Eric Percher • Nephron Research

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CFO & Chief Administrative Officer Glenn Coleman explained that the GPO fee share is expected to ramp up to the mid-60% range during fiscal 2026 and stabilize in the high-60s thereafter. He noted that gross administrative fees are projected to grow around 4% in fiscal 2026, up from 3% in fiscal 2025. Directionally, Mr. Coleman expects Performance Services EBITDA margins to expand due to advisory growth, while Supply Chain Services EBITDA margins will decline due to the fee share resets, with an overall inflection to growth expected in fiscal 2027.

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President and CEO Michael Alkire stated that customers are leveraging data and analytics for strategic management rather than stockpiling, a practice refined since COVID to enhance supply chain resiliency. He mentioned a dynamic pricing model helps find products with minimal tariff impact. CFO Glenn Coleman added that a special member-led committee reviews supplier price increase requests. Alkire later clarified that pharmaceuticals constitute about 18.5% of gross administrative fees and mentioned a recent executive order aimed at boosting domestic drug manufacturing.

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CFO Glenn Coleman stated that the fee share was stable from Q1 to Q2 and expects only a modest increase in the second half of the year. He reaffirmed the 'high 60s' target for fiscal 2026, noting it could potentially be better. CEO Michael Alkire added that technology investments to capture more spend will act as a tailwind for gross admin fees, and the improvement comes from higher penetration, not the roll-off of lower-return customers.

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Chief Administrative and Financial Officer Craig McKasson confirmed the GPO renewal process is on track and the full-year fee share expectation in the low 60s remains unchanged, noting strong underlying member purchasing in Q1. CEO Michael Alkire detailed a three-pronged strategy to address the IV shortage: coordinating with government agencies to fast-track new solutions, working with health systems on conservation, and seeking additional capacity from other suppliers.

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CEO Jason Hollar explained that Solaris adds scale and diverse revenue streams in the key urology therapeutic area, which aligns with Cardinal's strengths in Specialty Networks, nuclear, and at-home solutions. CFO Aaron Alt added that accretion will come from scale, operational efficiencies, and cross-portfolio opportunities.

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CEO Jason Hollar explained that after implementing several hundred million dollars in operational mitigations, the majority of the remaining $200-$300 million gross tariff cost is expected to be offset through price adjustments. He clarified that national brand tariff impacts are largely a pass-through, meaning the pricing actions are almost entirely focused on the Cardinal Health brand portfolio.

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CEO Jason Hollar confirmed slight growth for both overall products and Cardinal Health branded products, with no significant differentiation. He noted some softness in respiratory and lab products within GMPD but clarified these do not drive volume in the at-Home business. CFO Aaron Alt added that the at-Home business remains a bright spot, with 13% revenue growth in the quarter driven by CGM and other categories, and expects future profit contributions from investments in automation.

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CEO Jason Hollar stated that Cardinal Health manages GLP-1 inventory very closely, maintaining static and relatively low levels to ensure product reaches patients quickly. He confirmed they do not build inventory and that these products were not a significant driver of cash flow. He reiterated that while GLP-1s are meaningful to revenue, they are not a meaningful driver of earnings.

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EVP & CFO Britt Vitalone explained that McKesson is pleased with the segment's consistent performance, which is underpinned by factors like utilization trends and the success of its access, adherence, and affordability programs. He noted that key drivers for future performance include utilization rates, the maturity of drugs within their programs, and the successful launch of new products.

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CEO Brian Tyler attributed the confidence to a strong value proposition, new customer wins, solid utilization, and the oncology platform. CFO Britt Vitalone clarified the FY26 guidance, noting that acquisitions (PRISM and Core Ventures) are expected to contribute 6-7% to growth. This implies the core business is growing 6-9%, aligning with the new, higher long-term growth target of 6-8%.

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CEO Brian Tyler stated that overall prescription volume has been stable and consistent, with particular strength in specialty, oncology, and GLP-1s. He anticipates these trends will continue, noting the U.S. Oncology Network's solid 6% same-store patient growth as a key internal driver that will persist.

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CFO Britt Vitalone detailed that the Med-Surg business is roughly 60% primary care, with growth in lab and Rx solutions. He explained that cell and gene therapy services will leverage existing oncology and 3PL capabilities, tailored to each drug's needs. On GLP-1s, he emphasized ensuring fair value for services provided to manufacturers. He stated that while McKesson has capabilities to support digital pharmacy, the focus remains on its core strategies and not adding another "leg to the stool" like a general CRO.

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EVP & CFO James Cleary stated that Cencora has not identified any material financial impacts from tariffs, as manufacturers are typically the importer of record for pharmaceuticals. President & CEO Robert Mauch added that the company is not changing its sourcing practices but is carefully monitoring the risk of drug shortages, which could be an unintended consequence. He emphasized Cencora's role in educating policymakers in Washington about the complexities of the supply chain to mitigate disruptions to patient access.

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CEO Bob Mauch expressed confidence in the MSO income streams, noting they build upon existing strengths in distribution and GPO services. While services differ between oncology and retina, he highlighted the clinical trial services at RCA as a key future growth opportunity that strengthens partnerships with both biopharma and providers.

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CEO Robert Mauch identified strong physician leadership, a focus on value creation via new services, and a clear pathway for attracting new physicians as key success factors for MSOs. CFO James Cleary noted that detailed financials for RCA will be included in reported results starting in Q2.

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Bennett Murphy, SVP, Head of Investor Relations and Treasury, stated that the strong performance in the specialty market for physicians and health systems was a continuation of positive trends observed throughout fiscal 2024 and prior years, not a new acceleration in the fourth quarter.

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CFO Yemi Okupe clarified the Q2 decline was primarily due to off-boarding users of commercially available GLP-1s and that the company expects renewed growth going forward, with some revenue recognition dynamics causing a steeper acceleration in Q4. Both Okupe and CEO Andrew Dudum confirmed the $725M target is holistic, including oral, personalized, and branded weight loss products.

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CEO Andrew Dudum stated that the company will continue to offer personalized semaglutide for clinically necessary situations, such as side effect mitigation, viewing it as an additive part of the ecosystem. He emphasized that the company's primary duty is to provide a wide choice of clinically and regulatorily appropriate options, allowing providers and patients to make the final decision.

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CEO Andrew Dudum stated that customers on commercial compounded doses will be notified to seek alternatives, acknowledging many will likely pursue branded options, a factor built into the guidance. Both Dudum and CFO Yemi Okupe expressed confidence in the $725 million guidance, attributing it to the strength of the comprehensive platform, high-touch care model, and the success of its oral offerings, which they noted can deliver significant weight loss at a lower cost.

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CFO Yemi Okupe stated that the company will invest in both 503(a) and 503(b) capabilities concurrently, noting that while 503(b) is generally more efficient, both are significantly more cost-effective than using third-party pharmacies. CEO Andrew Dudum clarified that liraglutide sourcing will follow their extensive internal protocols for APIs, including in-house and third-party testing and authentication, to ensure safety and quality.

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CFO Brian Newman stated the guidance reduction was entirely from the Health Care Delivery business due to higher MBR at Oak Street and that H2 earnings for the segment would be roughly evenly split. EVP & Group President, Prem Shah, confirmed the PBM selling season is strong, with retention on track for the high 90s, driven by transparency and creating competition in categories like GLP-1s.

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CFO Anna Bryson stated that forward visibility is expected to be 'pretty similar' to last year. She explained a 'push and pull' effect: integrated offerings create larger, longer-term deals (improving visibility), but their faster January launches pull some revenue into the current fiscal year. This balance results in a comparable visibility outlook.

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CSO Dr. Nate Gross expressed confidence in Doximity's competitive position and ability to gain share, citing high client trust and ROI. CFO Anna Bryson explained that longer launch times for new products are standard because first-time purchases require new content creation and a full medical, legal, and regulatory (MLR) review process, which takes time.

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CEO Tim Wentworth responded that it is both. He stated that the contract restructuring is designed to be more resistant to the shifting of risk onto Walgreens. He also confirmed that for calendar 2025, the company projects reduced reimbursement pressure compared to the past, aligning with their goal to eventually reach a point where value generated from new generics is not entirely offset by reimbursement cuts. He emphasized this is the first year of a three-year plan to stabilize the pharmacy's profitability.

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CEO Tim Wentworth identified core clinicians and specialty pharmacy as crucial to the strategy, with Shields and CareCentrix as complementary assets. Global CFO Manmohan Mahajan explained that the U.S. Healthcare segment's improvement was driven by both Shields' continued growth and significant cost discipline at VillageMD, along with a higher contribution from its risk-based business.

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CEO Tim Wentworth identified the core of the healthcare strategy as its own clinicians and specialty pharmacy, which he called a 'critical asset.' He described Shields and CareCentrix as complementary. CFO Manmohan Mahajan added that U.S. Healthcare's FY25 improvement will be driven by continued growth at Shields and cost discipline benefits at VillageMD, along with better contribution margins from higher fee-for-service volume.

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CFO Manmohan Mahajan attributed the retail gross margin pressure to increased price and promotional investments in response to a challenging consumer environment, as well as rising shrink. On the pharmacy side, he noted that besides NADAC fluctuations, margins were impacted by certain generic launches with brand-like procurement dynamics and an unfavorable branded drug mix.

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Global CFO Manmohan Mahajan attributed retail gross margin pressure to increased promotional activity in a challenging consumer environment, which is expected to continue in Q4, as well as higher shrink. For pharmacy margin, he cited NADAC fluctuations, unfavorable procurement dynamics on certain generics, and negative brand mix. CEO Tim Wentworth noted that while some commercial contracts reference NADAC, those discussions aim for neutrality.

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