Cencora, Inc. (COR) September 15, 2026 Conference Transcript

Okay, good morning, everyone, and welcome to the 24th Annual Morgan Stanley Global Healthcare Conference. I'm Erin Wright, Healthcare Services Analyst at Morgan Stanley. For more important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com slash researchdisclosures. And this morning, we're happy to kick off the healthcare services portion of the day with Syncora. We have CEO Bob Mausch, as well as CFO Eva Barato, or new CFO. Welcome. We'll go ahead and get started because we have a lot to get through this morning. But bigger picture, you posted strong results in the fiscal third quarter report with drivers across the core distribution business continuing here, especially across specialty. You're proactively also optimizing your business, prioritizing some of those areas where you have those core competencies in faster growing areas such as specialty. You're calling for you know, healthcare solutions, AOI growth of 14.5%, 15.5% growth, tracking really nicely ahead of the long-term profile. So how do you think about, there's different moving pieces, I guess, with One Oncology, but how do you think about, you know, the momentum continuing into fiscal 27 and beyond?

Yeah, thanks, Erin. First of all, thanks for having us here. I'm excited to be joined by Eva, who's been a terrific addition to our team, and we're excited to talk to you you about ConsentCore today. And as you said, Aaron, you know, so strong growth really due to the positioning that we have within the specialty pharma marketplace. So that's in health systems, that's in community physicians. You know, we've deployed capital to expand our capabilities in those areas. And as you said, we're also focusing our portfolio to make sure that our time investments are aligned with our strategy over the long run. In terms of momentum, as we look into 2027, we're confident that the trends will continue and that we're very confident in our long-term growth algorithm, our specialty-centric, pharmaceutical-centric strategy, and also the areas that we're continuing to execute to make sure that we're very well positioned in our U.S. segment as well as our international And what are some of those moving pieces that we think about in terms of into 2027, just as we're thinking about from a financial modeling standpoint?

Yeah, I think as we look forward to 2027, as you can appreciate, Erin, we're in the midst of our planning process now, so we'll certainly have more to say about 2027 on our earnings call. But a couple of things to call out is we'll have another four-month benefit of the One Oncology acquisition that we experienced this year. Our investment in MSOs and the growth and specialty. We expect we'll continue to perform well, and we'll have more to say about our guidance in November. Okay, that's fair.

And let's switch gears a little bit to utilization. It's been a topic of conversation across this conference. It has been relatively strong in terms of the utilization environment that we've seen for quite some time now. Can this continue? How would you characterize the nature of prescription volume, utilization trends? Is this the new normal in terms of utilization at these levels?

Yeah, I think, Erin, I'll go backwards to go forward a little bit, right? If you go back to 2025, right, you saw utilization trends elevated. They were outside of our growth algorithm, and the company before I got here had commented that we didn't expect those trends to continue. This fiscal year for us, you saw some pressure, I would say, particularly in the January-February timeframe supported by the IQVIA data. We saw those utilization trends rebound in March and continue through the third quarter in a consistent manner, and that's where our outlook for Q4 represents. Listen, specialty is an increasing part of our business. We believe we're in the right areas as we're focusing on distribution, but also our presence in MSOs and oncology and retina and believe we have confidence in our long-term growth algorithm, as Bob said.

And then one of the other investor questions we've been getting of late, So I have to ask is just the relationship with Walgreens and some of the dynamics that are happening there. What, I guess, can you quantify the magnitude and presumably small, but what the rationale is or why some of the volume may be shifting here? It sounds like this is the natural nature of some of these contracts, but will this continue in terms of the volume shift into fiscal 27? And you used the term began to move outside of the company. So I just want to see if there's more to come, or does that suggest that there's more to come, or how do we think about this?

Yeah, thanks, Aaron. I'll start, and then I'll hand it over to Eva. It is an important question. I mean, Walgreens are a really important customer to us, a long-term strategic relationship that goes back more than a decade. On the specifics of the volume move that we disclosed, and you hinted to this, Aaron, which is true, It's not uncommon within our industry for very large buyers to have small pieces of their business with other wholesalers. You know, we do have the prime vendor agreements, which ensures that, you know, the contract is solid over a long period of time. But there can be, you know, smaller ins and outs over the life of that contract, which, again, is absolutely normal. You know, what was abnormal in this case is that, you know, it came out through a research report and, you know, our team quickly identified the need to clarify because what we didn't want is to have any investor confusion. So we didn't want to have people assume it was too big or nothing at all or, you know, anything in between. So we wanted to be specific. So the team made a great decision to put out the AK and make sure that we clarified the small scope of that. I think it's important to say, as we look forward, that Walgreens has been an important strategic partner for us over a long period of time. We have an excellent relationship with their new team, and we will continue to work very productively with them.

And, Bob, if I could just add, just, again, to level set on the factual context, right? The vast majority of the business is in the primary contract. This change, which became effective July, July 1st, basically, was included in our Q4 guidance that we provided back on our earnings call in August 3. there will be a wraparound impact into 2027 of the remaining three quarters. And I'll come back to what Bob said. Overall, this is an important customer. As you look at our Q4 guidance, our expectations are to deliver accelerating growth despite the impact of this.

Let's switch gears to specialty then. And I guess, can you provide an update on just trends across the specialty business, including MSOs, health systems, community physician practices? Can you talk about the long-term growth and margin profile of some of these businesses and what's feasible in terms of the opportunity to potentially increase your exposure and specialty over time?

Yeah, I'll take that one, Erin. So I think it's best to start with just the market growth in specialty pharma, right? So if you look at the disease areas that are being treated, you know, our specific focus is on oncology and retina. If you look at the pipelines of innovation are significant in both of those disease areas. We have an aging population who is increasingly having, you know, access to care. And so there's a macro trend there that is really important when we talk about the growth in our business, because when you when you match that macro trend with the fact that we have for decades been investing in capabilities to be the best partner that we possibly can be to the pharmaceutical industry, as well as as the providers. you see us benefit from that innovation, utilization, and trend. That shows up in our community physician practices, whether that's specialty distribution, the GPO, or the MSO, which you correctly called out. So all of those benefit from those trends. And it's not just in the community physician space. It's also in the health system space where specialty products are used significantly. We have, over several years, worked to also position ourselves with health systems who are excelling in specialty care, so cancer treatment centers, for example. So we feel good about our positioning there, and we'll continue to work hard at meeting the needs of the manufacturers and the providers. And, Eric, at the end of your question, it was about, you know, expanding our exposure. And I do want to just make the point that we're very happy with the oncology and the retina space. And that is driven by the fact that we have a pharmaceutical-centric strategy. and when we think about the services that we provide, particularly in the MSO space, our thesis, our funnel goes through it has to be a pharmaceutical-centric specialty. And the most pharmaceutical-centric specialties are retina and oncology. And so we will continue to expand within those, but it would be very unlikely that we would expand beyond those until at some point in the future, and there probably will be another specialty that is pharmaceutical-centric and administered, you know, in the physician office. But as we sit here right now, you will see us focused on those two areas. Okay.

So let's dig into One Oncology, and you completed a transaction or the remaining majority interest in One Oncology back in February. That was ahead of your original put call timeline, you know, what has surprised you since closing, you know, why was this an accelerated timeline, why was that strategically and financially important to you, and it's running, I think you said, kind of modestly ahead of your expectations, you know, it's still expected to be neutral to adjust the DPS in the first 12 months, net of the financing costs, but how do we assess kind of the progress from here?

And, Aaron, I think just to deal with your question about why, you know, why did we, you know, why did we accelerate? It really became clear to us, one, that OneOncology was the platform that we believed it was. So there are no surprises, but I will tell you, and we see this in the performance and we see this in our relationship, But this is a fantastic platform. It's a fantastic management team. Their focus on enabling physicians to care for patients and therefore improving outcomes in the lowest side of care is just inspiring, to be honest with you. Not surprising, because that's exactly what we believed, but it's absolutely what we saw. The strategic rationale for accelerating, you'll know well, so we had done RCA before that. So we had RCA also performing very well, sitting on its own. And we really, while we had the investment in One Oncology, we really weren't able to have them talking to one another, working together, sharing best practices, creating synergies. So, you know, one of the big drivers for us in accelerating the One Oncology transaction was so that we could get them to the table with RCA. And so now what we have is a platform, you know, with the two verticals, so, you know, oncology and retina, very different clinical profiles. So they can't really go together, but there are capabilities that they can share, which we've talked a bit about and we can talk more about if you'd like. But that was really the driver. So we see them working together now, and, again, that drives best practices for both MSOs and creates value over the short and long term.

And so you kind of spoke to this a little bit, but you've outlined these sort of three phases in terms of that MSO value creation, integrating RCA and one oncology, which you were kind of alluding to, and then sharing some of those capabilities across the two platforms and then developing kind of new services for physicians and pharmaceutical manufacturers. I guess where in each phase are we at of that? And then bigger picture, are you going to start breaking out sort of the MSO and specialty business similar to one of your peers?

Yeah, I'll let Eva answer the last part of that and give you a chance to think about it. And so, Erin, it's a great question, and I did allude to that. Before I get into how they work together and the capabilities and value creation of working together, I think it's really important to remind everyone that, which is sort of where we started this conversation, that without any working together, without any synergy of clinical trials and all the things that we talk about, these are platforms that grow. They're platforms that grow because they are in attractive specialty spaces. They're able to attract physicians into their platform that is not just acquiring smaller practices or having smaller practices join. It's also physicians out of fellowship are joining both RCA and One Oncology. So they grow on their own. And so then we get to the second phase that you mentioned, which is what are the things that we can do together that will add incremental value on top of that growth. And I'll just repeat the ones that we've talked about, and clinical trial participation is such an important aspect of specialty care. And I mentioned the accessibility of the community physicians, the lower cost side of care of the specialty physicians. Having clinical trial access there is really important to patients. It's also a good business within there. So RCA has a significant clinical trial support capability that we're now working very closely with OneOncology on. And that works because the capability is a process capability. It's not clinically differentiated. To put together a clinical trial service, you have to be able to go through step A to step Z in a flawless way. And that's what RCA has built, that we're now moving into one oncology. And then, as you said, the third part of this is really new services. The best example would be analytics services for pharma. So, you know, within these large growing specialties, you know, we'll have access to data from, you know, other clinical indicators and outcomes that the physicians have that certainly will be valuable to the pharmaceutical companies that we have not really begun to leverage yet.

And, Erin, on your disclosure point, I'll jump in there. So I think looking back, Sancora has done a really nice job in evolving disclosures, evaluating disclosures to ensure investors have the right information. I would say from my past experience, right, continuing to do that is also I've seen value in that as your strategic priorities shift, obviously a growing specialty in MSO business, you know, looking at our disclosures to make sure investors have the right information to evaluate those business and to build investor confidence. So as we look forward, we'll be really thoughtful around what disclosures we can provide to help investors appreciate the strength of our business here.

Okay, that's fair. So maybe dig a little bit into RCA, you know, some of the opportunities you see there, including the ISAL transaction and any sort of surprises on that front in terms of how that's performing. I mean, an RCA is in the later innings of building out sort of that clinical research infrastructure, while one oncology is, you know, much earlier in that journey. I guess, do you think a more meaningful presence in clinical research, you know, is important to you? It sounds like it is, but how could that, you know, fit in nicely with, you know, well, Courier and your other businesses in terms of a potential CRO asset?

Thanks, Erin. You... Kind of at the end is where, I know of your question, which is where I would start. So we certainly are interested in supporting clinical trials, and we can do that through services that support manufacturers and support CROs through having access to the patients, having the capabilities within the practice to enroll patients and then monitor those patients over time. You mentioned the specialty logistics capability that we have. and WorldCourier, which is a global platform which can handle the most specialized, whether that's gene therapy, cell therapy, if it's tissue samples from a clinical trial, if it's products that need to be transported. But the takeaway from that is we are interested in supporting the clinical trial ecosystem, but we believe there are enough services that we can have to be a strong supporting partner. We don't need to be in the middle of that process.

I'm going to switch gears a little bit to CuraScript and ExpressScript and the relationship there, so following some of the faster-than-expected brand to buy the similar conversions that we saw at CuraScript and some of that insourcing and contributing to some of the sales dynamics that we saw in fiscal 26. I guess, how should we think about the pace and ultimate extent of further CuraScript insourcing? How would you characterize that relationship and the direct impacts? Are they significant maybe from a revenue perspective but not necessarily from a profit perspective for you and any sort of broader implications to consider on that front?

Erin, Evernorth, Express Scripts, CuraScript, all of that, another important customer for a long time and we do have a very productive and constructive relationship. It's important to note that the idea that that customer of ours would insource a generic version is exactly the way that it's always been. So if I just go back from a history standpoint point, we weren't talking about biosimilars and things like that. When a oral product went from brand to generic, that went away from us to them self-fulfilling that. It's always been that way. It's always been part of our relationship. And so the fact that it also happens with biosimilars is actually not new. It's, you know, something that's talked about a bit more, but it's actually not new. And I think it's important to note that, you know, the customer relationship types. So a specialty male customer is going to be in the profile of, you know, low margin, as you said, potentially high revenue, depending on the product. So when something does move there, there's a change in revenue, but there's very little change in profit, which we've talked about over a long period of time. So the relationship is productive. For all of our customers, we work hard to ensure that we're supporting them and executing their strategy, and we see what they're doing as kind of normal course.

Because Part B, biosimilars, would be more of your sweet spot anyway, I guess how meaningful still of a tailwind do you believe in that strategy? And obviously that plays into what you're doing in the retina business, what you're doing with OneOncology as well. Presumably that's a disproportionate benefit that you see kind of coming down the pipe. And do biosimilars alone kind of get you to kind of higher than that long-term targeted range too as we think about the drivers going forward?

Yeah, I'll start. I'll start, maybe you can take the driver. And Erin, thanks for asking. because I should have pivoted from Part D to Part B because what you said is exactly right. So for all the reasons that the Part D dynamics are manageable, something that we have experienced for a long time, the bigger point for us is that the Part B biosimilars is our sweet spot. It is a tailwind for Sencora. That's where all the specialty positioning that we talked about earlier is really important. And we have the capabilities to help the pharmaceutical manufacturer come to market and also the physicians to understand the clinical and economic components of any new product that's going to come to market, including biosimilar. So, you know, as that transition happens from a brand to a biosimilar within Part B, that is a tailwind for Sancora. It's a benefit, again, to all the components of our specialty physician business. And that really is because of the significant services that we provide to the manufacturer and to the providers as those products are coming to market.

Yeah, and Bob, I think I'd just add one. I'd reinforce, as you just said, right, it is an incremental tailwind. But I would just remind you that our specialty business is already accretive to our margins, given the wraparound services that Bob was just talking about. So while there will be a benefit, it won't be as great as what you may have seen with generics. Okay.

Regulatory dynamics are also top of mind in drug pricing trends You've successfully renegotiated the manufacturer contracts to preserve gross profit dollars through the initial IRA-related price reductions as we saw at the beginning of the year as negotiated pricing expands into Part B In 2028, how should we think about that risk shifting from Syncor's distribution economics to physician reimbursement in the economics at One Oncology and RCA. And like just bigger picture, taking a step back, you knew about IRA and the dynamics when you're closing deals like One Oncology and RCA, and presumably you wouldn't be doing those and doubling down in this area if you knew that you were kind of, you know, walking off a cliff in terms of reimbursement. Is that the right way to bigger picture think about this and the disproportionate opportunities and biosimilars are great as well as other drivers across those businesses. Sorry, that was a bigger question than I wanted it to be, but yeah.

It's a really important question. And, you know, I'll start with, you know, yes. So, you know, when we looked at continuing to deploy capital into the specialty position space, you know, through the MSOs, we absolutely modeled all of the scenarios, right, and became very comfortable that, you know, there's not going to be an issue. There's not going to be an issue there. And, you know, I'll go through a few of the reasons why, you know, why we believe that. You know, one is that, and I apologize to the crowd because I think this will be the third or fourth time that I said this, but it's important. But the community physician side of care is the highest access and lowest cost site of care for specialty treatment. And when you think about government health policy and IRA, you see a focus there on pharmaceutical costs, and the focus there is not on physician reimbursement. So you have lowest cost site of care, highest access, and you have the intent of IRA to have some impact on pharmaceutical costs, presumably patient out-of-pocket costs. And so as we looked at this and continue to look at it, and I'll mention that we spent a lot of time in Washington doing our best to educate the very well-intentioned people who work on these types of things about the need to not impact physician economics in whatever they do. And there's two points that I'll make, so I don't get too long-winded on this answer. One, in Part D, you saw, for many of the IRA products, you saw list price reductions, primarily due to the fact that they had significant gross-to-net spreads in that area for lots of reasons. you don't see that gross to net spread in the Part B. So one shouldn't assume that there will be list price decreases in that space. Secondarily, if you think about a discount that would be paid from a manufacturer to the government to meet the requirements of the IRA. If you don't want to impact physician economics, you would look at methods that could get that discount from the manufacturer to the government without flowing through physician reimbursement. And there are many ideas out there, serious ideas out there about how that could work without impacting the physician. And that's where we're going to continue to stay very involved and educating, but as you said, Aaron, we feel good that the physicians will be able to continue to care for those patients because a reduction in physician economics would not be good for patient care.

And 340B exposure, just because that's topical from a regulatory standpoint, can you discuss that?

Yeah, I mean, it's sort of in the same bucket. I won't go into as much detail, But it's very early on, Aaron, as you know, and there are proposals that could impact how 340B works in an administrator, and there are proposals out there that are focused on not having any changes. So, you know, we stay close to it. It's a very complex dynamic within healthcare. We have a broad set of customers that see 340B in different ways and from different perspectives. So we stay close to it, we'll monitor it, and most importantly, we are always working to make sure that we're helping our customers navigate any changes that may come down in Okay.

On the international side, anything to call out in terms of, you know, the underlying growth trends there, I think, excluding some of the manufacturer price adjustments that you saw kind of developing in certain markets in the third quarter, you know, how do we think about kind of longer-term growth there, especially now with some of the portfolio optimization that you've been doing as well?

Yeah, I'll start, Bob. Overall, you know, there are a couple parts to your question, Erin, so I'll go to the first part around the price adjustments there. You know, those can affect a particular quarter in a significant way, but as you look over a longer period, it's certainly not as meaningful. As you look at our Q3 performance, as well as our Q4 guidance, as you look at the growth that we're delivering international, our World Courier global service logistics business is performing quite well. We're really pleased with the rebound that we've delivered there, and I'd say it's on two fronts. One, the market for clinical trials, has come back, but also how our team is executing in the market. We've made some changes. We've made some operational changes, leadership changes that are helping us execute and win in the market. The other place that I would call out is really 3PL across Europe is growing nicely, and we're competing well in retention of business, new business in those areas also. Okay.

And then lastly, you know, on capital deployment, and Eva, your new answer would love to hear a little bit about your kind of philosophy on things on that front, but can you provide an update on just the priorities? You completed a billion in opportunistic repurchases in the third quarter. You know, you've really, I guess, fully repaid the $800 million in RCA financing-related term loan. I guess how should we think about the additional share repurchase opportunity there, debt reduction, internal investment, you know, M&A opportunities as well.

Yeah, Erin, I would start with we don't have any changes in our capital allocation priorities, right? One, investing in the business to drive growth, to drive shareholder return. Two, our M&A activities. I think Bob answered that previously around our real focus in oncology and the retina space. opportunistic share repurchases as you said you saw us do that in in q3 and i'd say maintaining and growing our dividend in line with with our earnings while all maintaining a strong balance sheet we're a strong cash generating company so um we will look to to maximize total shareholder return as we make these trade-offs across these priorities okay and just closing out any sort of update in terms of some of those portfolio optimization initiatives like MWI and also

just the, you know, what's next in terms of is there more that you need to do in terms of optimizing the portfolio on that front?

Yeah, I would say on the previously announced optimization of the portfolio, we really have no timing updates on those. For MWI, what we had indicated was for modeling purposes, assuming a mid-year transaction there, and I don't have any updates on the other areas. Okay.

All right. Thank you so much for the time. I really appreciate it.

Thanks, everyone.