McKesson at Bank of America Conference: Strategic Growth and Separation

On Tuesday, 13 May 2025, McKesson Corporation (NYSE:MCK) took center stage at the Bank of America 2025 Healthcare Conference. During the event, CFO Britt Vittalone provided a comprehensive overview of the company’s fiscal performance and strategic initiatives. The discussion highlighted McKesson’s robust growth, future plans, and strategic challenges, including the anticipated separation of its Medical segment and the impact of the MFN executive order.

Key Takeaways

• McKesson reported a 15% increase in operating profit and a 20% rise in adjusted EPS for 2025.
• The company plans to separate its Medical segment to focus on higher growth areas like oncology.
• The acquisition of Florida Cancer is set to add 530 providers to McKesson’s network by June.
• The MFN executive order’s impact is expected to be limited, with potential legal challenges ahead.
• McKesson remains committed to its three-pillar strategy: growth, shareholder returns, and maintaining a strong credit rating.

Financial Results

In 2025, McKesson demonstrated strong financial performance with a 15% growth in operating profit and a 20% increase in adjusted EPS. The US Oncology Network expanded significantly, adding 160 providers in the past year and 725 over the last three years. The oncology platform, a key revenue driver, generated approximately $35 billion in annual revenue.

Operational Updates

McKesson announced its intention to separate the Medical segment into an independent entity. This decision aims to unlock value by allowing both businesses to pursue tailored growth strategies. The company has been expanding its oncology platform since 2010, with the upcoming acquisition of Florida Cancer expected to add 530 providers to its network, bringing the total to over 2,700 providers.

Future Outlook

The MFN executive order remains a concern, with McKesson anticipating a period of comments and potential litigation. However, its impact on fiscal year 2026 is expected to be minimal. McKesson’s oncology strategy involves leveraging data and facilitating clinical trials, with the Sarah Cannon Research Institute joint venture seeing a 30% increase in patient accruals last year.

Q&A Highlights

During the Q&A session, Vittalone emphasized the lack of details in the MFN executive order and the potential for lengthy legal processes. The separation of the MedSurg business was discussed as a strategic move to enhance growth opportunities. McKesson’s focus on providing low-cost generic products through its ClarusONE sourcing operation was also highlighted, ensuring high service levels.

In conclusion, McKesson’s strategic initiatives and strong financial performance underscore its commitment to growth and value creation. For a detailed understanding, readers are encouraged to refer to the full transcript.

Full transcript - Bank of America 2025 Healthcare Conference:

Alan, Bank of America Analyst, Bank of America: Bank of America. Welcome to day one of the BofA Healthcare Conference here in Las Vegas. We are very excited to welcome McKesson here. We have CFO Britt Vittalone. Thank you, Britt, for joining us.

Britt Vittalone, CFO, McKesson: Thank you, Alan. I’m pleased to be here, and I always look forward to this because this comes on when we finish out a fiscal year and we give guidance for a new year, so it’s really great to be able to talk about the year that we just finished and the guidance going forward.

Alan, Bank of America Analyst, Bank of America: So I want to start with something that’s not going to come as a surprise to you, this MFN executive order that came out yesterday. I must have spent ninety minutes trying to put together a question here that encompasses everything going on with MFN. I can how you do. I kinda scrapped it, and maybe I can ask that as a follow-up. But, you know, what are your initial thoughts around MFN?

You know, can you talk a little bit about how a change in list prices impacts your business, a change in ASP based pricing could impact your business? Because your business has gone through a pretty big evolution over the past ten years where you’ve moved away from fee for service toward fixed fee for service in the brand business. But then over that time period, you’ve also been adding to USO and the oncology piece that has sensitivity based on ASP pricing. So would love to get a sense just, first, your initial thoughts around MFN, and then, two, what are the levers and sensitivities of your business today?

Britt Vittalone, CFO, McKesson: Yeah, I appreciate the question, and I anticipated this might be your first question. Look, over the last, really not just several days, but several weeks and months, there’s been a lot of activity on the public policy side. And as we always do, we stay very close with policymakers, and we work with them to help educate and inform them on the implications of the decisions that they might make, or the proposals that they’re making. As it relates to the executive order on MFN, you know, I think I would offer a few things. First of all, it is a declaration of intent, and as a declaration of intent, we would anticipate that there will be several comment periods and proposals and possibly even litigation over the next several weeks and months.

What the MFN does lack is a lot of details. And so what as we look at this today, some of the details that we don’t find in this executive order include the number of products that would be impacted by an MFN price, the countries that would be included in an MFN reference basket. It’s difficult for us to ascertain the impact of the MFN price on the launch of products, and certainly how the MFN price would be implemented, all of those details are lacking at this point in time. It’s also unclear to us what payment mechanisms would be impacted. Would this be Part B, Part D, Medicaid?

All of that is really, those details don’t exist here today. The executive order really was to develop a plan, and, so it’s hard for us to know what that plan looks like, the implementation period, or the time that it would take, for such a plan to be implemented. But our view on that is this is months, and it’s certainly not days or weeks. And so there’s a lot of, details that we’ll learn over the next several weeks and months. Our view on this is that the executive order was not intended to impact the community provider setting.

We have invested, significantly in the community provider setting over the past decade plus. We believe that the community setting is the most efficient and effective way to deliver care. We also believe that the community setting has the lowest cost of care for patients. And so as we always have, we will be supportive of proposals and reforms that impact the access, affordability, and better outcomes for patients, particularly in the community setting. It’s very difficult for us to really comment on, an executive order that really doesn’t have any details.

The timing and implementation, are unclear to us, but given the fact that it is really just a declaration of intent at this point in time, and we believe that this will take months, not weeks and days, the impact to our business for fiscal twenty twenty six, we believe, is limited, if there is any at all. To your question on how we operate as a distributor of drugs, whether those drugs be branded specialty or biosimilar drugs, we worked very closely with biopharma to understand what their pipeline might look like, what the needs they have, for the distribution of those drugs, and we work to be paid a fair value for the services that we provide, and that is on a fixed fee for service basis. So whether the price of a drug is $1,000 or $500 there’s a certain level of services that a manufacturer is looking for us to provide on behalf of those drugs, and we’re looking, as always, to be paid a fair value for those services.

Alan, Bank of America Analyst, Bank of America: If we look back over the past few years, the price of insulin has come down. Would that be a good proxy? Because I know that you’ve talked about insulin in the past and the experience you had there. Is that a reasonable proxy for, you know, if something happens to list prices of drugs, you can look to insulin as a proxy for what could happen more broadly? Or is that a unique therapeutic class that might not be indicative of what could happen to other parts of the business?

Britt Vittalone, CFO, McKesson: Yeah, I think you have to come back to the basic fundamentals here, which is whether it’s insulin or some other category of drug. And we have seen, adjustments to the WAC price over time of drugs over the last several years. Doesn’t really matter to us whether it’s insulin or some other category. What matters to us is working with biopharma to understand what needs do they have for the distribution of those products. Does it require special handling?

Does it require, temperature control? What are those services that we provide? Then we’ll work very closely with the manufacturer to be paid appropriately for that, again, regardless of what the price of that product might be. Insulin, I don’t know, would be a proxy. The proxy I would give you is the process that we go through to work with manufacturers to understand what needs and services they have on behalf of those products.

Alan, Bank of America Analyst, Bank of America: Okay. I want to switch gears a little bit, talk about the MedSurg separation that you announced last week. A lot of feedback on our end about that specific separation. Can you talk about how McKesson thinks about value creation as you talked about the separation? I think there were some questions that we were getting around the relative valuations of RemainCo and MedSurg and what that would mean for the value that’s created out of that separation.

Britt Vittalone, CFO, McKesson: Yeah, so just to remind, you know, we announced the intent to separate the medical business, the medical segment, as an independent company. Capital deployment and focus on our priorities and focus on our strategies is really a hallmark of what McKesson has done for a number of years. We have executed divestitures over the last several years, whether that be the spin off of Change Healthcare, the sale of our European operations, or more recently, the sale of our retail operations in Canada. We’re always focused on our strategy, and we always want to be focused on deploying our capital against that strategy and against opportunities where we have higher growth and higher margin opportunities. In the case of the medical business, we believe that the medical business, while not directly on those two strategies, has a number of growth opportunities in front of it.

The medical business is very well positioned. It is very broad. It is a very scaled business across all alternate sites of care. We believe that there are significant amount of growth opportunities available to that business to grow that business, and to unlock that growth potential, we believe, is best as an independent company rather than for competing for capital with inside McKesson. And so as we think about this, it’s really developing two world class, well positioned leading companies that will be able to pursue their own growth and strategies and be able to do that with focused prioritization of capital.

And we believe that that will unlock the value for both businesses. We believe that for the remaining business, the larger McKesson business, focusing on oncology, biopharma services, more discrete focus, more discrete capital allocation against those will drive higher growth, will drive higher returns, and ultimately higher value for our shareholders.

Alan, Bank of America Analyst, Bank of America: And then a related question around the separation there. What is the level of shared distribution and infrastructure between the MedSurg business and the pharmaceutical business? Is it pretty separated, or is there a lot of shared services, technology, infrastructure between those two assets?

Britt Vittalone, CFO, McKesson: It’s a great question. And as we have operated this business over the last decade plus, from an operating standpoint, the medical business is fairly separate. It has its own unique distribution network. It has its own ERP. It has many functions of an independent company today.

As you would expect, we have efficiencies of scale and efficiency of services in a larger enterprise that we do apply to the medical business. We do that certainly through some shared service functions, whether that be finance or human resources or some IT functions, and as we’ve done with every separation, there are going to be a set of shared function services that we’ll need to transition over to the new business and will need to stand up. We’ve done this many times before, but this business is fairly separable from the operations being discrete, the distribution network being discrete, and many shared services are already, or I should say many independent services are already in place. So as you would expect, there’s going to be an analysis that we go through to make sure that we transition this independent company appropriately, but we are doing that analysis today. We’ve done this before, and we feel comfortable with this.

Alan, Bank of America Analyst, Bank of America: Great. And then I want to talk about the long term guidance update you provided last week. You increased EBIT targets in US Pharma. As I think about what the growth profile of that business looked like over the past five years, I think there were some one time benefits from things like COVID that drove some growth. But now you’re raising those growth targets.

As we think about the way that McKesson looks like today versus where it looked like a few years ago when you gave those targets the first time, What’s changed and what gives you confidence that this business can grow faster in the market today?

Britt Vittalone, CFO, McKesson: Yeah, it’s a great question. First of all, I would base this in our 2025 results, which was another outstanding year of performance across the company. We had 15% operating profit growth and 20% adjusted EPS growth, which is really phenomenal and above the long term targets that we set, several years ago. When we set our strategy several years ago, we had four pillars, and it was really to focus on oncology, biopharmaceutical services, to really strengthen the core distribution businesses, the pharmaceutical distribution businesses, and really to modernize and evolve the portfolio. And we’ve done all those things in a consistent way with high execution, year in, year out, delivering really strong results, and 2025 was another year of that.

Along the way, in the pharmaceutical business specifically, we have seen a few things that I would point out. We have seen stable and consistent, drug utilization, which is supportive of the scale business that we have. We’ve made continued investments in our oncology platform over time. We’ve added providers. Last year, we added 160 providers to the US Oncology Network.

We’ve added seven twenty five providers over the last three years, so continuing to invest in the oncology platform. We continue to see really strong performance in our data services and analysis business that is helping pharma in terms of innovating and developing drugs specifically for oncology. We have created a joint venture with Sarah Cannon Research Institute to support the administration and management of clinical trials, We have over 1,000 sites of active trials that are going on right now. We have a 30% accrual rate increase last year versus the prior year. So we have a lot of things that we’ve invested in over the last several years that are continuing to add scale, continuing to add differentiation, that are supporting the growth that we’ve seen and the consistent growth that we’ve seen over the last several years.

And we believe very strongly that this business is very well positioned, that our ability to deploy capital, and I think the two acquisitions that we announced and will be completing in this first quarter of fiscal twenty twenty six, are evident of that continued focus on these higher growth, higher margin opportunities.

Alan, Bank of America Analyst, Bank of America: You mentioned oncology, and one of the strategies you talked about in the oncology franchise is the opportunity to leverage and commercialize data and allow providers to participate in clinical trials. And one example is your joint venture with Sarah Cannon Research. Can you provide an update on that business? And is there a way to size the revenue contribution from those types of that part of your business from clinical trials and from data, and maybe not size it today, or is there a bigger opportunity for that to grow and become more material over time, as now you represent such a material percentage of oncologists in The U. S?

Britt Vittalone, CFO, McKesson: Yeah, just on that last point, you know, again, to add to the number of providers that we’ve added over the last three years, we now have over 2,700 providers in the U. S. Oncology Network. When we complete the acquisition of Florida Cancer, which as we indicated on our call, we expect to happen in June, that will be another five thirty providers. So that’s the scale that we’re adding.

All the providers are practicing on a single EMR, which is our INOMed system. So that allows us to consolidate a scaled amount of data through our Ontata business, which allows us to partner with biopharma to help them as they commercialize and make investments in new oncology drugs. We’re really pleased with the fact that we’ve been able to grow our clinical trial management, our site management, and our clinical trial resources over the last several years. Sarah Cannon is a good example of this. As I mentioned, we’re seeing a significant increase in the number of patients that are being accrued into clinical trials.

That is developing and growing, as well. The platform of oncology, which includes distribution, GPO services, our Ontata business, our, site management and Surikana research business, is about $35,000,000,000 of annual revenue in fiscal twenty twenty five. So we’re starting to give you a sense of how large the overall platform is. The platform works together from distribution all the way through the data that’s collected from the provider sites, all the way through site management and clinical trial access. So again, it’s a very differentiated platform, but we believe it’s very scaled.

We believe that it’s very differentiated, and we’re pleased with the growth.

Alan, Bank of America Analyst, Bank of America: I want to switch gears a little bit to generics. There was a really interesting Financial Times article this morning that talked about different stakeholders buying more inventory after Liberation Day given just, I guess, around potential inflation in the generic market. As we think about what’s happened post Liberation Day, obviously your quarter ended threethirty one, so the visibility into inventory levels at that time period wasn’t that high. But as we think about what’s happened and, you know, since the end of the quarter, you know, was there an opportunity to buy more generics than normal, given some of the uncertainty in the market? And then second, what’s the recent conversations?

What have they been like with your stakeholders in the generic market, whether it’s manufacturers or whether it’s your downstream pharmacies? Is there an increased concern around the future of pricing, availability of different generics? Really, has anything changed since Liberation Day?

Britt Vittalone, CFO, McKesson: Yeah, a lot of questions to unpack there. So first of all, the generic marketplace continues to be competitive but stable, and we believe that our position with our U. S. Pharma business, with our specialty provider business, provides us really good scale. We have a scaled and effective sourcing operation in Clarus One that partners with our customers, partners with dozens, if not hundreds, of manufacturing partners.

We focus on two things. We focus on providing the lowest cost product to our customers with the highest availability of supply. We’ve had, over the years, some disruption of supply that has happened. But I can tell you, looking at a report, even a couple days ago, the service levels that we have are as high as they’ve been in the last several years. And so that really indicates the stability that we’re seeing in our marketplace with our manufacturers and our partners, and really through the ClarusONE operations that we have.

So I think we feel really well positioned given our customer base, given our scale, given the effectiveness of the sourcing operation that we have. And we continue to focus on that dual mandate of low cost and availability of supply, which, again, as I mentioned, our service levels are quite strong right now.

Alan, Bank of America Analyst, Bank of America: As it relates to the prospect for generic inflation, there was generic inflation maybe ten, eleven years ago. Have your contract terms with generic manufacturers or your downstream pharmacies changed materially since then as we kind of make, you know, estimations of what could happen moving forward? Trying to get a sense, because your branded business, the contract terms have changed. Has anything evolved in the generics market? And if so, can you talk a little bit about that?

Britt Vittalone, CFO, McKesson: Yeah, I don’t know that I would say that there’s much that has really changed or evolved here in the last few years. Again, that dual mandate that I talked about is what we focus on, and as a business, we try to create a spread. So if we can deliver the highest availability of product to our customers at the lowest cost, and create a spread on the buy and the sell. And that’s what our focus is, and that’s what our focus has been, and we’ll continue to do that.

Alan, Bank of America Analyst, Bank of America: Okay, great. And then on transaction business, specifically the prior authorization business and GLP-1s, you can’t go a day without a GLP-one headline. And a couple weeks ago, CVS, the PBM portion of their business partnered with Novo Nordisk to prefer Wegovy on their formulary. So it sounds like a competing drug will lose volume there. As we think about your prior authorization business, and we think about the drivers growth and profitability, is a variance in the types of GLP-1s, meaning a shift from one manufacturer to another, could that introduce volatility in the profit model within the prior authorization business?

And if so, is that contemplated in the forward outlook for your guide there?

Britt Vittalone, CFO, McKesson: So first of all, our prior authorization business is a very vibrant business. I think it’s very differentiated. The technology and automation that we have in place and being in the workflow of over 900,000 providers and over 50,000 pharmacies is very differentiated. You know, we support prior authorization programs for all the major GLP-one products in place today, and we will continue to do that. We’ve seen good growth in GLP-1s in terms of prior authorizations.

Referenced on our Q4 call that we saw prior authorization initiations increase over 15% in the fourth quarter, so that’s evidence that volumes continue to be quite healthy and strong. We believe that the services that we provide and the additional reporting and reject denial and other things that we can do around prior authorizations is differentiated. There’s certainly the characterization of a product, whether it’s a weight loss drug or a diabetic, component of the drug, that will create different requirements from a payer in terms of how often it needs to be renewed or what percentage of that is being renewed. But we’ve seen this dynamic for, several years, and we feel very comfortable that we’re well positioned to continue the growth that I indicated that we’re seeing in prior authorization initiations.

Alan, Bank of America Analyst, Bank of America: That’s great. And related to that, you mentioned prior authorizations up 15%. Clearly, employers and plan sponsors are focused on GLP-one spend. Been the primary driver of the acceleration of traditional spend. As the way that prior authorizations are embedded in whether it’s an employer or a broader health plan, have those evolved at all?

Have they gotten more stringent, less stringent? Has there been any change to the way that plan sponsors are using prior authorizations over the past one, two, three years?

Britt Vittalone, CFO, McKesson: Yeah, well, first of all, I think this is really quite aligned with what our strategy is to provide better access, better affordability, which will lead to better outcomes. As things have evolved over time, it really fits with our strategy and with our focus. I think things have evolved over time, there have been additional indications that have been added to these drugs. There are requirements that change from time to time in terms of how often a renewal of a prior authorization is needed, or if a prior authorization is needed for one particular indication versus another. So we have seen the evolvement of not only GLP-1s, but other drugs as well, and our programs that we put in place with our partners will support that.

And shifting gears to

Alan, Bank of America Analyst, Bank of America: just the really robust demand for prescription drugs that we’ve seen for the past several years. Is there any early insight you can provide us into what you’ve seen so far in April, early May, it relates to March? Has anything changed? Is stable? The macro has gotten a little bit more uncertain, I guess, since the April, but just curious if that’s having any impact in the demand for drugs.

Britt Vittalone, CFO, McKesson: Yeah, mean, it’s a little early, I think, in the quarter, but what we’ve seen thus far is really right aligned with the guidance that we provided and what we’ve seen really over the last couple of quarters. So I don’t know that I would, say that we’ve seen any material or significant change in demand at this point.

Alan, Bank of America Analyst, Bank of America: And then there’s a belief by some that changes to the benefit design within Medicare for specialty medications, the lower out of pocket maximums could drive less script abandonment at the pharmacy and could obviously improve demand for drugs. Is there a way for McKesson to have visibility or insight into those specific things? I think that some are seeing an acceleration in certain high priced drugs where maybe in years past the utilization would be lower because that script abandonment is higher. Just curious if that’s something that you’re seeing in your data so far in 2025.

Britt Vittalone, CFO, McKesson: Yeah. I mean, this is something that, we’ve certainly heard and talked about with providers, with payers, but we have not seen anything that would indicate a material change or a material shift. Specialty drugs have been and continue to be the largest growth driver within our pharmaceutical business. This is not something that is, we’ve seen this really for the last several years. We would expect this to continue for the next several years.

This is where all the innovation is. But in terms of these particular characteristics that you’re talking about, we have not seen that as an indicator of growth at this point in time.

Alan, Bank of America Analyst, Bank of America: Okay, makes sense. And then I want to spend the last few minutes talking about a few different things. First would be the competitive landscape around you and some of your largest competitors in the drug distribution space. Has anything changed over the past couple years? Is it becoming more competitive?

You look at specific areas of your business. Looks like you and your peers are all looking at acquiring similar assets, which feels new. So can you talk to the competitive landscape that you’re seeing today? Maybe compare that to the years prior to COVID, right prior to COVID, and whether or not you think anything has changed or evolved from a competitive landscape. Yeah, let me answer this in

Britt Vittalone, CFO, McKesson: a couple different ways. First of all, the landscape has been competitive for as long as I’ve been with the company. It’ll remain competitive, I’m sure, but it is pretty stable, and I think that competitive landscape has made all of us more efficient and effective as distributor partners. In terms of your second point on this question, though, I would say that we started down the path with US Oncology in 2010. We identified oncology as an area of growth, as an area of innovation, and an area where we could take our drug distribution capabilities and skill, our scale, and apply that to practice management.

And the acquisition of US Oncology in 2010 was evidence of that. We’ve been building the oncology platform now for the last fifteen years, and we’re really quite pleased and proud of what we’ve been able to build, scale and breadth and depth of that oncology platform and all the components that are in it. And when we look at the landscape here, what we’re looking for is areas that are going to utilize the skills and capability that we have on drug distribution, the ability to provide GPO services, to provide data services like our Inomed business, where all of the providers are practicing in one area, which allows us to capture that data, utilize that not only for clinical purposes, but upstream for manufacturers, and then areas like oncology where there’s gonna be a lot of research, and that leads to clinical trials, clinical trial management, site management. So we’ve been at this for a very long time. Now recently, we have looked at the retina and ophthalmology space, where again, we think that the characteristics in that particular category fit what we’ve done in oncology.

Drug distribution, GPO services, data, as well as research and research access capabilities. Again, a platform. We’re not looking to manage providers. We’re looking to utilize our capabilities to manage a platform of services. So I think what’s different about your comment is we have been at this a long time.

We have built a very differentiated platform in oncology, and we believe that where other ologies like retina and ophthalmology, provide that breadth, that we’ll be able to be successful and build those capabilities as well.

Alan, Bank of America Analyst, Bank of America: That’s great. And then with the last ninety seconds or so, as we think about capital deployment here, M and A versus share repurchases, you know, the valuation of your stock is, you know, up 80% from where it was three or four years ago, which is obviously a testament to the work that you and the company have done. As you think about the relative focus between M and A and share repurchases, I have to imagine that your thinking there has somewhat changed versus when the stock was trading 11, 12x earnings. Can you talk about and then obviously with the focus now on biopharma services even more acutely with the separation of the MedSurg business, now more is there more urgency to make M and A a bigger portion, or is it the same old framework that has gotten you this far?

Britt Vittalone, CFO, McKesson: Yeah, I understand the question, and I would say that it’s not a matter of urgency. We have deployed a three pillar strategy against capital deployment for the last several years, and we will continue to do that. Our number one priority is to grow the business. That starts with having effective businesses that drive a lot of cash flow, which allows us to deploy that capital against growth as our number one priority. If there are opportunities for growth on strategy with good financial returns, that’s what we want to do.

And I think Florida Cancer and Prism are good examples of that. If there are opportunities that are not on strategy, then we’re not going to play capital against those opportunities. It has to also have the right financial return. So, you know, we’ve been very disciplined in those two parameters around growth. If we can’t find that, then we’re going to continue to be disciplined.

We’re going to return capital to our shareholders, and we’re going to always do this maintaining our credit rating.

Alan, Bank of America Analyst, Bank of America: Perfect. Looks like we are out of Thank you very much, Really appreciate the time.

Britt Vittalone, CFO, McKesson: Thanks.

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