like our other distribution businesses, a rebound in sales growing from May to June, and then stabilization in the month of July consistent with June.

Thanks.

Thank you.

If there's concern that we see furloughs move to unemployment and more cash, that could deepen things, but as you see it today, you haven't seen a significant change in the independent tax. Is that fair?

Yeah. I mean, we've always said, you know, I think we said, you know, many years when the Affordable Care Act was implemented that we maybe saw, we thought it might have accounted for a 1% to 2% at the most impact on on script volumes because there's no doubt that having insurance coverage is important for patients. So it's been so profound and so seismic, the impact to employment that it's hard to assess all the trends here. But there's also a lot of prescriptions are accessed by seniors, right? Seniors are on Medicare often and they have supplement insurance and they are sometimes not employed or they have their retirement set. And, you know, we don't, as you well know, we don't really differentiate between a Medicaid and, you know, we're selling in aggregate. So it doesn't really matter to us what coverage it is. But I would agree with you that it's very important that patients continue to access coverage and The final thing I'll say is that our businesses like Lash truly do support patient assistance programs, which manufacturers have stepped up in this time to make sure that there's continuity of patient care, and we're very proud of that work.

Thank you.

Thank you.

Thank you. And the next question comes from Elizabeth Anderson with Evercore.

Hi. Good morning, guys. Thanks for all the clarity on the outlook so far. I have a question on animal health. I think you gave some commentary on how you saw it during the second quarter, but as we sort of go from July forward, like, how are you seeing that business transition, and do you see sort of that business continuing to consolidate where you've obviously had some nice share gains over the recent months? Thank you.

Yeah, so as we, you know, commented on animal health, had its operating income impacted by COVID-19 during the quarter. But really the fundamentals there for animal health and MWI are quite strong. As we commented, you know, we had a good quarter in companion animal. Where we were impacted was production animal and in the UK. And so if you just actually look at our animal health business in the US, sales were up during the quarter. The rebound in companion animal was relatively fast and quite nice. It looks like it will be a slower rebound in production animal, which was impacted during the quarter for a while due to plant capacity, beef plant capacity. but also by some slowness in food service. But the fundamentals for the business are very strong. Good market. Our revenue trends are good there. Market share, as you commented, has been quite good. Really good execution by the team and good execution on value-added services. So we feel very positive about the business for the long term.

Thank you. Okay, thank you.

Thank you. And as that was the last question, I would like to return the floor to management for any closing comments.

Yeah, so thank you, everyone, for your participation this morning. I know it was a busy day. And I also want to give a special thanks to our associates, those who serve in all roles, including those on the front line, but to all of our associates for delivering on our essential role in healthcare. We are really proud of their dedication and innovation. to expand our value proposition and deepen our relationship with our customers. Thanks for your time today. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.