Erin Wright

Erin Wright from Morgan Stanley asked for an update on McKesson's perspective regarding the potential impact of a Most Favored Nation (MFN) drug pricing model, particularly on U.S. Oncology and other business areas.

Answer

CEO & Director Brian Tyler stated that McKesson's view has not changed, emphasizing that the community setting is the lowest-cost, highest-quality care option. He noted that it is still very early in the MFN process, which is expected to play out over a long time horizon. He affirmed that McKesson is actively engaged with policymakers to educate them on the value of preserving vibrant community care settings.

Erin Wilson Wright from Morgan Stanley asked about the PRISM acquisition, inquiring about the opportunity across ophthalmology versus retina, potential synergies, and whether McKesson would consider separate financial disclosures for its MSO businesses like PRISM and U.S. Oncology.

Answer

CEO Brian Tyler highlighted PRISM's coordinated care model and its strategic fit, viewing it as an analogous platform build-out to their successful oncology business. CFO Britt Vitalone added that while they always evaluate disclosure needs, they will assess further segment reporting after the transaction closes, noting they have already increased disclosure on the oncology platform.

Erin Wilson Wright asked about the motivation for holding the investor meeting, whether it signals an acceleration of M&A in biopharma and oncology, and for details on the growth rates and lumpiness of the different revenue buckets within the RxTS segment (3PL, affordability, access).

Answer

CFO Britt Vitalone explained the meeting was an opportunity for a more expansive, live Q&A to provide clarity on key growth platforms like oncology and RxTS. He noted that the Access business within RxTS has been the fastest-growing, driven significantly by prior authorizations for GLP-1s, which constitute a large portion of that revenue.

Erin Wright asked about the overlap between Cencora's core business and the businesses now categorized in the 'other' segment, specifically MWI Animal Health, and the ease of separating these businesses. She also inquired about key findings regarding synergy opportunities for businesses remaining in the core, like World Courier or the European wholesale business.

Answer

CEO Bob Mauch stated that businesses like MWI, while strong, do not provide a competitive advantage to the balance of the enterprise, making their placement in 'other' a move to better position them for long-term success. EVP and CFO Jim Cleary highlighted that core businesses like Alliance Healthcare (with its 3PL footprint in Europe) and World Courier (with differentiated solutions like cell and gene therapy) are retained due to their strategic alignment and differentiation in human health specialty growth.

Erin Wright asked about the overlap between Cencora's core business and the newly categorized 'other' segment businesses, such as MWI Animal Health, the ease of separating these businesses, and key findings from the strategic review regarding synergy opportunities for businesses like World Courier or the European wholesale business.

Answer

CEO Bob Mauch stated that businesses in the 'other' segment, like MWI, are strong but do not provide competitive advantage to the core enterprise, making their separation beneficial for long-term success. CFO Jim Cleary highlighted that core businesses remaining, such as Alliance Healthcare, World Courier, and Innomar, were retained due to their differentiation in specialty, 3PL services, and specific solutions.

Erin Wright of Morgan Stanley sought clarification on CEO Robert Mauch's comment about de-emphasizing investments in less strategically aligned areas. She specifically asked how this applies to Cencora's commitment to its international and animal health businesses.

Answer

President & CEO Robert Mauch clarified that his comment was about applying rigorous discipline across the entire portfolio to ensure strategic fit. This process helps the company decide how to best deploy resources—capital, operating expenses, and talent—by prioritizing investment in differentiated, high-growth areas and de-prioritizing those that are less aligned with the core strategy. He did not single out any specific business for de-emphasis.

Erin Wilson Wright asked if the RCA acquisition will shape future M&A strategy and inquired about any changes to the economics or outlook for GLP-1 products.

Answer

CFO Jim Cleary stated that Cencora is pleased with its MSO investments and noted the put/call structure for OneOncology makes full ownership a likely future use of capital. Regarding GLP-1s, he confirmed there is no change in their economics; they remain a significant revenue driver but are 'minimally profitable' for the company.

Erin Wilson Wright from Morgan Stanley asked for details on the key therapeutic categories driving specialty strength and also inquired about the performance and strategic fit of the Animal Health (MWI) business.

Answer

CFO James Cleary identified oncology and ophthalmology (retina) as the key drivers in the specialty business. He also reported that the Animal Health business had a very good quarter with 7% revenue growth, with strong performance in both companion and production animal markets, and expressed confidence in the business and its management.

Erin Wilson Wright requested an update on World Courier's demand trends, the balance between MSO investments and biopharma partnerships, and the status of relationships with Express Scripts and Walgreens.

Answer

Bennett Murphy and CEO Bob Mauch responded. Murphy noted continued market softness for World Courier but affirmed it's a good business. Mauch described the Walgreens relationship as a critical and collaborative strategic partnership. The Express Scripts relationship was termed a continuation of a good partnership, and the RCA deal was highlighted as beneficial to both specialty and pharma services.

Erin Wright of Morgan Stanley inquired about the factors contributing to the interquarter change in Zoetis's outlook after raising guidance, specifically asking about competitive dynamics in dermatology, the conservatism of current guidance, and potential impacts on the 2026 top-line growth target.

Answer

CFO Wetteny Joseph explained that anticipated deceleration, strong prior-year comparisons, and macro factors, particularly a three-quarter trend of declining therapeutic vet visits in the U.S., influenced the moderated growth. He noted that while 2026 guidance would be provided later, the Q4 exit is not indicative of the full year, citing consistent price contribution, expected growth in dermatology and parasiticides despite competitive launches, Librela's stabilization, and sustained livestock strength. He also confirmed distributor inventory levels normalized by quarter-end, remaining at the low end of the historical range.

Erin Wright inquired about the interquarter changes that led to revised guidance, key surprises like competition or destocking, and the competitive dynamics in dermatology, including practices' adoption of JAK inhibitors and the conservatism of current guidance for 2026.

Answer

Wetteny Joseph, Chief Financial Officer, explained that anticipated deceleration, strong prior-year comparisons, and competitive launch dynamics with aggressive promotions were factored in. He highlighted a macro impact, specifically three consecutive quarters of therapeutic visit pressure in U.S. clinics, affecting new patient starts. Joseph stated that the Q4 exit is not indicative of 2026, citing expected price contribution, confidence in dermatology and parasiticide growth due to unmet market opportunities, Librela stabilization, and sustained livestock strength.

Erin Wright asked about Zoetis's ability to achieve high single-digit operational growth in 2026 amidst a changing competitive landscape and its innovation pipeline. She also questioned the drivers of the strong Q2 margins and the outlook for cost management.

Answer

CEO Kristin Peck expressed confidence in long-term, above-market growth, citing the portfolio's diversity and a pipeline expected to deliver a major approval annually. EVP & CFO Wetteny Joseph added that portfolio breadth and strong livestock momentum support future growth. He noted Q2 margin strength was driven by favorable product mix and disciplined cost management, which will continue, though manufacturing costs will normalize in the second half.

Erin Wilson Wright inquired about the U.S. market's reaction to the Librela label change and the potential of longer-acting OA pain products. She also requested details on the specific tariff impacts and mitigation efforts included in the updated guidance.

Answer

CEO Kristin Peck addressed Librela, stating the focus is on education and scaling the new care category, with long-term confidence remaining high. CFO Wetteny Joseph explained that the guidance reflects enacted tariffs, primarily on APIs from China for livestock products and some diagnostics, noting the company's diverse footprint provides significant mitigation opportunities.

Erin Wilson Wright inquired about the quarterly sales progression for U.S. Librela, including reorder rates and months on therapy, and the outlook for 2025 profitability considering investment needs versus margin expansion from product mix changes.

Answer

CEO Kristin Peck expressed strong confidence in Librela becoming a billion-dollar franchise, noting its rapid U.S. penetration and significant growth runway. CFO Wetteny Joseph added that while specific product guidance isn't provided, strong growth is expected to continue. He highlighted that the business has an inherent ability to grow adjusted net income faster than revenue, and they will continue to invest in DTC while leveraging past field force investments to manage profitability.

Erin Wright asked about the drivers and sustainability of the strong VetLab consumables growth, specifically inquiring about the contribution from MUDX, Catalyst Pancreatic Lipase, and new contracting terms like IDEXX 360, and if there's a metric for consumables uplift similar to past Catalyst DX upgrades. She also followed up on the launch timeline and pilot program results for FNA, and if a customer backlog exists to support further MUDX growth.

Answer

Jay Mazelsky, President and CEO, explained that VetLab consumables growth is broad-based, driven by a 10% premium instrument install base growth, high-quality competitive and greenfield placements, and the 'technology for life' specialty tests like Pancreatic Lipase, Smart QC, and Cortisol, which veterinarians prefer at the point of care. He noted MUDX is an early-stage add-on, contributing to recurring revenue as its install base grows. Mazelsky confirmed FNA is on track, stating that MUDX customers view it as a broad portfolio of tests, and the vast majority who purchased for ear cytology and blood morphology will also use it for FNA testing.

Erin Wright inquired about the sustainability and drivers of strength in VetLab consumables, specifically asking about the contribution from MUDX consumables, Catalyst Pancreatic Lipase, and new IDEXX 360 contracting terms. She also asked for an update on the FNA launch and insights from pilot programs.

Answer

Jay Mazelsky, President and CEO, explained that VetLab consumables growth is broad-based, driven by a 10% install base increase and contributions from new specialty tests like Pancreatic Lipase, Smart QC, and Cortisol. He noted MUDX's early-stage contribution as an add-on. Mazelsky confirmed the FNA launch is on track, with most MUDX customers expected to utilize it for FNA testing. Andrew Emerson, CFO, did not add to this specific question.

Erin Wright asked about the specifics of InVueDx contracts and consumable agreements, utilization trends, and whether adoption was stronger in independent or corporate practices. She also questioned the updated guidance for vet office visit trends and the implied cadence for the second half of the year.

Answer

CEO Jay Mazelsky noted that while they don't break out consumable usage by product, new innovations were key contributors to the strong 14% organic growth in VetLab consumables. He explained that independent practices adopt new technology more quickly than corporate accounts, which have longer pilot phases. CFO Andrew Emerson added that the updated guidance reflects recent clinical visit trends of approximately -2.5% continuing through year-end, with no material step-up in CAG Diagnostic recurring revenue growth assumed.

Erin Wilson Wright asked about the early performance and pull-through of the new Cancer Dx test and questioned the company's confidence in achieving its projected pickup in CAG recurring revenue for the remainder of the year, including the underlying assumptions for vet visits.

Answer

CEO Jay Mazelsky said it was too early for detailed Cancer Dx metrics but noted strong initial uptake from over 1,000 practices, highlighting its pricing is designed to encourage inclusion in wellness screens. Executive Andrew Emerson expressed confidence in the full-year guidance, citing the ramp-up of innovations like inVue and Cancer Dx, the lapping of large customer agreements, and the normalization of days headwind from Q1 as key drivers supporting the forecast.

Erin Wilson Wright asked about the assumed contribution from innovation in the 2025 guidance, specifically for the inVue Dx platform, and questioned the reasons for limiting preorders and the resulting backlog. She also inquired about the lingering impact of 2024 customer repricing on 2025's net price realization.

Answer

Incoming CFO Andrew Emerson confirmed the 2025 guidance includes approximately $50 million in revenue from 4,500 inVue Dx placements but did not quantify other innovation benefits. CEO Jay Mazelsky explained the controlled inVue rollout is a standard procedure to ensure an exceptional customer experience and that customers are not waiting for the future FNA launch to purchase. Andrew Emerson added that full-year pricing is guided at 4-4.5%, with Q1 at the lower end while lapping the large 2024 customer agreements.

Erin Wright asked if the previously mentioned 4% PBM margin benchmark remains a durable or sustainable long-term target, especially in light of the rebate-free model transition, excluding the short-term nuances of 2026 and 2027.

Answer

Brian Evanko, President and COO, affirmed that the 4% margin benchmark for pharmacy benefit services is a reasonable long-term view. He stated that the new rebate-free, delinked model is expected to yield comparable earnings contributions to existing solutions at the client level, with the overall portfolio margin depending on the mix of clients.

Erin Wright from Morgan Stanley asked for an update on the retail pharmacy reimbursement landscape, particularly the trend towards cost-plus models and its potential expansion into government business.

Answer

President and COO Brian Evanko noted that while there is market curiosity, there has been limited client appetite for cost-plus models due to concerns about paying more and misaligned incentives. Chairman and CEO David Cordani added that the broader trend is a push for affordability through more transparent, fee-based, and performance-based models, which Cigna is actively innovating and offering to clients.

Erin Wilson Wright asked for more details on the Enreach and ENGUIDE pharmacy initiatives, including their economics, and how Cigna's current GLP-1 strategy differs from historical approaches to high-cost drugs like PCSK9s or Hepatitis C treatments.

Answer

President and COO Brian Evanko described the GLP-1 strategy as a comprehensive suite of solutions to address societal challenges of access, affordability, clinical safety, and lifestyle changes. Enreach is a clinical support model for a curated pharmacy network, while ENGUIDE is a specialized home delivery pharmacy. He explained this holistic approach is a response to the unique market dynamics of GLP-1s, with the financial contribution embedded in the Evernorth outlook.

Erin Wright from Morgan Stanley inquired about Cigna's capital deployment strategy, specifically its appetite for acquisitions and whether its approach has changed given the current regulatory environment.

Answer

CEO David Cordani affirmed that capital priorities remain consistent: funding organic growth, pursuing disciplined M&A, and paying a growing dividend. He emphasized that while the company will continue to evaluate strategic bolt-on acquisitions to advance its portfolio, the primary focus is on organic growth, supported by ongoing share repurchases, which he described as a prudent investment back into the organization.

Erin Wilson Wright asked for a comparison of the biosimilar strategy for STELARA versus HUMIRA and inquired about the expected cadence and ramp of the overall biosimilar opportunity.

Answer

Evernorth CEO Eric Palmer stated that the HUMIRA model, which offers a $0 out-of-pocket option, serves as a playbook that Cigna will replicate for STELARA in 2025 and other biosimilars in the future. CEO David Cordani added that the high-performing specialty business provides a 'natural hedge' against the medical cost pressure seen on the benefits side of the company.

Erin Wright asked about the broader momentum in the Pharma and Specialty Solutions segment, how it tracks ahead of long-term profit growth targets, and the assumptions embedded in the updated guidance, including any intra-quarter surprises and the specific M&A contribution from Solaris Health.

Answer

CEO Jason Hollar highlighted broad-based industry utilization trends, favorable demographics, and innovation in pharmaceuticals and biosimilars, along with strategic positioning in home health and precision health. CFO Aaron Alt detailed strong Q1 performance driven by the Specialty business, MSO platforms, and better-than-expected generics volume. He confirmed M&A would add 8 percentage points to full-year profit growth, with Solaris contributing 3%, and noted stronger growth expected in the first half due to new customer wins.

Erin Wright asked about the long-term profit growth trajectory for the Pharmaceutical and Specialty Solutions segment, current momentum exceeding expectations, any intra-quarter surprises, and the specific contribution of Solaris Health to the M&A guidance for the balance of the year.

Answer

CEO Jason Hollar highlighted broad-based industry utilization trends and Cardinal Health's effective translation of these into strong financial results, driven by demographics, pharmaceutical innovation, and strategic positioning in areas like home health and precision health. CFO Aaron Alt detailed Q1 drivers including strong Specialty business performance (autoimmune, urology, oncology), MSO platforms contributing 8% of growth, and better-than-expected generics volume. He confirmed the full-year profit guidance of 16-19% growth, with M&A adding 8 percentage points, and Solaris Health specifically contributing 3% of that M&A growth. He also noted that H1 is expected to be stronger than H2 due to new customer wins.

Erin Wright of Morgan Stanley inquired about utilization trends in the GMPD segment, the progress of tariff mitigation efforts, the expected quarterly profit cadence for FY26, and the role of price increases in the strategy.

Answer

CEO Jason Hollar stated that utilization remains consistent and tariff mitigation is on track. CFO Aaron Alt detailed the FY26 cadence, expecting a one-third/two-thirds profit split between H1 and H2, with Q2 likely being the lowest point due to the timing of tariff expense realization.

Erin Wilson Wright requested more detail on the progress and quarterly cadence of the new customer onboarding that is contributing to growth.

Answer

CEO Jason Hollar reaffirmed the $10 billion target for new customer revenue in fiscal 2025. He clarified that while onboarding began in Q2, the impact was most significant and spread fairly evenly across Q3 and Q4, indicating the full run-rate benefit is now being realized and is progressing as expected.

Erin Wilson Wright of Morgan Stanley asked for an update on the specialty business, including key growth drivers and the integration progress of recent acquisitions like ION and GI Alliance.

Answer

CEO Jason Hollar stated that specialty was a primary driver of revenue and profit, with growth in the mid-teens. He emphasized the strategy is centered on supporting community specialty physicians beyond distribution, offering services for data management and MSO support. He highlighted the creation of two distinct platforms: one for oncology (ION and Navista) and another for multi-specialty areas (GI Alliance), which gives the company confidence to continue investing in this high-growth market.

Erin Wilson Wright inquired about the GMPD (Medical) segment, asking about the expected quarterly profit progression for the rest of the year and the underlying demand and utilization trends.

Answer

Executive Aaron Alt confirmed that despite a Q1 miss due to unexpected health and welfare costs, the company is still targeting its original $175 million profit guidance for the year and the $300 million target for fiscal 2026 remains unchanged. He expects sequential profit improvement each quarter. CEO Jason Hollar added that medical utilization is stable and consistent with recent trends, though not as strong as the growth seen in pharma.

Erin Wright inquired about Centene's longer-term dynamics, margin targets, and growth profile for the Marketplace business, its commitment to the segment, and what factors might alter that commitment.

Answer

Sarah London, Chief Executive Officer, reiterated Centene's unwavering commitment to the Marketplace, emphasizing that the 2026 pricing work aims for meaningful margin recovery. She highlighted the importance of eAPTCs for market stability, the potential for growth among millions of uninsured Americans, and Centene's excitement for ICHRA as a platform for future individual growth. She also discussed efforts to partner with CMS and DOIs to enhance transparency and de-risk risk adjustment, affirming confidence in designing value-driven benefits.

Erin Wright asked about Centene's long-term commitment to the Marketplace business, inquiring about the longer-term dynamics, margin targets, and growth profile given regulatory changes. She also asked about confidence in those targets and what might cause a change in commitment.

Answer

CEO Sarah London affirmed Centene's commitment to the Marketplace product and its philosophical view on long-term pricing, with 2026 work aiming for meaningful margin recovery. She stated that longer-term stability depends on policy changes, with EAPTCs being the biggest short-term swing factor. London believes the product stabilizes, offers growth opportunities for millions of uninsured Americans, and sees the administration's interest in creative product design and affordability as encouraging. Centene is investing in the individual market as a platform for future growth and is working with CMS and DOIs to de-risk risk adjustment.

Erin Wright asked about future opportunities across Pharmacy Solutions, specifically in specialty pharmacy (rare disease, value-added manufacturer biopharma services, and associated margins). She also inquired about the percentage of the portfolio directly tied to drug pricing dynamics, including potential MFN pricing and IRA impacts, and the exposure of branded therapeutics.

Answer

CEO Jon Rousseau confirmed a focus on rare and orphan therapies (including oncology) and highlighted the growing and meaningful EBITDA contribution from fee-for-service business (data agreements, clinical hubs). In infusion, he noted efforts to grow both acute (a multi-billion dollar market) and chronic therapies, including LDDs. For home and community pharmacy, he sees significant market share growth opportunities in assisted living, IBD, behavioral health, hospice, and PACE. Across all pharmacies, there's a strong focus on process, efficiency, automation, and AI initiatives to leverage scale. Regarding drug pricing, Mr. Rousseau stated that fee-for-service is a minority, the company drives generic utilization, acute therapies are immune, and branded gross profit is not the majority due to portfolio diversification. He added that their services for complex, high-acuity patients do not lend themselves to direct-to-consumer models.

Erin Wright asked about future opportunities across Pharmacy Solutions, specifically in specialty pharmacy beyond oncology, such as rare disease, and the potential for value-added manufacturer biopharma services and their associated margins. She also inquired about the percentage of BrightSpring's portfolio directly tied to drug pricing dynamics, including MFN pricing and IRA, and the exposure of branded therapeutics.

Answer

CEO Jon Rousseau confirmed a big focus on rare and orphan therapies, including those in oncology, and noted that fee-for-service business (data agreements, clinical hubs, pharma programs) is a meaningful and growing EBITDA contributor. In infusion, he highlighted growth in both acute (multi-billion market) and chronic therapies, including LDDs. For home and community pharmacy, he pointed to market share opportunities in assisted living, IDD, behavioral hospice, and PACE, emphasizing a company-wide focus on process, efficiency, automation, and AI. He clarified that fee-for-service is a minority, generic utilization is driven, acute therapies are immune, and branded GP is not the majority due to diversification, with services for complex patients not lending themselves to DTC.

Erin Wright of Morgan Stanley asked about the extent to which market share gains from competitors exiting the market are driving growth and whether regulatory disruption could create M&A opportunities. She also requested the generic penetration rate for the specialty pharmacy business.

Answer

CEO Jon Rousseau confirmed that competitor exits, particularly in the acute infusion market, have created growth opportunities. He highlighted BrightSpring's strong M&A track record and scale as key advantages in consolidating the market. While he did not provide a specific generic penetration rate, he reiterated that generics constitute the majority of the pharmacy business and are a core part of their value proposition.

Erin Wilson Wright asked if BrightSpring plans to refine its business mix further following the Community Living divestiture and how that aligns with integration efforts. She also inquired about the outlook and potential risks related to the company's Medicaid exposure.

Answer

Executive Jon Rousseau stated that the divestiture creates a 'very tight set of Pharmacy and Provider Services,' which he views as a 'terrific platform for the future,' implying no further major portfolio changes are planned. Regarding Medicaid, Rousseau expressed confidence that the populations BrightSpring serves—seniors and people with disabilities—are not the focus of current political discussions around potential program changes, such as work requirements, and therefore are not at significant risk.

Erin Wright asked for quantification of the steps to turn around Optum Health, including the impact of walking away from risk, fixing the fee-for-service business, and integrating into a consolidated operating model. She also inquired about incremental investments and the timeline to achieve the 6%-8% margin target by 2028.

Answer

Krista Nelson, COO of Optum Health, indicated that progress would likely be more back-half weighted but visible throughout the year. She noted that while fee-for-service improvements (e.g., productivity, scheduling) might show faster results, progress would also be seen in the value-based portfolio through medical management, payer collaboration, network curation, and operating cost discipline. She highlighted the Eastern region as an example of early positive impact.

Erin Wright asked for quantification or breakdown of the steps to turn around Optum Health, specifically how much is walking away from risk, fixing the fee-for-service business, and integrating into a consolidated operating model. She also inquired about incremental investments and if the 6-8% margin by 2028 is back-end weighted.

Answer

Stephen Hemsley (Chairman and CEO, UnitedHealth Group) noted that precise quantification is difficult due to the blended nature of these efforts. Krista Nelson (COO of Optum Health) confirmed that progress is likely more back-half weighted but expected throughout the year. She indicated that while fee-for-service improvements (productivity, scheduling, access, collection rates) might show faster progress, value-based portfolio improvements (medical management, payer work, network curation, operating cost discipline) will also contribute. She cited the Eastern region's progress as an example of how this will unfold.

Erin Wilson Wright inquired about the company's latest thinking on policy developments, specifically concerning PBM reform and potential Medicaid funding cuts.

Answer

Patrick Conway, an executive, addressed PBM reform by highlighting OptumRx's moves toward transparency, such as 100% rebate pass-through, and expressed concern over new Arkansas legislation. Krista Nelson, an executive, discussed Medicaid, stating confidence in their ability to navigate any changes due to their broad footprint and experience. Andrew Witty added he was encouraged by a recent executive order examining the entire pharmacy value chain.

Erin Wilson Wright inquired about the company's broader capital deployment priorities heading into 2025, including the outlook for M&A and share buybacks, given the current market dynamics.

Answer

CEO Andrew Witty stated that capital deployment will be guided by the five growth pillars: benefits, value-based care, technology, pharmacy, and financial services. John Rex, President and CFO, reiterated that the capital agenda remains consistent, prioritizing investments that expand capabilities and deliver strong long-term shareholder returns. Share repurchases and dividends remain key components of returning capital to shareholders after strategic investments.

Erin Wright asked about Molina's overall commitment to the Marketplace business given uncertainties like subsidies, the lack of visibility, and its conservative approach, and at what point its thinking on priorities and business mix might change.

Answer

CEO Joseph Zubretsky stated Molina will allocate capital to Marketplace only if the risk pool is stable. He cited past volatility (insurtechs, SEP expansion, subsidy changes) as reasons for minimal capital allocation. While the product is available in over 300 counties, Molina views it as an "option" rather than a "necessity," currently "out of the money" for 2026 due to instability, but would exercise it if the risk pool stabilizes.

Erin Wright posed a broader question about Molina Healthcare's overall commitment to the Marketplace business, given uncertainties like subsidies and visibility, and at what point the company's strategic thinking on its priorities and business mix might change.

Answer

CEO Joseph Zubretsky explained that Molina will allocate capital to the Marketplace business only if convinced of risk pool stability, citing past volatility from insurtechs, special enrollment periods, and subsidy changes. The company aims to allocate minimal capital to an unstable risk pool. While the product remains available in over 300 counties, Molina views it as an option rather than a necessity. He indicated that the option is 'out of the money' for next year, but if the risk pool stabilizes, they would consider increasing capital allocation and leveraging broker relationships.

Erin Wright from Morgan Stanley asked about the expected cadence of the impact from the recently passed budget bill on Molina's expansion population and whether current long-term projections already factor in potential state mitigation efforts.

Answer

CEO Joseph Zubretsky clarified that Molina's long-term revenue targets for 2026 ($46B) and 2027 ($52B) do not yet include any estimated impact from the budget bill. He emphasized that they believe any changes will be implemented gradually, not abruptly, giving states and the market time to adjust, partly due to the administrative burden on states to implement the new rules.

Erin Wright asked for a breakdown of the 50-60 basis point impact from the 'one big beautiful bill' and ACA subsidy expiration, and sought more details on the Epic Systems partnership, including its genesis, nature, and timeline.

Answer

CFO Sam Samad clarified that the majority of the 50-60 basis point impact by 2028 is related to the potential expiration of health insurance exchange subsidies (40-45 basis points), with the remainder from Medicaid, which ramps over time. CEO Jim Davis explained that the Epic Systems partnership involves upgrading all laboratory information systems to Epic's Beaker, starting with esoteric sites in 2026. The MyQuest patient application will be upgraded to MyChart, providing integrated patient information. This is a 5-7 year implementation, with careful pacing.

Erin Wright asked for a breakdown of the 50-60 basis point impact expected in the 10-Q filing from the "one big beautiful bill" and ACA subsidy expiration, specifically how much is attributable to exchange subsidies. She also requested more details on the genesis, nature, and future updates regarding the partnership with Epic Systems.

Answer

CFO Sam Samad clarified that the majority of the 50-60 basis point impact by 2028, approximately 40-45 basis points, is related to the potential expiration of health insurance exchange subsidies, with the remainder driven by Medicaid. CEO Jim Davis explained that the Epic Systems partnership involves converting laboratory information systems to Beaker, upgrading the patient application to MyChart for integrated medical records, and is a 5-7 year implementation starting with esoteric sites, with more details to be shared on future calls.

Erin Wright from Morgan Stanley inquired about utilization trends, asking how they progressed throughout the second quarter and into the third, and whether the strength was driven by underlying market trends or market share gains.

Answer

CEO James Davis described strong utilization in Q2 that has remained consistent into early Q3. He attributed the performance to a combination of factors, including market share gains from expanded health plan access with Elevance and Centerra, strong demand for advanced diagnostics like Alzheimer's and cardiometabolic tests, and a rebound in patient visits following weather disruptions in Q1.

Erin Wilson Wright asked for details on the investments Quest still plans to make following the LDT rule vacation, inquired about labor expense trends, and asked about the levers available to offset inflationary pressures.

Answer

James Davis, Chairman, CEO and President, explained that while the full $10 million for LDT prep won't be spent, investments are still needed for a smaller complaint handling unit to support their growing, FDA-regulated companion diagnostics and life sciences businesses. Sam Samad, CFO, added that wage inflation is expected to be 3-4%, employee turnover is improving toward pre-pandemic levels, and the Invigorate program remains on track to deliver 3% in productivity and cost savings to offset inflation.

Erin Wilson Wright of Morgan Stanley asked for perspective on 2025 growth drivers, specifically the split between market share gains and underlying utilization, and also requested an update on the outlook for PAMA reform.

Answer

CEO Jim Davis stated that he believes all independent labs are gaining market share as hospitals de-emphasize their outreach businesses, and he feels good about Quest's prospects. On PAMA, he expressed optimism for reform in 2025, noting strong bipartisan support and active engagement with new leadership in key congressional committees.

Erin Wilson Wright inquired about the market share impact of recent hospital outreach deals, asking about specific geographies benefiting and if the company's acquisition strategy in this area has evolved.

Answer

CEO Jim Davis explained that recent deals in Minneapolis, Columbus, and Cleveland target markets where Quest's share was previously minimal due to health system dominance. The strategy is to enter markets where Quest has strong payer access but limited physician reach. He described the impact as moving from 'de minimis' share to a 'strong presence' in these key geographies.

Erin Wright asked about commercial cost trends, specifically calling out behavioral health, and any other insights from a pricing or commercial perspective.

Answer

Mark Kaye (CFO and EVP, Elevance Health) noted that ACA market cost trend developed somewhat favorably but still saw pressure across inpatient medical surgery, behavioral health, pharmacy, and usage. Commercial group trends persist but are mostly in line with expectations, with some pockets of outpatient utilization and higher-cost surgeries being monitored.

Erin Wright asked about commercial cost trends, specifically if areas like behavioral health stood out, and any other callouts regarding pricing from a commercial perspective.

Answer

Mark Kaye, CFO, noted ACA market cost trends developed somewhat favorably despite risk pool deterioration and elevated utilization, with pressure across inpatient medical surgery, behavioral health, pharmacy, and usage. Commercial group trends persist but are mostly in line with expectations, with monitoring of outpatient utilization and unit cost mix, including higher cost surgeries.

Erin Wright asked for specifics on cost structure initiatives that are within the company's control, including their nature, timing, and potential magnitude.

Answer

CEO Gail Boudreaux detailed several initiatives, including ongoing process automation with technology, using AI to identify and combat billing abnormalities like the misuse of the IDR process, and expanding Carelon's role in managing high-cost areas like specialty services and oncology. She emphasized these are long-term affordability programs not yet factored into the 2025 trend outlook.

Erin Wilson Wright asked for an outlook on the second quarter MLR, considering the various moving parts such as Medicaid state rate dynamics, the impact of respiratory illnesses, and the new Part D seasonality.

Answer

Mark Kaye, CFO, highlighted several factors influencing the earnings cadence. He noted that Q1 benefited from a favorable workday calendar and the shift in Part D seasonality, which will now more closely resemble the medical benefits business. He also pointed to a more front-loaded earnings contribution due to a membership mix shift toward ACA and away from Medicaid. He reiterated the full-year expectation for more than 60% of earnings to be realized in the first half of the year.

Erin Wilson Wright of Morgan Stanley asked for the company's perspective on the Medicare Advantage advanced rate notice and the potential for changes in the final notice. She also inquired about the broader regulatory outlook, particularly for the Medicaid business.

Answer

Felicia Norwood, President of Government Health Benefits, expressed that while the advanced notice's direction is positive after two years of cuts, it remains insufficient given current cost trends. She said Elevance will work with the administration on the final notice. CEO Gail Boudreaux commented on the broader environment, highlighting the company's long history of successful public-private partnerships and its readiness to work with states and the government on innovative programs.

Erin Wilson Wright of Morgan Stanley inquired whether the Medicare Advantage competitive landscape is playing out rationally with a focus on profit over growth, and if this aligns with Elevance Health's assumptions for achieving at or above market growth in 2025.

Answer

CEO Gail Boudreaux and Felicia Norwood, President of Government Health Benefits, confirmed this view. Ms. Norwood detailed that their strategy began last year with market exits and benefit adjustments to create a sustainable foundation. For 2025, they maintained a disciplined, balanced approach to growth and margin, particularly in D-SNP products, and expect to grow in line with or slightly better than the market.

Erin Wright of Morgan Stanley inquired about the underlying organic growth assumptions for fiscal year 2026, including key headwinds and tailwinds. She also asked for quantification of the Fibro Forward initiative's cost savings and details on the nature of the company's strategic investments.

Answer

CFO Glenn David explained that fiscal 2026 guidance assumes flat to low single-digit growth for the legacy MFA business, with continued strong, albeit stabilizing, growth in Vaccines and Nutritional Specialties. He noted that a significant portion of EBITDA growth comes from the full-year impact of the Zoetis acquisition, with the remainder from the legacy business and the Fibro Forward initiative, which is expected to peak in fiscal 2027. EVP of Corporate Strategy Daniel Bendheim added that Fibro Forward is a broad, ongoing initiative embedded in SG&A, covering areas like CRM, customer focus, and the establishment of a global procurement organization.

Erin Wright from Morgan Stanley asked what makes the new CEO's turnaround approach different and what he views as the optimal business mix for success. She also questioned if he was re-evaluating strategies for flagship areas like CAD/CAM.

Answer

CEO Dan Scavilla acknowledged the legitimacy of the question but stated that being only five days into the role, it was too early to outline a detailed strategic shift. He noted his belief that the company needs to move 'deeper and fast enough' and promised to provide a broader strategic scope after completing his initial 'listen and learn' phase with the team and customers.

Erin Wilson Wright asked about the drivers of margin performance, specifically if any cost management initiatives were accelerated or pushed out, and sought context on the recent CFO departure and its relation to the formulation of the current guidance.

Answer

CEO Simon Campion stated that no expenses were pushed out and that the company expects modest sequential improvement in OpEx throughout the year. He clarified that the former CFO had departed before the current guidance was set, and that it was formulated by the interim CFO and the finance team. He also confirmed the permanent CFO search is in its final stages.

Erin Wilson Wright questioned the significant margin ramp expected through 2025 after a low Q1, seeking confidence drivers. She also asked about the timeline for achieving G&A cost savings with a new third-party partner and the outlook for dental utilization trends.

Answer

Interim CFO Herman Cueto confirmed Q1 would be the margin low point, with sequential improvement driven by cycling the Byte impact and ramping foundational initiatives. CEO Simon Campion added that the G&A transformation aims to harmonize disparate systems from past mergers, creating significant efficiency opportunities over time.

Erin Wilson Wright requested an update on the company's relationships with its distribution channel partners and asked for clarity on channel inventory levels, including any stocking dynamics or pull-forwards. She also asked about the progress of the SKU rationalization efforts.

Answer

CEO Simon Campion affirmed the company's reliance on distributors and stated they are working closely with partners like Patterson. CFO Glenn Coleman clarified inventory levels, noting a $48 million sequential increase in equipment inventory due to seasonality and the Primescan 2 launch, and an intentional $20 million pull-forward in consumables to de-risk the ERP transition. He confirmed SKU rationalization is on track, with non-revenue SKUs to be eliminated by year-end.

Erin Wright from Morgan Stanley questioned the implied growth slowdown in the second half of the year, particularly in Q4, asking about potential stocking dynamics and whether the guidance was overly conservative. She also requested an update on the regulatory status and approval timeline for the IL-31 monoclonal antibody for atopic dermatitis.

Answer

President and CEO Jeffrey Simmons stated that company-wide inventory levels are at or below historical lows and are not a factor in the guidance. He characterized the second-half outlook as a prudent and disciplined approach that considers a dynamic environment, competitive launches, and FX volatility. For IL-31, Simmons confirmed it remains on track for a 2025 approval and a commercial launch in the first half of 2026, noting that key milestones with the USDA have been met, though acknowledging the lack of a formal PDUFA-like timeline.

Erin Wright asked about distributor stocking dynamics for parasiticides, particularly for the new Credelio Quattro launch, and whether the March/April acceleration was due to initial stocking. She also asked about the underlying health of the livestock market.

Answer

CFO Todd Young stated the main stocking impact was in the prior year and characterized the Credelio Quattro situation as distributors reordering multiple times to meet strong vet demand, not a significant one-time stock-in. CEO Jeff Simmons described the livestock market as stable, with good economics in beef, global strength in poultry, and improved pricing in swine.

Erin Wilson Wright asked about the competitive dermatology landscape, including potential new 2025 entrants, and how Elanco's injectable IL-31 product will be differentiated. She also inquired about the expected sequential progression for margins beyond 2025.

Answer

President and CEO Jeff Simmons stated that potential competition is factored into guidance and that the derm market's robust growth provides significant opportunity. He did not detail IL-31's specific differentiation but emphasized it is part of a long-term strategy to build leadership in dermatology. CFO Todd Young explained that while 2025 EBITDA margins are impacted by launch investments and FX, the company expects EBITDA to grow faster than revenue in 2026 and beyond as innovation products contribute more and initial investments are leveraged.

Erin Wilson Wright from Morgan Stanley requested an update on the IL-31 monoclonal antibody, including discussions with the USDA, expected launch timing, and the evolving competitive landscape in dermatology. She also asked about the pricing strategy for Credelio Quattro and sought confirmation that Zenrelia's pricing is maintaining an approximate 20% discount to its main competitor.

Answer

CEO Jeff Simmons stated that engagement with the USDA on the IL-31 product is progressing well, with an approval still expected in 2025, positioning it as a differentiated blockbuster and a complement to Zenrelia. Regarding Credelio Quattro, he said pricing will be value-based to gain share in the fast-growing broad-spectrum parasiticide market. CFO Todd Young confirmed that Zenrelia's introductory pricing averages a 20% discount, with a larger discount for bigger dogs to provide value.

Erin Wright asked for details on the two small acquisitions made in the first half and for an update on Envista's broader M&A strategy, including its appetite for larger transactions.

Answer

CEO Paul Keel reiterated that organic investment is the top priority, followed by accretive M&A. He described the two H1 deals as very small, single-digit million investments at attractive multiples. He added that as the business gains momentum, the company would be open to larger deals that fit strategically in its core or adjacent markets, provided capital is available.

Erin Wilson Wright asked if Envista is benefiting from competitor disruptions, if there are any issues with supplier partners, and how much price realization is now assumed in the full-year guidance.

Answer

President and CEO Paul Keel noted that while competitors are nimble, Envista's suppliers have been responsive and collaborative in managing tariff impacts. CFO Eric Hammes stated that while original guidance anticipated pricing similar to the prior year's 60 basis points, the company now expects slightly better price realization as part of its overall tariff mitigation strategy.

Erin Wilson Wright inquired about the sell-in versus sell-out dynamics in the equipment and consumables segment and asked about Envista's strategic positioning regarding potential tariffs.

Answer

CFO Eric Hammes clarified that Q4 consumables revenue was boosted by a favorable prior-year comparison, while underlying sell-out was flat to low-single digits and channel inventories remain stable. CEO Paul Keel stated that no tariff impact is in the 2025 guide due to the fluid situation, but highlighted Envista's resilience from its 'local-for-local' global supply chain, which allows for manufacturing flexibility.

Erin Wilson Wright of Morgan Stanley asked for an assessment of the growth investments made over the past six months, inquiring about necessary future investments for 2025 and the outlook for the China market.

Answer

CEO Paul Keel noted that performance has largely played out as expected, with a focus on rebuilding operating discipline and reinvesting in growth. He stated that while China is volatile near-term due to VBP and macro factors, Envista remains committed to long-term investment in the region.

Erin Wright of Morgan Stanley inquired about the Medicare Part D space, how it is performing relative to plan, the impact of a recent CMS demo announcement, and any observed trends in member behavior or utilization.

Answer

EVP & President - Aetna, Steve Nelson, reported that Part D plans are performing well due to deliberate de-risking actions, such as consolidating to a single standard plan offering. While this had an expected impact on membership, it positioned the business for long-term sustainability. He noted the company is still analyzing the recent CMS guidance.

Erin Wilson Wright asked about the expected quarterly progression for the Medical Loss Ratio (MLR) in 2025 and any nuances to consider, particularly how the Inflation Reduction Act (IRA) will flow through during the year.

Answer

CFO Tom Cowhey explained that 2025 earnings would be weighted more to the first half (55-45 split) primarily due to changes in the Health Care Benefits segment. He specified that due to the IRA's impact on Part D, the Medical Benefit Ratio (MBR) will be at its lowest in the first quarter and highest in the fourth quarter, resulting in significant swings in profitability and MBR throughout the year.

Erin Wright of Morgan Stanley asked if any of Align's own initiatives, such as promotional activities in June, failed to perform as expected and whether any actions were a response to competitive moves.

Answer

President & CEO Joe Hogan stated that the company ran its standard promotional playbook. CFO John Morici added that while awareness and interest remained high, the conversion from a scan to a treatment start did not see the expected sequential improvement for the teen season in North America and Europe, which he attributed to consumer economic concerns.

Erin Wilson Wright asked for metrics on the conversion rates of Invisalign First and Palate Expander cases and whether the company was reaching an inflection point. She also inquired about the progress of direct fabrication initiatives.

Answer

President and CEO Joe Hogan responded that while there is very strong momentum and uptake for the company's Phase I products for younger patients, he would not characterize it as reaching a 'critical mass' yet. He noted that market penetration is a gradual process but expressed satisfaction with the double-digit teen growth and improving penetration rates, which need to be monitored quarter-by-quarter.

Erin Wilson Wright asked for clarification on whether the 2025 guidance includes a buffer for potential tariffs and inquired about the demand and competitive environment in China.

Answer

CFO John Morici confirmed that the 2025 guidance does not include any buffer for potential new tariffs. CEO Joe Hogan characterized the China market as 'stable,' indicating that while Q4 was seasonally weaker than Q3, the underlying business trajectory remains consistent with what the company has seen recently.

Erin Wilson Wright requested more details on the nature and scope of the restructuring, its expected benefit in 2025, and what changed in the business outlook to prompt it. She also asked if the Q4 guidance assumes a continuation of the current sluggish U.S. environment.

Answer

CFO John Morici clarified that the restructuring is part of the annual operating plan process, affecting approximately 700 employees. The goal is to fund key growth platforms like direct fabrication and Lumina while ensuring the company can achieve year-over-year operating margin accretion in 2025. He confirmed that the Q4 guidance assumes current trends will continue, including a sluggish U.S. market and growth in other regions.

Erin Wright from Morgan Stanley requested more details on the drivers of the specialty pharmacy strength and how Part D dynamics related to the IRA were unfolding relative to expectations.

Answer

CFO Celeste Mellet attributed the outperformance to strategic initiatives, including new pharma partnerships that enabled a direct-to-consumer model for drugs like GLP-1s and secured access to previously unavailable limited distribution drugs. She reiterated that overall Part D trends are in line with expectations.

Erin Wilson Wright asked about the visibility into the Medicaid state rate mismatch, its expected resolution in the second half of the year, and any notable utilization trends in the business.

Answer

George Renaudin, President of the Insurance Segment, stated that Medicaid is performing in line with expectations, with strong growth and an expected modest margin improvement in 2025 as rates adjust. CEO Jim Rechtin added that the business's growing scale across more states improves forecastability. Renaudin confirmed they now have visibility into 76% of rates for the year.

Erin Wilson Wright asked about Humana's strategic positioning for the increasing integration of Medicare and Medicaid to serve the D-SNP population, and whether other major initiatives like the Stars litigation or cost savings detract from this effort.

Answer

CEO James Rechtin and CFO Celeste Mellet (via George Renaudin's initial response) explained that the company's successful Medicaid expansion is central to its long-term D-SNP strategy. Mellet emphasized that cost-saving and efficiency efforts are critical for creating the financial capacity to invest in key growth areas like Medicaid, Stars, and CenterWell, viewing these initiatives as interconnected and enabling rather than detracting from one another.

Erin Wright of Morgan Stanley asked a broader question about diagnostic utilization trends, what assumptions are embedded in the updated guidance, and how durable management believes these trends are.

Answer

President, CEO, and Chairman Adam Schechter confirmed that strong, healthy utilization is expected to continue and is factored into the raised guidance. He views the trend as durable, supported by long-term drivers like an aging population, high disease prevalence, and advancements in diagnostics. EVP & CFO Julia Wang added that of the $0.23 raise to the EPS guidance midpoint, approximately one-third was driven by this operational strength, with the remainder from favorable FX.

Erin Wilson Wright asked for a breakdown of organic versus acquisition growth in Diagnostics for the year, questioned underlying utilization trends, and inquired about the latest outlook on PAMA.

Answer

CEO Adam Schechter and CFO Julia Wang explained that Q1 organic growth in Diagnostics was 3.5% when adjusted for weather and revenue days, in line with expectations. Wang reaffirmed the full-year Diagnostics revenue guidance of 6.5% to 7.7%. Regarding PAMA, Schechter stated that while they continue to advocate for better legislation, their base plan assumes a PAMA impact of approximately $100 million in 2026, which is already factored into their long-term guidance.

Erin Wilson Wright of Morgan Stanley inquired about the current business environment for the Biopharma Laboratory Services segment, including 2025 market expectations, the status of NHP supply, and the anticipated margin progression throughout the year.

Answer

CEO Adam Schechter described the biopharma business as healthy, with Central Labs supported by a strong backlog and Early Development seeing strong RFPs and normalizing cancellation rates. He confirmed Labcorp has the necessary NHP supply for its forecast. CFO Julia Wang noted that 2025 margin expansion in the segment will be moderated by FX headwinds and a more balanced growth mix compared to 2024, highlighting that Q1 is typically the lowest margin quarter.

Erin Wilson Wright asked for an assessment of the current payer pricing environment and the impact of a new Blue Cross Blue Shield relationship. She also requested details on the expected quarterly progression and long-term outlook for the Early Development business.

Answer

CEO Adam Schechter stated that managed care contract negotiations have been favorable, resulting in a net neutral to slightly positive pricing outlook, a historical improvement. For Early Development, he noted sequential revenue growth and expects year-over-year growth starting in Q4, aided by an easier comparison. He remains positive on the business long-term, citing its leadership position and the cyclical nature of biotech funding.

Erin Wilson Wright of Barclays asked for clarification on new customer metrics, the revenue impact of SKU rationalization, current market trends in consumer behavior, and the remaining cost savings from the PetCareRx integration.

Answer

CFO Robyn D'Elia confirmed the 63,000 new customers had shipped orders. CEO Sandra Campos explained that eliminating 4,000 underperforming SKUs had a minimal revenue impact as they were low-velocity items. Campos also noted that while consumers remain price-pressured, higher-income households continue to spend consistently. Regarding cost savings, Campos stated that the company is entering Phase II of the PetCareRx integration, which focuses on technology consolidation and will be executed over the next several quarters.

Erin Wilson Wright from Morgan Stanley asked about the company's future cost structure, the timing of investments, the balance between growth and profitability, and for organic growth metrics excluding the PetCareRx acquisition.

Answer

CEO Sandra Campos addressed the cost structure, stating that the company is focused on profitability by consolidating the two businesses to create synergies and reduce redundancies, particularly in duplicated vendor and agency costs, which should yield immediate expense reductions. CFO Christine Chambers responded to the organic growth question, clarifying that the company does not break out metrics separately but noted that consolidated new customer growth was relatively flat year-over-year. Chambers reiterated the focus on acquiring and retaining customers to increase lifetime value.

Asked for more detail on the company's ongoing strategic investments and whether the strategic review process was a distraction. She also inquired about the Animal Health segment, asking if guidance reflects any changes in manufacturer relationships (buy-sell vs. agency) and how contract discussions are progressing in the current competitive environment.

Answer

The company is continuing to invest in its software and value-added services offerings, and cost-saving measures were designed to protect these long-term initiatives. They are running the business with a focus on the long-term strategy. In Animal Health, no significant changes to buy-sell relationships are anticipated, and current manufacturer discussions are productive and factored into guidance, supported by the team's strong execution and relationships.

Inquired about the Animal Health segment, asking if there are changes in manufacturer negotiations, if guidance assumes shifts in buy-sell vs. agency models, or a normalization of companion animal volumes. Also asked if the customer deprioritization was related to manufacturers or veterinarians, and whether there was increased promotional activity from online competitors.

Answer

The company stated there are no changes in manufacturer contracts and that the focus is on new product flow. The customer strategy is about how manufacturer relationships play through to the end veterinarian customer. They are not seeing any notable increase in promotional activity from alternative channels, attributing the quarter's weakness to internal timing dynamics rather than competitive pressure.

Asked about the company's capital deployment philosophy, particularly regarding M&A, and inquired about the opportunities in the Animal Health segment from new product categories like dermatology.

Answer

The company's capital deployment philosophy remains unchanged, balancing internal investments with external M&A opportunities. They see significant opportunity in Animal Health innovation, stating that new product launches and competition play to their strengths due to their strong customer relationships and ability to partner with manufacturers.