McKesson Corporation

Welcome to the McKesson Q4 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Holly Weiss. Please go ahead.

Thank you, Stephanie. Good afternoon and welcome everyone to McKesson's fourth quarter fiscal 2021 earnings call. Today, I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Vitilone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question and answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's press release and our slide presentation and to the risk factor section of our periodic SBC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. During this call, we will discuss non-GAAP financial measures. Additional information about our non-GAAP financial measures, including a reconciliation of those measures to GAAP results, is included in today's press release and presentation slides, which are available on our website at investor.mckesson.com. With that, let me turn it over to Brian.

Thank you, Holly, and good afternoon, everybody. Thank you for joining us on our call this afternoon. On our fourth quarter call last year, I talked about how the COVID-19 pandemic was beginning to impact our employees, our customers, our partners, and the very communities in which we live. As one of the largest healthcare companies in the world, I said that McKesson would play an essential role in protecting the health and safety of the healthcare supply chain. While we were confident in our abilities to help our customers during challenging times, what played out over the course of the year proved to be more unpredictable than anyone could have imagined. The up and down trajectory of the recovery was certainly different than we had originally anticipated. And our role in the COVID-19 response efforts evolved and expanded quickly as a result. Fiscal 2021 was one of the most challenging, yet fulfilling and inspiring years of my career. A year like no other in the 188 year history of our company. I want to thank Team McKesson and our innumerable public and private partners for their resilience, commitment to our values, and service to our caregivers and patients. From the onset of the pandemic, our sourcing teams worked closely with manufacturers and various government entities to better forecast changing pharmaceutical and medical product demand in order to extend supply and channel inventory to critical areas of need. Whether it was working to secure higher volumes of PPE for caregivers and frontline workers early in the pandemic, or leveraging our expertise and lab capabilities to ramp up distribution of COVID-19 tests as they came to market, McKesson moved quickly to support our customers, our partners, and our communities. Our role in the COVID-19 response was also highlighted by our partnership with the U.S. government's COVID-19 vaccine distribution efforts. having been selected as the centralized distributor of refrigerated and frozen COVID-19 vaccines and the ancillary kits used to administer those COVID-19 vaccines. We distributed our first COVID-19 vaccine in December, shortly after Moderna's vaccine was granted emergency use authorization by the FDA. On February 27th, Johnson & Johnson's COVID-19 vaccine became the third COVID-19 vaccine granted EUA by the FDA. and the second vaccine within the scope of our contract with the CDC. We began distributing the J and J vaccine within 48 hours of its authorization, and we're now distributing out of all four fit for purpose distribution centers we've built for this program. We stand ready to support the distribution of additional vaccines as they come to market. Through April, We've successfully distributed over 150 million Moderna and J&J COVID-19 vaccines to administration sites in the U.S., and we remain on target with the U.S. government's distribution schedule. Also through April, we've assembled enough kits to support the administration of more than 550 million doses for all vaccine types. This work remains our company's top priority. and we are prepared to support the U.S. government for as long as they ask us to lead the centralized distribution model. In Europe and Canada, we are also partnering with the local governments in the COVID-19 vaccine effort through administration in our owned and banner pharmacies, as well as distribution efforts in selected markets and countries. Let me turn now to our financial performance. Against the dynamic and challenging macroeconomic backdrop in fiscal 2021, we grew revenues 3%, and our adjusted earnings per diluted share result of $17.21 was up 15% over prior year. When pressed with challenges and uncertainties, our customers and government partners continued to choose McKesson to help ensure stability of supply for their patients. So while prescription volume and primary care patient visit trends negatively impacted the core business throughout the fiscal year, The strength of our business model and our differentiated capabilities help us to grow the business and deliver value to our shareholders. Our commitment to executing our strategy, transforming and simplifying the operating model contributed to these strong financial results. Looking forward into fiscal 2022, I'm confident that we operate in scaled and resilient markets with underlying trends that support long-term growth. We invest in our business to differentiate our solutions and create value for customers, patients, and partners. The pandemic has not paused our progress on these strategic priorities. Targeted investments into our business over time have positioned us well to succeed and respond quickly to changing demands from our customers and government partners during these uncertain times. We've been focused on building out a connected ecosystem over the last several years in the areas of oncology and biopharma services. These are areas where we believe we have key differentiated capabilities. Through investments in technology, we've been able to develop more robust solutions that help connect patients, providers, and manufacturers and support our growth. Starting first with our oncology assets, which have proven to be resilient throughout the pandemic. Through scaled distribution, GPO services, and our U.S. oncology business, we're positioned well as innovative therapies come to market. Biosimilars are just one example where McKesson has been able to combine the breadth and scale of our specialty capabilities to help give providers choice and lower costs for patients. We were pleased to add more practices and over 100 providers to the U.S. Oncology Network in fiscal 2021. Today, through U.S. Oncology and our non-affiliated provider business, we're connected to over 10,000 specialty physicians, and our oncology technology platform has supported millions of patient journeys, providing us access to real-world outcomes, data, and research. Our recently launched technology and real-world insights business, which we call Ontata, is an extension of our oncology ecosystem and is a key area of investment for us going forward. We believe this business differentiates our value proposition to providers looking to drive better outcomes for their patients and to manufacturers focused on innovative therapies in the area of oncology. In terms of biopharma services, in fiscal 2021, we brought together our Relay Health Pharmacy, CoverMyMed, and RxCrossroad businesses. Together, these businesses are focused on innovating and automating the ways in which biopharma connects with patients, pharmacies, and providers. with the ultimate goal of providing stronger access, affordability, and better adherence outcomes. These assets embed us in the daily workflows of over 50,000 pharmacies and more than 750,000 providers. We're integrated into over 75% of EHRs today. And through our market-leading position and advanced solutions, we're able to automate and simplify otherwise very manual processes. Ultimately, our solutions help patients get on therapies quicker and stay on those therapies longer. This value proposition to our manufacturing partners is reflected by the over 500 brands we support today, covering nearly every therapeutic area. In fiscal 2022, we will remain focused on these growth areas and we will continue to look for ways to streamline the business so that we can operate with added speed and increased focus. Part of our commitment to grow the business is to continually review and evaluate our portfolio. Sometimes we find assets we're not the natural owner of, as was the case with our German wholesale business, where we created a JV with Walgreens Boots Alliance in November. To further simplify the business, we continually evaluate and adapt the way in which we work. For McKesson, it's been over a year since we successfully transitioned all of our office-based employees to work from home, seemingly overnight, and without a loss of productivity. While we're quite anxious to see each other in person soon and at a time and place where it's appropriate and safe to do so, the success of our employees in this remote work environment and their desire for more work flexibility has challenged us to reevaluate the way we work and our real estate and existing office space footprints. This is yet another example of how we're looking to simplify operations and grow the business and do the right thing for our teams. Britt will go into more detail about our thinking on these impacts going forward. Now let me turn to the business and touch on how we're positioned for success heading into fiscal 2022. I'll start with U.S. Pharmaceutical, where we again grew adjusted operating profit despite soft prescription volume trends throughout the fiscal year. Our priority in this business is to strengthen the core and deliver the world's highest quality supply chain to our customers and manufacturing partners. Our focus on cost and working capital efficiencies underpin this growth and help fuel investments for growth across the business. For generics, the pricing environment continues to track in line with our expectations. On the buy side, we leverage our scale and our sourcing capabilities through Claris One to ensure stability of supply at low cost for our customers. On the sell side, McKesson has taken a disciplined approach to pricing and the market continues to be competitive but has been stable for years. While generic volume remained below pre-COVID levels in the quarter, we expect volume improvement over the course of our fiscal year. I'm also pleased with the performance of our specialty business this past year. Our US oncology business patient visits were at pre-COVID baselines in March, with many returning for in-person visits to their providers. In fiscal 2022, we'll look to grow both our US oncology and non-affiliated businesses. which are just another part of our connected oncology ecosystem at McKesson. Let me talk about prescription technology solutions. They perform well this year, despite prescription volumes being down since the onset of the pandemic. We're continuing to invest in innovation in this business, and despite this year's challenges, we've been very successful in adding new brands to our platforms. In fiscal 2021, our access solutions helped over 50 million patients get on therapies after their original prescription was denied coverage. And our affordability solutions help patients save over $7 billion in out-of-pocket prescription costs. Under a single cohesive go-to-market strategy, this segment is positioned to return to growth in fiscal 2022 as patient mobility improves and prescription trends recover. In fiscal 2021, Medical surgical played a central role in providing supplies to our primary and extended care customers at a critical time of need. Demand within this segment was volatile throughout the fiscal year for products such as PP&E and COVID-19 tests, and our procurement teams worked diligently to find the supplies our customers needed to treat their patients at a time when supply was constrained and pricing was volatile. While we took measures to meet the needs of our customers for PPE-related products, Demand has fluctuated and market dynamics for some of these products has changed since the onset of the pandemic. As a result, we took action to position the business for lower demand levels, which resulted in inventory charges on some PP&E and related products. Further adapting to the impact of COVID-19 on our customers, we leveraged our existing lab capabilities to quickly distribute over 50 million COVID-19 tests into the provider settings we serve. demonstrating the breadth and expertise we have in our market-leading lab business. Despite patient mobility trends below pre-COVID levels for much of fiscal 2021, I'm proud of the way the business responded to the needs of our customers, and I am confident that as patients return to consume healthcare and see their community-based providers, our core business is positioned well for growth heading into fiscal 2022. Finally, turning to international. The segment grew full-year adjusted operating profit despite lower foot traffic in many of our retail pharmacies across Europe and Canada, where the pandemic still lags the recovery we're seeing in the U.S. Over the past several years, we've taken deliberate actions to address our cost structure and to evolve our retail footprint in these markets, and we saw benefits from those actions this fiscal year. We are also very disciplined in how we operate these businesses, as evidenced by our thoughtful exit of unprofitable customers at the onset of the fiscal year in our Canadian business. These businesses play an important role in the pandemic response in their respective markets, and through our investments into digital assets, we're able to better reach patients who are increasingly choosing electronic means to access healthcare in those countries. Going forward, we'll continue to find ways to position these businesses for future growth. The pandemic still presents many unknowns and the trajectory of the recovery will likely show signs of non-linearity at times in our fiscal 2022. But we do expect a return to pre-COVID levels of prescription volumes and patient engagement levels in the second half of fiscal 2022. As utilization improves over the course of our fiscal year, we expect the stable fundamentals underlying our core business to serve as the foundation for the outlook we are providing you today. Our fiscal 2022 outlook of $18.85 to $19.45 of adjusted earnings per diluted share includes a return to solid growth in our core businesses, a continuation of our role in the COVID-19 vaccine efforts, investments in growth, and a balanced approach to capital deployment. Britt will take you through additional detailed assumptions that make up this outlook. As I reflect, In fact, fiscal 2021 has taught us a lot, and it showed us once again that our business model is positioned well to adapt and succeed in uncertain times. Time and time again, we've proven our resiliency during crisis, and I'm so proud of the way our employees rose to the challenges brought on by the pandemic and society more broadly. Our ability to be together, to stand together, focused on our values and purpose and service of the healthcare communities we serve makes me So proud. We will focus on building momentum on our fiscal 2021 accomplishment, and we will look to embrace the changes that have made us better to advance our growth strategy and grow the business. We will also continue to be front and center in the fight against COVID-19, helping to serve the communities in which we live and work. I thank you again for your time, and I'll turn it over to Britt.