Cencora, Inc. (COR) September 2026 Conference Transcript

Okay. Hi, everyone. Thanks again for joining us. So we're really pleased to have Sancora for our next fireside chat. So Sancora is a drug distributor and provider of pharma-focused services. With us from the company are Bob Mogg, the CEO, President and CEO, and Eva Burrata, EVP and CFO. Also have Bennett with us in the audience. First, I wanted to see if you wanted to make any kind of introductory comments or whether we should just really hop right into Q&A.

Yeah, maybe just a quick word. Hi, everyone. Thank you very much for being here. We're in the midst of an excellent fiscal 2026. We reported last month our third quarter earnings, which demonstrated continued growth in our areas of focus, which really are the specialty pharmaceutical areas, both in the physician part of our business as well as in health systems. We also had the opportunity to opportunistically repurchase a billion dollars in shares and expect a strong year in line with our guidance. And we're very excited about the future in terms of our pharmaceutical-centric strategy and the way that we're continuing to focus the company on areas of growth in the market, where the specialty area in particular where demographics are strong and there's tremendous pharmaceutical innovation. Thank you.

So maybe we'll just clear through this bit kind of off the top. I think the most recent disclosure piece of news from the company was that, you know, certain volumes related to your customer Walgreens that were outside of the prime vendor agreement or outside of the prime vendor contract started to move away from the company. We'd love to just a little additional context on kind of the nature of these volumes, like why they are outside of the PV contract and anything to kind of characterize like how typical this is or isn't as part of your business.

Yeah, sure. Happy to. I'll start and then I'll hand it to Eva. Also should have noted in the introduction that this is the first investor conference for Eva and I to do this together, which has been fun so far. and she's been an amazing addition to the Sencora team. So I look forward to hearing more from Eva. Yeah, so that's a part of the industry that doesn't get talked about very much. But the idea that a very large purchaser would take a small portion and have that with another distributor, it's not uncommon. What is uncommon is the fact that that would be something that would have to be discussed And our team did a great job upon realizing that we wanted to make sure that people didn't misunderstand the size of that relative to the overall relationship, the very small size relative to the overall relationship. So we did do the 8K and made sure that we provided the right level of clarity. So as I said in the beginning, it is something that happens within the industry. It's not part of our core contract, as you said. And I'll let Eva take it from there.

Yeah, I think, Bob, the only thing I would add is, you know, we wanted to provide to the investor community the full factual context around that. And a couple of things. One, the business began moving in July. So at the start of the fiscal fourth quarter. Two, it was contemplated in our guidance, which shows the acceleration in Q4, the guidance we provided back in August. And finally, three, as Bob said, the vast majority of our business with Walgreens is in the prime contract, not outside.

Yeah, I appreciate that. And then maybe just to expand on kind of the financial component, you know, mentioning that it's obviously it's fully contemplated. contemplated, I guess one, you know, it looks to us like, you know, kind of the revenue guidance that's implied for the fourth quarter, you know, doesn't really stand out as looking like anything different than we might have expected, kind of anyway, implying, you know, a small top line impact. So I hope you can maybe touch on that thought process a little bit and whether that stands up to a reason. And then as we think about, you know, the volumes, I guess, transitioning starting in July, I think a natural, you know, kind of question is, you know, what's the exit rate look like?

And do you have visibility to the exit rate at this point so maybe if you could touch on both that'd be appreciated yeah so so overall let me take a step back at the Q4 guide that we provided right it was a strong guidance it was an acceleration from Q3 as you think about what is a key driver of our of our performances underlying utilization trends particularly in specialty and specialties becoming an increasing important part of our business, you know, as you think about the acquisitions with the MSOs. So we were pleased with the guidance we were able to provide. In terms of revenue and underneath, while, yes, there's the Walgreens loss, in Q4, we also annualized the oncology. We've now fully annualized at the end of Q3 the oncology customer that we lost, as well as we continue to benefit from the one oncology acquisition that we have. Additionally, in our guidance, in addition to the strength in the U.S., our international business is performing well, also driven by our World Courier and our 3PL businesses, right? World Courier, really pleased with what that business has been able to do in terms of the market improving, but also the execution. And then on the 3PL, benefiting from the specialty, the specialty tailwind. So overall, we're pleased with the outlook that we provided, and we're focused on executing.

And I would think about the wraparound of the Walgreens. you know you have you have three quarters of that of that wrapped around and then you know just last one on this topic and you know it's kind of a question of the the day really across all the distributors because you know there are some major near-term renewals and ones that are even you know more uh you know closer proximity and timeline than really yours is but you know obviously walgreens itself has been going through a period of fairly dramatic change because how should the investment community think about this relationship and what it might look like you know over the next five to ten years, potentially, for the new Walgreens?

Yeah, thank you for the question. I think to look at it first is to realize it's a strong, long-term, strategic relationship. And that is true over multiple generations of leadership at Walgreens. So that doesn't change. It's an important customer to us. Obviously, we're a very important partner to them in the fact that we are servicing every one of their stores every single day over a long period of time. So the relationship is strong. The relationship is important. And I'll go back to the strategic part because whether you're talking about Walgreens and Sincor or other parts of the market, these large relationships are generally long-term strategic relationships. And I think that's foundationally how we all should look at them. And, you know, we feel really good about our relationship with Walgreens. We feel good about the team that's there. And we expect to have a long-term relationship with them.

And maybe to kind of touch on the organic growth trajectory of the U.S. health care business over the past couple of years. I mean, we had a calendar 2025 for you that was obviously incredibly strong. You know, there's a bit of deceleration in calendar, you know, Q1, and then, you know, you've seen pretty significant, you know, rebounds since. I think one thing the market struggles with a little bit is kind of like what are the key factors we should be monitoring, kind of explain the quarter-to-quarter variability in organic growth. So I guess, you know, what are some of the factors that have been influencing, you know, the growth rates above and beyond sort of the long-term expectations, and how are you thinking about that going forward?

Yeah, I'll start, Bob. Going back to 2025, and I wasn't here, but as I've studied, right, the 2025 utilization trends were outside of our long-term growth algorithm. And I think, as the company said at that time, expected them to moderate more in line with our expectations. So I'll put that off to the side in terms of 2025. In 2026, fiscal Q2, calendar Q1 had some unique dynamics affecting the quarter, particularly in January and February. There were some real pressures. I think you also saw it not just in our data, but in the IQVIA data as well. That rebounded at the end of fiscal Q2, And we saw that rebound stabilize consistent in Q3 and consistent as of our earnings call. I think one of the reasons why revenue isn't part of our long-term growth algorithms is this volatility, right? And we're focused on managing through that and delivering the operating income growth as we've outlined. Underlying, I think, important utilization. I said this earlier is an important aspect of our algorithm, and particularly in specialty. And we think there are healthy tailwinds to those trends as we look forward.

And then, you know, to kind of go into the different subcomponents of the business, you know, if we look about generics, you know, it's really been like a much more, you know, healthy part of the market than really it had been maybe going back 10 or 15 years. And there's been a lot less volatility there. But I'd love to hear a little bit about how you're thinking about the generic franchise over the next couple of years. There's obviously some material loss of exclusivity opportunities. What do you think happens there as we forecast out maybe one, two, three years?

Yeah, look, the generics, loss of exclusivity, the generic market is something that is important for the overall market, right? So as products mature, whether it's a small molecule generic or biosimilar, as the products mature, they have an opportunity to go to a generic format. That's good for our business in both cases. I will caveat that, as you did more of the historical perspective, There was a time when generics were a larger part of the profitability growth in the model. And as we've rebalanced contracts over a long period of time, that is less so. So still very positive, and it's excellent for our business, but it wouldn't be the significant upside that we might have seen 10 years ago in that we've taken some of the upside out, but we've also taken some of the downside out from that deflation that we've experienced.

And as we think about, you know, some Part B biosimilars, I guess, how do we think about, you know, potential contribution, you know, from biosimilar, obviously, we follow your biosimilar report quite closely, you know, we see things like, you know, additional ILEA biosimilars or first biosimilar launches for drugs like, you know, Sympony as an example. I guess, how's the company thinking about that and maybe how the cadence of biosimilar opportunities looks relative to the past couple of years that have influenced the numbers? Yeah.

Let's start with Part B. So, Leah, biosimilar that you gave is a good example of our future additional biosimilars. That is a tailwind to our business. So as products go biosimilar within the Part B space, which is where we have the significant wraparound services with those physician practices. So especially distribution, the MSO, the GPO, analytic services that we're providing. to the practices and the manufacturers, that really allows us to help the biosimilar gain market traction even more quickly. And we've seen over a long period of time that the physicians in the Part B space, in part due to the services that we're providing, get comfortable with the biosimilar more quickly. They begin using it, and therefore we have that adoption, which, again, from a profitability standpoint, it is net positive for Sancora. It's a tailwind.

And then if you think about, you know, GLP-1 has obviously been like a huge contributor to top-line growth over the past few years. But I think like the message across the industry overall is that economics on these drugs have been pretty limited relative to maybe the rest of your business. How should we think about that? You know, maybe as you've seen, you know, maybe the mix of, you know, drugs potentially change over the next couple of years. Like why shouldn't this be a business that eventually, you know, the industry can maybe earn a little bit better economics on?

Yeah, I'll start, Bob. And if you need to add anything, overall, you know, I don't think there's an analogy model out there for the GLP ones, right, the robust growth and the continued growth. And we saw that on the top line in Q3, right, 25 percent, 2.3 billion of growth. And as you said, the profitability is modest. And we don't expect that to change in the near term as you look at the distribution of those. And overall, from a growth perspective, one would expect at some point the law of large numbers comes into play here, as well as any pricing actions pharma decides to take. But what we've seen to date, what we continue to see is the innovation that's coming is bringing broader market access, right, with some of the direct-to-consumer programs, as well as the innovation from a performance perspective. So we'll see. But from a profitability perspective, we don't expect a change in the near term.

And then just to touch on the IRA, I mean, the company has been pretty clear that in terms of the drugs that were selected for 2026, they've been able to maintain economics. I assume at this point you're probably well on the way to conversations around 2027. Because how should we be thinking about 2027? 2027, is there any reason to think that the ultimate outcome has any real variability around it compared to maybe what you were able to generate for 2026?

We assume that there's not a change, so that the success that we've had working with the manufacturers continues. But a couple of points for context. I think, one, as it relates to IRA, an IRA product doesn't necessarily mean a whack reduction. And so most of them have taken whack reductions. they all haven't. And then there are other products outside of the IRA who will take list price reductions from time to time. And the important thing to think about is just the relationship that we have with the manufacturers and the services that we provide. Because we will tend to talk about, you know, we always have the opportunity to go and have a conversation, right? And we can, you know, talk about the value that we're providing. But really, you know, the proof is in the pudding, and this goes back several years, but we've been answering the question about whack reductions for many, many, many years, before they actually were happening. And what we said at the time was we were confident that the services that we provide would be valued by the manufacturers and that we would be able to maintain that value. Then when we saw the insulin reductions, that was true. And I think people would say, well, maybe that was a one-off. That was kind of a unique case. But then over the past year, as you said, we were able to talk to the manufacturers and, you know, discuss the value of the services that we provide. And, you know, it's everything, you know, we tend to think about, you know, the delivery that we do. But it's also we're Brian the product, we're warehousing the product, we're insuring the product, we're taking on the AR risk for the product, we're managing the inventory for the manufacturer. We're providing data services to the manufacturer. So there are significant things that we do for those fees that are important. And so we've seen that validated over many proof points at this point. And we expect to continue to work closely with the manufacturers and having that success continue going forward.

Maybe to pivot to One Oncology, you completed the acquisition of the majority of the remaining equity interest earlier this year. You know, we'd love to just get an update on the financial performance of that asset, you know, what a top line and earnings growth look like at the moment, and, you know, what changes operationally, if anything, you know, now with the greater control that you have. Eva?

So overall, one oncology is performing really well, right? Slightly better than we expected. We continue to expect it to be net neutral to earnings over the first 12 months. That assumption remains based on current performance trends. But on an exciting note, right, there are tremendous opportunities as we look at one oncology platform and RCA to expand value pools, right? We've spoken about the clinical research side, the clinical trial side, is an important part of the RCA model, whereas in one oncology, to date, it's not. That's an opportunity. There are opportunities to expand the back office services we provide, the revenue cycle. So as the teams are working, they're really focused on driving the growth and enhancing those areas of opportunities.

Got it. And then, you know, when we look at the, there's a one oncology annual report in case, you know, anyone hasn't seen it. But it looks like you now have over 2,300 providers on the platform. I think, you know, at this time last year, it was closer to a number that was like, you know, 1,700. You know, it's a pretty substantial number of providers that you've added. You know, can you talk a little bit about the nature of those provider ads? Like how much of it's been through, like, acquisition or requiring capital? How much of it's through, you know, maybe organic means? and how we should really be thinking about that over the next couple of years.

Yeah. I mean, this is what's really exciting, right, about, you know, that's one oncology. That is also happening within RCA. And when you think about the growth of the MSOs, we love to talk about kind of the things that we can do together, whether it's clinical research or revenue cycle management. But it's always helpful to go back to the base thesis, which is that these are attractive platforms for individual physicians or small groups of physicians to join. Because of the services that they provide, it helps them care for patients better. And that's what you really see in that growth. And when you couple the attractiveness of the platforms with the market growth that occurs in both oncology and retina, that really is what is driving growth and what will continue to drive growth. The innovation and the demographics, innovation in the pharmaceutical manufacturers and the demographics for these diseases really will drive growth. And then we have the ability to layer on these synergies. as we have the MSOs working together. So the numbers you put out there are instructive of the success that we've had in attracting physicians, which we're really happy with.

And then when we think about, I guess the right way to think about the growth of the company over the next, specifically of like one oncology and other MSO assets, because what are the key components beyond sort of growth of the market that they're in and kind of adding providers? Like, what are some of the, you know, maybe, like, you know, two to three to four to five year opportunities for the business to maybe add additional services or different revenue streams that exist today?

Do you want to take that? I think, you know, this is where kind of if you go – I kind of go up a level because we have the MSOs, and they're attracting the physicians in. And the upper level is really the Syncora layer that is very thin, but is where we can begin to cross-pollinate and find the synergies between the practices. So Eva spoke about the clinical research capabilities, which are very strong in RCA, that will be actively moving to one oncology, which is a huge opportunity for the physicians, for patients, and for manufacturers in terms of clinical trial accrual. Revenue cycle management is another opportunity for a shared capability where there'll be both growth and cost opportunities there. And I think if you play that out three to five years, we're really excited about the data and analytics opportunities that we'll have through those platforms. Again, partly downstream to the physicians to help them with their practices, run their practices better, but also upstream to the manufacturers. We're going to have information about the product utilization and outcomes, real-world evidence that we'll have in those sites that the manufacturers will be very interested in.

Got it. And then the big focus has just been for the MSO assets, again, kind of specifically, how's the company thinking about? But obviously there's, you know, some pretty material loss of exclusivities on the Part B side, you know, oncology focus kind of going out towards the end of the decade. At the same time, there's also some, you know, some real uncertainty, I guess, with how kind of IRA dynamics for Part B could play out. I guess big picture, like how is the company kind of weighing the risks and opportunities around these dynamics and how are you planning for that over the next couple of years?

Yeah, thank you. It's an important question. We're confident in how that plays out. So I'll start there. So you do have loss of exclusivity of some large products that will result in biosimilars, which, as we've discussed here, will be a real opportunity, a growth opportunity for Sancora, where you have Part B IRA in 2029. So the worry there is that somehow those discounts are administered through a reduction in reimbursement to the physicians. And so that's where we're confident that that won't happen. And we spend a lot of time, I spend a lot of time in Washington, D.C., talking to regulators and legislators. And, you know, what I'm confident about is that in in the IRA negotiations, the intent is not to reduce physician reimbursement. Right. So it's focused, focused on drug, drug pricing, you know, patient out of pocket costs. And so there are examples, you know, out there. So the Globe Demonstration Project, for example, takes that discount from the manufacturer directly to the government and does not go through reimbursement. There's other legislation that's being considered in Congress, which has a similar mechanism. And so those are those are reasons to believe that, you know, the intent is not to reduce physician reimbursement because, you know, to speak to oncology specifically, you know, the community oncology side of care is the lowest cost side of care. It's the most accessible site of care. And so to have a drug price negotiation result in the physicians being damaged in some way, which would surely impact patient access and patient care, certainly not the intent of anyone in Washington. So we're going to stay involved and focused, and that's from an educational standpoint, but we also feel confident that that won't be the result. But we'll watch it closely.

Great. Do you have an expectation around when you might know for certain how this is going to play out or what the timeline to that is?

Yeah, it won't be until everything is finalized for 2029. We don't have the timeline for that right now.

Yeah, a little ways away. To pivot a little bit to international, it seems like the business is performing a bit better after a little bit more of a rocky period. I guess when we think about the key drivers of that improvement, And it would be good to maybe hear a little bit more about that. And I guess when we think about the leading indicators over the next few quarters, do you think that business could be a little bit more stable, a little bit more consistent with the long-term aspirations that you guys have set out for it?

Yeah, thanks for that question. Overall, the two core key drivers that have led to the improved business performance is our World Courier business, our global supply logistics business, as well as the 3PL business. So I spoke to this a little bit earlier, but as you think about the World Courier business, there were some market dynamics that affected that business as well as some of our own challenges. And we've done a, A, the market has rebounded a bit, and we see consistent demand. But I think more importantly, we've made changes to respond to the market. We've made leadership changes, we've changed how we operate to be closer to the customer, and really our go-to-market strategies have enhanced, and I truly commend the leadership team there for those changes in driving our ability to win in the marketplace. On the 3PL side, right, it's pinned to the utilization of specialty, so that's a real tailwind to that business, and we continue to see opportunities there. So we'll continue to push to have the consistent performance. We're confident with our long-term growth algorithm for the international business.

Okay, great. And then just to think a little bit more about the pivot to fiscal 2027, you made some early comments on fiscal 2027 on the last earnings call, including kind of your current planning assumption around MWI. I guess as we think about 2027 and kind of putting MWI potentially to the side as a discrete item, I guess at this point, how is the company thinking about key headwinds and tailwinds as you approach the next fiscal year?

Yeah, I appreciate the question. And we'll have a fulsome update of 2027 on our Q4 earnings call. We're in the throes. We're in the heart of our planning process. In terms of, you know, you called out MWI and what we said to investors was assume a mid-year transaction. transaction. We have no updates on the exact timing, but felt that was a balanced assumption to take. I would remind investors that will benefit from the continued annualization of the One Oncology acquisition, right, from Q1 through January. And, you know, as you look at both the U.S. and international business segments, you know, we're confident with the long-term growth algorithms that are out there for those respective businesses.

Okay, that's great. And then, you know, we're obviously, you know, very focused on how companies across our coverage are using artificial intelligence. I guess how should we think about, you know, the areas that the company is invested in to date in AI? I guess any maybe materiality or returns that you're targeting as you make investments in AI and if there's any way to characterize maybe the investments that you've made to date and like what the company could look to do potentially in the future as capabilities improve.

You want to start? Sure.

Take a quick step back.

So we have four performance drivers at Sancor that we've called out. One of them is talent culture. The other is productivity. So just driving efficiency all the time. The portfolio optimization that you see us doing, whether that's areas we're investing for growth or in areas that we're deprioritizing. And then the last but not least, but relevant to this question is really the digital transformation that's underway at CENCOR. And that's everything from modernization to business process optimization to using advanced analytics and artificial artificial intelligence to create value. So we are excited about some of the progress that we're making. I don't know if you want to get into any specific examples.

Yeah, I think I'll just give a couple. Obviously, we're focused on making sure our colleagues have access to these tools in their day-to-day. we're going to focus on prioritization of projects where we believe we can drive the most value whether that's improved customer service whether that's cost reduction right and I'll use one example around around forecasting demand right it seems silly but you can be more precise manage your cash better have better service have better service levels although our service levels are extremely high right these are critical these are critical aspects so we're make sure we focus on the areas that can truly benefit our customers and benefits in Quora. And obviously, there's plenty back office operational areas to simplify and reduce complexity and cost.

And maybe to kind of come back to capital deployment, obviously, there's been a pretty healthy focus on MSO over the past few years. I guess, how should we think about, I guess, first, whether there could be more to do on the MSO asset side from here? And if there's any way to characterize what you might expect capital deployment priorities to be over the next few years relative to what they've been perhaps more recently.

Yeah, I'll start. As you think about our capital deployment priorities, things haven't changed, right? First and foremost, investing organically in the business to drive growth, strategic M&A aligned to our pharmaceutical centric strategy, opportunistic share, share repurchases, and, you know, growing the dividend consistent with our earnings growth, with our earnings growth over time. And as we look at, as I'm new here and come in, and as Bob continues the strategy and the leadership team, right, our goal is to drive the strongest total shareholder returns we can and optimize that deployment and make those decisions within that.

Okay, that's great. And then, you know, maybe to circle back to one on, you know, the U.S. healthcare business, and I guess this is a good question for you, given some of your prior experience. I guess when we look at, you know, retail pharmacies today, I guess, like, how do you think about sort of the health of that part of the market? And you've obviously seen some pretty what seem to be constructive changes about how reimbursement now works in that business. I guess, how are you guys thinking about the health of retail pharmacy and maybe specifically like health of like independence since we've already spoken a little bit to some of the larger customer dynamics?

Do you want to start? I mean, I'll start with the independence because I think that's an area that people think about, wonder about and are continuously surprised by the resilience of the independent pharmacy, of the independent pharmacy owner. And we absolutely see that in our business. We just had our trade show in Orlando a few weeks ago where we had a few thousand independent pharmacy owners and staff there to learn together, to talk to us about what they need for us to talk to them about the exciting solutions that we have for them. But, look, I think the market, you know, you mentioned some likely positive changes in terms of reimbursement. So I think that certainly has stabilized, and that's positive. And, you know, community pharmacy is an access point to health care in a really, really important way. the independents tend to see the sicker patients who are going into a retail setting. The more comorbidities that you have, the more likely you are to need to talk to a pharmacist. And so they have a really nice value proposition there.

So they're doing well.

And I'm a pharmacist. I grew up in an independent pharmacy. So I have some affinity for this group. But also, it's amazing to me, they're not only resilient, but they're scrappy. I mean, they're entrepreneurs. They find a niche in their community to serve that community from a health care standpoint. Everyone looks a little different, but they work and they grow. And we find that the customers within our Good Neighbor Pharmacy network and Elevate provider network, which is the PBM contracting arm, when they utilize our services, they tend to grow faster than their peers who use less of our services. So we're happy to support them. We're proud of the work that they do. And over the long term, which I think is the most important question, I think we can all be confident that community pharmacy will continue to play an important role in health care.

And it's been a while since I've seen this data, but they're one of the most trusted health care providers in the in the ecosystem so just to echo Bob's point okay that's great I think that's all we have time for today so thank you so much appreciate you being here thank you thank you