Cencora Inc at JPMorgan Healthcare Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Lisa Gill - J. P. Morgan - Analyst : So in that vein, maybe just talk about what you think are the top priorities. So you've been now in the job for a couple of months. What are your biggest opportunities really in the next coming years, not just in the next several months or even this fiscal year?

Question: Lisa Gill - J. P. Morgan - Analyst : You talked a little bit about specialty, and we look at the volumes for both specialty as well as your traditional business has been incredibly strong throughout '24. When we think about the US -- let's talk about US to start with. But when we think about US utilization, is there any key themes you would call out? I mean, obviously, we've seen GLP-1s. We've seen strength in specialty. So that would be the first part of the question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 13, 2025 / 11:45PM, COR.N - Cencora Inc at JPMorgan Healthcare Conference And then secondly, as we move into calendar '25, under the Inflation Reduction Act, the out-of-pocket costs will be lowered for [grandma]. Do you think that drives incremental utilization as well?

Question: Lisa Gill - J. P. Morgan - Analyst : Just kind of shifting to generics. Generic pricing has been pretty stable the last couple of years. One of your partners from a generic procurement perspective, Walgreens, talked about perhaps seeing better procurement of certain products, and I would assume they're talking about generic. Can you maybe talk about those dynamics right now in the marketplace, around procurement? There's been NADAC pricing, and that's now shifted to where CMS will put that out quarterly, right? So we'll have less fluctuation. But in general, what are we seeing on the generic procurement side? And what opportunities or incremental opportunities do you see?

Question: Lisa Gill - J. P. Morgan - Analyst : When I think about your -- you just closed the RCA deal. You did United Urology. So moving a little bit away from oncology, which is where you've started in specialty. When I think about the other ologies, what other incremental opportunities do you see? And how do I think about those MSO agreements going forward?

Question: Lisa Gill - J. P. Morgan - Analyst : You mentioned -- or you touched on biosimilars. And I think a lot of times, investors are trying to figure out how do we think about biosimilars compared to like a generic type of margin? And maybe this question is for you, Jim. When we think about biosimilars and we think about that shift towards a biosimilar versus a traditional branded product, especially on the specialty side where you have maybe more of an opportunity to influence what drug the doctor is using in their private practice. Is there a rule of thumb as to how to think about the margin on a competitive drug like a biosimilar versus a traditional brand?

Question: Lisa Gill - J. P. Morgan - Analyst : Yeah. And I think just dovetailing on that, I know you have a lot more services that you provide to those physician offices than just GPO and procurement and distribution. But maybe just spend a minute talking about some of that. And I -- many of you may have seen the nice sign that you had across from Union Square around the opportunities with Cencora.

Question: Lisa Gill - J. P. Morgan - Analyst : Is there a way to size that business today, Jim? Like if I think about, it's x-percent today and you can go to y?

Question: Lisa Gill - J. P. Morgan - Analyst : Beyond the Q1 comp impact for COVID vaccines, is there anything else we should consider as we think about the cadence of earnings throughout fiscal '25?

Question: Lisa Gill - J. P. Morgan - Analyst : Great. '24 was a year where we did see some switching of drug distribution relationships, although they're very minimal, right, I mean, when we think about that. But when we think about that, there's always questions that we get about the competitive marketplace and could we have a new REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 13, 2025 / 11:45PM, COR.N - Cencora Inc at JPMorgan Healthcare Conference entrant come in and get into the drug distribution world or even when we see large contracts that come up from time to time. Is there anything you would call out specifically around the competitiveness of the marketplace and if there's been any changes?

Question: Lisa Gill - J. P. Morgan - Analyst : Right and it expanded over time.

Question: Lisa Gill - J. P. Morgan - Analyst : Changed that.

Question: Lisa Gill - J. P. Morgan - Analyst : I would agree with that from what we've seen historically. When I think about some of your large strategic relationships, Walgreens has talked about closing 1,200 stores. Is that enough to move the needle for you? And they've said publicly that they expect to maintain a large portion of the scripts but haven't given a specific number. So how do I think about those store closings and the potential impact to maybe volumes on your side?

Question: Lisa Gill - J. P. Morgan - Analyst : Other places.

Question: Lisa Gill - J. P. Morgan - Analyst : And we haven't seen that thus far, right? I mean even with CVS closing roughly 1,000 stores and hundreds of stores closed, I think that that's a good segue to talk about the independent market because I think there's been concerns for years and years now, right, that the independent market was going to shrink to nothing. And a lot of you in this audience, I know Steve has heard me say this many times, but when I first started many, many years ago at JPMorgan, my job was to figure out how many independent pharmacies would stand 5, 10 years later, and that was in 1998. And I predicted that within 10 years, less than half of the independent pharmacies would still be standing. And back then, there were roughly 20,000 independent pharmacies. Today, there's still 20,000 independent pharmacies. So as we think about the pressures of healthcare, we think about competition, we hear the large players closing, maybe spend a minute talking about Good Neighbor Pharmacy, talking about what you do for the independent pharmacies and your outlook for independent pharmacies going forward because I know they're an important partner.

Question: Lisa Gill - J. P. Morgan - Analyst : To help to negotiate better rates, right?

Question: Lisa Gill - J. P. Morgan - Analyst : Right. 1998, I think the average was 2.3 stores, and it's double that today, right?

Question: Lisa Gill - J. P. Morgan - Analyst : Yeah. So Jim, let me turn back to you for a minute. You saw a benefit in '23 and '24 from some expense actions that you took to manage your costs. How should we think about the opportunity within SG&A going forward? Are there specific things where you see opportunities to get more leverage or operating leverage in your business?

Question: Lisa Gill - J. P. Morgan - Analyst : GLP-1s were a big area of focus in the last couple of years, and the growth continues in that area. There's hope for innovation for us to see an oral GLP-1 at some point in the market. Can you talk about both revenue growth? And you've talked historically that the profit is not as good for GLP-1s as we've seen for other branded products. If we -- so maybe just talk about that to begin with. But then secondly, if we see an oral product, would that be a better margin product for Cencora?

Question: Lisa Gill - J. P. Morgan - Analyst : Bob, we've spent more than 80% of our time talking about the US. Let's talk about the international business. What do you view as some of the biggest opportunities and challenges in the international market today?

Question: Lisa Gill - J. P. Morgan - Analyst : PharmaLex, right?

Question: Lisa Gill - J. P. Morgan - Analyst : And I think, Jim, I've heard you mention or talk about the strong dollar and kind of the impact on the international business from that perspective (multiple speakers) when we think about FX, right?

Question: Lisa Gill - J. P. Morgan - Analyst : Great. I know we only have four minutes left. So let me try to get through these last few ones. Let's talk about M&A, right? So you've done a number of transactions. When I think about -- we talked about specific around MSOs and other opportunities, sticking to oncology and kind of one-off areas. Are there other things or deals that you think would fit within Cencora beyond what we've talked about today?

Question: Lisa Gill - J. P. Morgan - Analyst : Do you see big opportunities there to make acquisitions in the pharma services area?

Question: Lisa Gill - J. P. Morgan - Analyst : Make sense. We have two minutes left. Bob, when we're sitting here together next year, what do you really hope that this investor community will appreciate about Cencora that maybe they don't today?

Question: Lisa Gill - J. P. Morgan - Analyst : And hopefully, more innovation as we're here this week, right?