Cencora Inc at Robert W Baird Global Healthcare Conference Transcript

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

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : We're not going to do any formal slides; going jump right into Q&A. And Jim, I, I told you upfront, I'm going go right until last week where at another event, you raised your fiscal '24, pointed '25, now this is after five raises this year. So off of a rising base, you pointed '25 to the lower end of the LRP. Still pretty close to the Street. I looked at that and I said, these are not overly material changes on a company that has your track record. Why even go that far? Why put out an 8-K and make those comments in advance at an early juncture here?

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : That makes sense. And with -- I know you probably will push back on going into too much detail on any of these individually, but you have quantified the COVID in the past. With this potential customer transition after they're acquired by a competitor, if that deal does, in fact, go through as probably will, that's only a one quarter impact to fiscal '25, correct? That would be after June of next year. But you are saying that that is the secondary for this very minor -- compared to where Street was, very minor update that that was a secondary consideration in terms of sizing.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : I'm going to definitely come back to that. Just quickly -- Bob's not here right now. I would ask him directly. But you do this long-known process of your CEO transition, new guy steps in what, two weeks now, roughly?

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : A little over two weeks. Been there forever, you've known him forever. I'd love to get your take on how you've seen him evolve through the transition, which has been long planned and just any characteristic, nuances, style changes, philosophy changes that might occur as Steve hands the reins over to Bob here in a couple of weeks.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : Okay. You know I have somewhere around 17 questions on Walgreens, but I've been chastised not to ask 17. So I'll ask one big picture. You've -- despite having a great relationship and a large customer for many years now that I think has been overall a success, you've -- at various times in the past, you've been beaten up. They're going to sell shares. They're going to sell boots. They're going to close stores. Now they've somewhat negotiated in public on pricing. I know you're somewhat limited in what you could say. And I'm sort of obliged to ask this question, given what a big topic it is. But could you give us your latest and greatest thought thinking on that relationship, that customer, and what the future might entail?

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : One thing I -- I'm going to do a follow up. One thing I hear is they're going to have to lower price. They're going to have to cut terms. You, Cencora, are going to have to give something. I say why? Why would you have to give something if you have got a contract? But to the extent you work as a -- in a mutual relationship, if you do this before 2029, would you not also want to be on the receiving end of some benefits of that theoretical conversation?

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : And I know you've said it before, but it's always good to have people hear it. Generally, larger customers like this or lower margin customers.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : Yeah. I put out a -- our team put out a report here a few days ago where we opened up a couple of conversations primarily on revenue growth but also profit growth in the sector and how we look at various themes that are happening in the space. And I'm of the opinion that -- I've always been of the opinion that revenue growth is about the least important thing in the sector. It leads off with gross margin, OpEx, working capital management. Other things are more important when you look at sensitivity analysis and the models. That being said, optics matter at times to the Street. We think revenue growth in the space is going to return to a more normal, mid-single-digit level over the next couple of years for a number of reasons. One of those drivers -- you can agree or disagree with that. One of our drivers that we're looking at is that we're seeing some real changes in the biosimilar marketplace. In particular, we're seeing Part D drugs that are getting put on to formularies more and more frequently: Humira, Stelara, a couple of the big ones that have been in the headlines recently. United came out today with some conversation on Humira. You had Evernorth recently on Stelara and on Humira as well. So you tend to get a revenue hit on those Part D conversions. But you, in theory, would not get much of a profit hit there. So margin goes up, revenue comes down, no big deal. Part B is a category where we see a number -- frankly, a lot of work that you have done and other firms have done in the industry. We see a number of potential launches for the first time in the Part B category, in fact, eight over the next year and a half. That could be pretty interesting, could it not? So a couple of open-ended things here. One is just big picture on longer term revenue growth and some of the factors in the market like these bigger biosimilar adoption rates by the PBMs. And then two, tell me why I shouldn't be a bit more excited about this Part B wave that is coming from Tysabri through Eylea in the second quarter of '26? Yeah. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 5:25PM, COR.N - Cencora Inc at Robert W Baird Global Healthcare Conference

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : I mean, there are eight in a row coming starting the first quarter if things play out the way they're currently expected.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : Yeah. Let's stick on margin for a second and come back to GLP1s. And again, I think that's also the biggest wild card. Do they grow 10%, 50%? These are big numbers that the variants could be pretty significant. That being said, I think hopefully at this point, everyone knows they're extremely low-margin products relative to the rest of your book. There's a part of me that just wonders why something that's over 10% of revenue is less than 2% of earnings. It feels like there has to be a way to solve this problem. It's better than it could have been a few years ago perhaps when the industry went through its purposeful recontracting and kind of strategic review of how it wanted to make money across the different pools. But it feels like it could still be better. Are we still -- I guess if you ask it often enough, maybe you'll get a different answer. Are we still waiting for [a go] here on margins and GLP1s? Is it that we have to wait for generics? Is it Victoza and some of the older generation stuff starts going generic as it has, and then maybe some foreign markets have different patent laws and you start getting some international hits here and there, or are we really just waiting for time and --?

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : Do you get to a point with the category being now -- well, these are my estimates but I think the numbers probably true up to something around a little over 10% of revenue. I just -- do you have to start breaking out in your guidance, what you're expecting for the category when you talk about guidance? Is that something that you think is relevant or --? (multiple speakers) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 5:25PM, COR.N - Cencora Inc at Robert W Baird Global Healthcare Conference

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : So it's just top-line optics. But I am curious if it gets to that point.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : You were the first to do it and more transparent up front.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : I want to spend some time on OneOncology in particular. But I do have a question from the audience. We did touch on this up front. I suspect you're going to hold back, but I'm going to read the question so you can -- I've done my duty and you can respond accordingly. So the question is there are a range of estimates on the Street of the impact of Florida Cancer Specialists' potential loss in June of next year. People seem worried that when the headwind annualizes in fiscal '26, so three quarters versus one, it could be a more material headwind to growth. Is there any way to help level set that thinking or put a better -- I'll just say put a better frame on the thinking in terms of your headwind, if you will, and then how you feel about your ability to manage that in fiscal '26.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : OneOncology, I think it is great. It's gone pretty well so far. So it was a little over a year since you did this deal. You agreed to partner with TPG. In 2013 -- or 2023, sorry, that business was growing at about a 40% CAGR since its formation. And since you announced the deal, 16 practices have now grown to over 24, and that's before the next topic which I'll introduce in a minute. So it seems like there's been a big increase in practices joining strong growth rates continuing. Have you seen anything you don't like in this first, what, four or five quarters since you did the deal?

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : I know in the moment, it's still obviously a separate entity and you've got a partner. They just announced that they were buying a big urology center or a group of practices. And so that's a bit of a shift for them expanding from oncology to urology. And it was also a pretty decently sized deal in terms of the number of practices and the role of United Urology. So that deal just closed August 20. I don't think it does much to your numbers, but I'd love to hear your thoughts on the process. And you must have been supportive of that move. How might that tie into Cencora's future, assuming that your put option, your call option is exercised here in a couple of years?

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : Are there other ologies that you might be interested in? And would you ever consider doing something outside of this current JV? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 5:25PM, COR.N - Cencora Inc at Robert W Baird Global Healthcare Conference

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : Okay, last one in our few remaining seconds here. And I'm going to put you on the spot a little bit, but I'm trying to be benign about it. I appreciate all of the transparency, the 8-K, the getting people in the right spot. You've done a great job about that. And frankly, didn't think the update was that material personally. I also can't help but think you've beaten the last five years consistently with an average of 5.1% upside. So has anything in the world changed that would make the new Cencora different than the old Cencora? You tend to be a conservative company out of the gates. Has the world changed much or we still thinking you're playing the same game you've played for the last five years? And game in a good way. I don't mean tricky.

Question: Eric Coldwell - Robert W. Baird & Co. - Analyst : Yeah. That's fair enough.