美源伯根 (ABC) 2022 Q1 法說會逐字稿

Hello, and welcome to the AmerisourceBergen First Quarter Fiscal Year 2022 Earnings Call. My name is Alex, and I'll be your call operator for today. (Operator Instructions) I will now hand over to your host, Bennett Murphy, Senior Vice President of Investor Relations. Over to you, Bennett.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss AmerisourceBergen's First Quarter Fiscal Year 2022 results. I am Bennett Murphy, Senior Vice President, Investor Relations. Joining me today are Steve Collis, Chairman, President and CEO; and Jim Cleary, Executive Vice President and CFO.

On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release which is available on our website at investor.amerisourcebergen.com. We've also posted a slide presentation to accompany today's press release on our investor website.

During this conference call, we will make forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including, but not limited to, EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-K.

AmerisourceBergen assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the express permission of the company. (Operator Instructions)

With that, I'll turn the call over to Steve.

Thank you, Bennett. Good morning and good afternoon to everyone on the call. Before we begin our results for the quarter, I want to take a moment to comment on the status of the proposed settlement agreement to address opioid-related claims of state and political subdivisions.

Since we announced last September that the proposed settlement agreement would move to the next phase, several more states have announced the intent to sign on to the agreement, increasing the number of participating states to 46. We are encouraged by this progress. And over the next few weeks, we will review the level of participation by subdivisions and determine whether to proceed with the final settlement. We look forward to providing an update once a decision has been made. AmerisourceBergen continues to work diligently with our partners to combat drug diversion while supporting real solutions to help address the crisis in the communities where we live, work and serve.

Turning now to discuss our results for the first quarter of fiscal 2022 and continued progress on strategic imperatives. AmerisourceBergen began the fiscal year with solid financial performance. Revenue grew 13% over the prior year to $59 billion. Adjusted operating income increased by 21% and adjusted EPS grew by 18%. Our growth reflected the benefit of our Alliance Healthcare acquisition and solid performances across our businesses.

Our results continue to demonstrate the value of our pharmaceutical-centric strategy, strong customer relationships, leadership in specialty and unparalleled global commercialization services. These differentiating factors are key drivers of our long-term growth and enable AmerisourceBergen to create significant value for all our stakeholders as a global health care leader. Our solution-oriented culture and the agility of our teams has allowed us to strengthen our relationships with partners as we help them navigate the increased complexity and challenges that the evolving pandemic presents.

AmerisourceBergen's focus on leading with market leaders continues to position our company for success. Recently, we renewed our relationship with Express Scripts by extending our supply agreement through 2026. This extension reflects our focus on long-term lasting partnerships with anchor customers that enable us to continue to support patient access wherever a prescription is needed.

Patient access is more vital than ever as we enter the third year of our fight against COVID-19. As I've said over the past year, we are proud to be a part of the solution to support the government response to the pandemic in the U.S. Through our work with the government and manufacturer partners, we are distributing COVID-19 antibody and antiviral treatments to providers across the country. As pharmaceutical innovation continues to expand treatment resources to respond to the pandemic, we are playing an even greater role to leverage our infrastructure and expertise to support efficient access to COVID-19 therapies in partnership with the federal government.

The newly authorized oral COVID treatments are a milestone in the efforts to curb the impact of the virus, and we are supporting their distribution to sites of care across the U.S. Our robust public-private partnerships with pharma manufacturers and the U.S. government demonstrate the value of AmerisourceBergen's intellectual confidence as we have utilized our commercial strength and ability to collaborate effectively to quickly create solutions in the health care system.

Outside the U.S., AmerisourceBergen's network of global businesses -- Alliance Healthcare, World Courier, and Innomar in Canada -- are playing a pivotal role in supporting the COVID-19 vaccination efforts across 30-plus countries. The collective distribution support spans 4 continents and includes a wide range of services from third-party logistics to temperature-controlled packaging, storage and transport. Alliance Healthcare continues to deliver strong results while supporting the COVID-19 response in multiple countries from vaccination to testing, including in the U.K., where the team is supporting the distribution of vaccines and serving as the sole distributor of the rapid lateral flow COVID-19 testing kits to pharmacies.

Alliance Healthcare's performance underscores why we were so excited to bring this business into the AmerisourceBergen family and how this acquisition enables us to advance our role as a key pillar of pharmaceutical innovation and access globally. Our teams are working diligently and collaboratively to ensure the integration continues to progress successfully.

Alliance Healthcare's foundation in wholesale distribution and the International segment's significant footprint in complementary value-added services and solutions parallel AmerisourceBergen's U.S. capabilities and provide us with a strong global platform for sustainable, long-term growth and value creation in service to our global biopharmaceutical manufacturer partners.

Creating value for all our stakeholders is paramount for AmerisourceBergen. And as we look at our networks of community providers across the globe, we remain focused on supporting this critical component in the health care system. Community practitioners from veterinarians to independent pharmacies and community special physicians played a vital role in supporting local health care needs. Community pharmacies are key to facilitating health equity and access, particularly in rural and underserved areas. Through our independent pharmacy network, Good Neighbor Pharmacy, or GNP, in the U.S., and Alliance's Alphega network in Europe, we have continued to strengthen our relationship with these providers and support their ability to expand access to critical health care solutions.

Our GNP network has played an important role in helping communities address the pandemic. In partnership with the federal retail pharmacy program, GNP has helped to support allocation of 4 million COVID-19 vaccine doses to more than 1,600 pharmacies nationwide. These allocations are helping reach communities where help is needed most. Nearly 50% of the individuals vaccinated by pharmacies in our GNP network live in Zip Codes with a high social vulnerability index as defined by the CDC. The value of this initiative continues to grow for our communities, and we are pleased to be working with the federal government to support the distribution of N95 masks from the Strategic National Stockpile to our GNP customers currently enrolled in the program.

In our Alliance Healthcare business, we are also seeing significant growth in Alphega's membership as independent pharmacies recognize the value of working with Alliance and the services we offer. As a leading European network of independent pharmacists, Alphega Pharmacy members continue to deliver on their mission of helping to improve the quality of health in their communities. Alphega Pharmacy members throughout the pandemic have gone above and beyond to deliver care to their patients. These extraordinary efforts have garnered numerous accolades from around the industry. We are excited to share best practices between Alphega and GNP to further the support we provide community pharmacists, both in the U.S. and Europe.

As we continue to build on our strengths, we are focused on expanding on our leadership in specialty. The growth in biosimilars has helped improve access to effective therapies while mitigating overall health care spending to make room for continued pharmaceutical innovation, including the introduction of new therapeutics and additional indications for existing therapies to improve the standards of care.

Our leadership in specialty continues to provide us with the scale, partnerships and expertise to create significant value for our stakeholders. AmerisourceBergen's global scale and strong partnerships, upstream and down, make us a key partner in connecting manufacturers and physicians. We continue to look at new ways to apply our existing capabilities and expertise to create further value through this linkage, particularly as the shift to value-based care accelerates.

By leveraging our distribution infrastructure, expertise in outcome and reimbursement and our investments in the physician practices services space, we are well-positioned to contribute to pharmaceutical-driven outcomes and support the long-term success of this transition.

Access and commercial solutions become increasingly important as we look to the future with a strong pipeline of pharmaceutical innovation, particularly in specialty pharmaceuticals. More than half of the pipeline of new treatments are coming from small and midsized biotech and pharma companies. AmerisourceBergen's vast distribution reach and global commercialization services position us to be a partner of choice for these manufacturers.

Our expanded platform of manufacturer services allows us to deliver a range of logistics and supply chain services, market access and innovative solutions to help improve patient care with global reach and local expertise. AmerisourceBergen and Alliance teams are working collaboratively to leverage our complementary capabilities to create differentiated solutions for our upstream partners and help them expand access to care for patients around the world.

One example of how we are supporting access in the U.S. is our recently launched AB Disparities in Cancer Care initiative. This initiative is focused on improving access to all components of cancer care from expanding access to clinical trials and community practices to bringing awareness of health disparities to legislators. Using our trusted role as a partner to community practitioners and pharmaceutical manufacturers alike, we believe this program will help bring down certain barriers to high-quality cancer care for patients in local communities we serve. This is an example of how our teams live our purpose of being united in our responsibility to create healthier futures every day.

Being guided by our purpose ensures we are contributing to improving the well-being of human and animal populations by expanding access to quality health care, operating sustainably and upholding the highest standards of safety and quality. To help achieve this vision, we are focused on investing in our people, culture and commitment to ESG.

A healthier future is also a more sustainable one. We recently published our sixth Annual Global Sustainability Report, which highlights the progress we made in fiscal 2021 on our environmental, social and governance initiatives and provide significant transparency into our business. AmerisourceBergen's continued progress and commitment to advancing ESG initiatives is reflected by the company's inclusion in the S&P Global Sustainability Yearbook 2022, one of the most comprehensive publications providing in-depth analysis on corporate sustainability.

AmerisourceBergen is also committed to building a more diverse, equitable, inclusive and engaged workforce. Throughout this coming year and beyond, we will continue to focus on our people, our culture and our community as the first 3 pillars of the DEI work. This year, we added an important pillar, our progress, that will more closely link DEI with our purpose of creating healthier futures through expanding access to quality health care globally and promote health equity.

We are honored that our work in ESG is gaining recognition. Last month, Newsweek Magazine included AmerisourceBergen on its 2022 list of most responsible companies. Newsweek's most responsible companies list is a well-regarded ranking of corporate ESG performance, and this recognition further underscores our progress on our objectives to improve access and equity in health care, create more resilient and sustainable operations across the supply chain and inspire our team members to achieve their potential. Our commitment to ESG is fundamental to our long-term sustainable value creation for all of our stakeholders, and we are focused on continuing to build on our ESG platform to support our team, partners and community.

We are pleased with our performance thus far in fiscal 2022 and the progress we continue to make against our strategic priorities to enhance our differentiated value proposition, strengthen our relationship with customers, drive innovation and build on our strong momentum. I remain inspired by the commitment and performance of our 42,000 team members who truly embody our purpose in helping our partners navigate the ever more complex and evolving global health care landscape.

As a global health care solutions leader, AmerisourceBergen is creating differentiated capabilities to help advance pharmaceutical innovation and access.

Now I will turn the call over to Jim for a more in-depth review of our first quarter 2022 results and to discuss our updated financial guidance. Jim?

Thank you, Steve, and thank you all for joining us on today's call. Before I turn to our results, as usual, my comments will focus primarily on our adjusted non-GAAP financial results. Growth rates and comparisons are made against the prior year December quarter. For more details on our GAAP results, please refer to our earnings press release.

AmerisourceBergen delivered another quarter of solid financial results as our pharmaceutical-centric strategy, strong underlying business fundamentals and the contribution from Alliance Healthcare continued to help drive our company forward. Our differentiated value proposition continues to position us well to create long-term stakeholder value and is supported by our investment in our talent and commitment to ESG and our business practices.

Turning now to our results. AmerisourceBergen finished the quarter with adjusted diluted earnings per share of $2.58, an 18% increase, with operating income growth in both our U.S. Healthcare Solutions segment and our International Healthcare Solutions segment. Our consolidated revenue grew about 14% to $59.6 billion, driven by revenue growth in both segments.

Consolidated gross profit increased 41% to $2 billion, driven by increases in gross profit in both segments. Gross profit margin grew by 66 basis points to 3.38%, driven by the Alliance Healthcare acquisition. Consolidated operating expenses were $1.3 billion, up from $810 million as a result of higher distribution, selling and administrative expenses and depreciation expense, primarily due to the Alliance Healthcare acquisition. Consolidated operating income was $749 million, up 21%. The increase was driven by operating income growth in both segments, which I will touch on in more detail when discussing the segment level results.

Turning now to interest expense and tax rate. Net interest expense was $53 million in the quarter, an increase of 59% due to an increase in debt related to the Alliance Healthcare acquisition. We now expect full year net interest expense to be in the range of $210 million to $215 million, representing similar quarterly net interest expense for the balance of the year. Our effective income tax rate was 21.3%, in line with our full year guidance range for tax rate compared to 22% in the prior year quarter. Our diluted share count increased 2% to 211.2 million shares as a result of dilution related to employee compensation and the June 2021 issuance of 2 million shares to Walgreens Boots Alliance as part of our acquisition of Alliance Healthcare.

Regarding free cash flow and cash balance. Adjusted free cash flow was $809 million and we remain on track to achieve our adjusted free cash flow guidance of $2 billion to $2.5 billion in the fiscal year. We ended the quarter with $3.2 billion in cash with approximately $670 million held outside the United States. This completes the review of our consolidated results.

Now I'll turn to our first quarter segment level results. Starting with our U.S. Healthcare Solutions segment. Segment revenue increased by 2.7% to $53 billion, driven by an increase in sales to one of our larger customers and growth in our specialty physician services and MWI Animal Health businesses, offsetting a $1.1 billion decline in sales of the commercial COVID-19 therapy. Revenue from U.S. Human Health was $51.8 billion, representing growth of 2.6%, and revenue from U.S. Animal Health was $1.2 billion, up 6.9% year-over-year. Segment operating income was $569 million, representing growth of 0.6% versus the first quarter of fiscal 2021.

As it relates to the COVID therapy impact on the quarter, the headwind for the quarter was $0.04, which was a smaller headwind than previously expected. Sales of the commercial COVID therapy in November and December were higher than previously expected, and also there was better-than-expected contribution to operating income from other COVID therapies. This smaller year-over-year headwind helped offset a slow start from our manufacturer services group, which is expected to normalize in the second half.

As we look at our full year expectations, we continue to see good performance and trends for our businesses across the segment. Given our nationwide role in supporting COVID-19 therapy distribution, including newly authorized oral therapies, we now expect COVID therapies to be a tailwind for the full year.

As a result of our updated expectations for the operating income impact of COVID therapies, we are raising our fiscal 2022 U.S. Healthcare Solutions segment operating income guidance to a range of $2.375 billion to $2.45 billion representing growth of 5% to 9%. This increase also leads us to raise our total AmerisourceBergen consolidated operating income guidance range to high teens percent growth, up from mid- to high teens percent growth.

I will now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $6.6 billion, reflecting $5.6 billion in revenue from the Alliance Healthcare acquisition and revenue growth of over 15% for the balance of the International Healthcare Solutions segment. Segment operating income was strong for the first quarter at $180 million, up 253% on a reported basis and 268% on a constant currency basis. As it relates to foreign exchange, the relative strength of the U.S. dollar in the month of December had a negative impact on the segment, and we will continue to monitor the impact of currency translation on the dollar value of segment results.

As Steve mentioned, Alliance Healthcare has been performing well since we completed the acquisition in June. Alliance Healthcare's important work to support the COVID response in a number of countries is inspiring and clearly shows the importance of our capabilities. The contribution from these activities is offsetting higher labor and supply chain cost pressures for the Alliance Healthcare business. Our teams are working closely on IT infrastructure initiatives at Alliance but the ramp of IT spending in the first quarter was slower than expected, benefiting our Q1 segment operating income. In subsequent quarters, expenses in the segment will increase as we continue to work towards modernizing Alliance Healthcare's business technology, operability and infrastructure.

The segment came in above expectations for the first quarter. But normalizing for the lower-than-expected IT expense in the quarter and a onetime discrete country level expense benefit, offset in part by the unfavorable foreign exchange, the segment operating income would have been in line with our initial expectations. The Alliance Healthcare team continues to impress and the business continues to deliver on our expectations.

This completes the review of our segment level results, so I will now turn to our updated fiscal 2022 guidance. We are raising our fiscal 2022 adjusted EPS guidance range from $10.50 to $10.80 to a new guidance range of $10.60 to $10.90. The new guidance range reflects the updated full year expectations for COVID therapies, offset partially by higher interest expense.

And as you'll remember, Q2 of fiscal 2021 had a $0.07 contribution from the commercial COVID therapy. With that in mind, as you look at updating your fiscal 2022 models, it is important to keep in mind that the increased contribution from the newly authorized COVID therapies will be primarily in the back half of our fiscal year as supply becomes available.

Before I conclude my remarks today, I would like to briefly highlight some of our ESG initiatives. Yesterday, we published our sixth Annual Global Sustainability and Corporate Responsibility Report that is presented on its own micro site, which I would encourage you to visit at investor.amerisourcebergen.com. The report aligns with many leading global sustainability frameworks, including SASB, GRI, the UN's Sustainable Development Goals and TCFD.

The report details our progress and initiatives in a number of areas, including our global ESG commitments as we became a signatory of the United Nations' Global Compact, committed to the science-based target initiative, and aligned our ESG strategy to include the expanded footprint of Alliance Healthcare. Additionally, as we work to more deeply embed diversity, equity and inclusion and ESG principles into our business, we will look forward to providing updates on our progress in these important areas.

In closing, I continue to be impressed with how our teams use our commercial strengths and expertise to find ways to help public and private partners navigate the current complexities and challenges across the health care system. This important work aligns with our purpose and creates a value for all our stakeholders, including our shareholders.

The proven resilience and strength of our business and results gives us great confidence in our pharmaceutical-centric strategy and our ability to create long-term sustainable growth. To deliver this growth, we will continue to focus on expanding on our leadership in specialty, leading with market leaders, supporting community providers and facilitating global pharmaceutical access and opportunity. We remain steadfast in our purpose of being united in our responsibility to create healthier futures, and we believe our purpose-driven culture and focus on developing our talent will help further our value creation.

Thank you for your interest in AmerisourceBergen. And now I will turn the call over to the operator to begin our Q&A. Operator?

(Operator Instructions) Our first question for today comes from Charles Rhyee from Cowen.

Charles? Operator, I'm not hearing Charles.

My apologies. Our next question for today comes from Ricky Goldwasser from Morgan Stanley.

Yes. So with Europe becoming a bigger part of the story in earnings, we're hearing a lot about sort of wage inflation in Europe that's been picking up. What have you seen, ex-U.S. environment, in terms of cost structure since you provided the November guidance and sort of what's included in current guidance.

Yes. And so let me talk about inflation overall, and then let me talk about what we're seeing with regard to inflation in Europe, Ricky. And so we are seeing higher labor and transportation costs. And let me say that they were embedded in our guidance. So they were included in our guidance, and they're also included in our last couple of quarters' actual results.

One thing about AmerisourceBergen overall -- and we certainly are impacted by higher labor and transportation costs but less so than most businesses. Pharmaceuticals, as you know, are very value dense, which mitigates freight costs, and then our distribution centers are highly automated, which mitigates labor costs.

As we look at some of our businesses, and I'll use MWI, as an example, and MWI is performing very well and it has very good results. But it's a little bit more impacted by inflation because it has a broader array of products, including med-surg and nutritional supplements and less automation in the distribution centers.

But overall, inflation, it's included in our guidance, and we're managing through it very well. We are seeing inflation also in the Alliance business and there are higher labor and freight costs there also. And Alliance is really fully offsetting that by the important work that we're doing there on COVID therapies, which is benefiting Alliance from an operating income standpoint.

Our next question comes from Eric Coldwell from Baird.

I was hoping we could get some more details on the role you're playing with the new COVID antivirals. We're seeing some states like Georgia, I think Texas and others highlight your role as a network administrator for the HHS COVID-19 Therapeutic Dispensing Program. We saw Merck highlight you as a distributor. But I was hoping, overall, we could get more details on the kind of the back story on what you're doing, how you're doing it, perhaps your role with Pfizer on Paxlovid as well. Just any additional details would be fantastic.

I'll start off and let Jim comment. We've made the comment that never has our purpose become clearer than during the pandemic of being united in our responsibility to create healthier future. And the role that we've done with in COVID therapies, distributing over 100 million vaccines worldwide, doing all the lateral flow tests in the U.K., World Courier getting early vaccines out in some difficult areas in Europe. But also probably, most pivotally, the role we play in the U.S. with the antiviral therapies and the tremendous data and relationships that we've developed, working with the U.S. government and the state and counties to get these therapies out.

We also have always been a very upstream-centric company as well and have been honored to be selected as a distributor with so many of these critical therapies. It's a moving target. Supply is often -- is really often ramping up, and then you also have different disease rates in various states. And so we -- AmerisourceBergen has shown tremendous adaptability, resilience and also incredible informatics and strong relationship skills, which have enabled us to really be the distributor for these important therapies.

Jim, I know you have some other comments as well.

Yes, sure. I'll comment a little bit about it from the financial perspective. And as we indicated in our prepared remarks, the guidance raise is related to updated outlook for COVID therapy contribution. And in particular, within U.S. Healthcare Solutions, we increased the operating income guidance by $50 million at both the low end and the high end of the range, and that's due to higher COVID-19 therapy sales than we had originally expected. In our initial guidance that we put out a few months ago, COVID therapies were expected to be a headwind to maybe breakeven at the top end of the range, but now we expect them to be a tailwind for fiscal year '22.

And you asked about the different products, including the oral pills. And I think one thing that is important to note as you guys do your modeling that the therapy contribution includes both the commercial products that we own and we recognize revenue on and the government-owned therapies that are authorized under emergency use authorizations where we don't own the product, and we earn a fee. And so COVID therapies, we're expecting to be a tailwind in the fiscal year from an operating income standpoint. But as you do your modeling, there will be headwind from a revenue standpoint.

And I think one thing I'd really like to finish with because there will be a lot of questions on COVID therapies as they are a reason for our increasing our guidance. But overall, the business, even without COVID therapies, is performing as expected with really good outlook, strong fundamentals and continued execution. So we have a high degree of confidence in our businesses and the way that they're executing now, Eric.

Our next question comes from Lisa Gill of JPMorgan.

Great. Steve and Jim, I just want to go back to your comments around specialty, and you talked about new therapies. You talked about the focus on specialty and biosimilars. I know you don't break out specialty specifically anymore, but can you give us an idea of how specialty is growing and the contribution you are seeing from biosimilars, new therapies? And how do we think about that component of your business?

Lisa, the reason -- I mean, it's literally becoming impossible to break out, especially because essentially, our brand business has become a specialty business, and we probably think about new areas like precision medicine, cell and gene therapy as the new sort of niche businesses. It would have been almost impossible to conceive just how fundamental specialty products would become to pharmaceutical care as we looked a couple of decades ago when we got started with the specialty businesses.

So perhaps I can just give you some comments. Our specialty physician services business, which is a lot of our legacy well-known specialty businesses, including Besse Medical, Oncology Supply and ION are performing extremely well. We're really proud of the positioning. Like in all our businesses, we focus on long-term partnerships. ION, I led the specialty group about 11 or 12 years ago, I mean, in terms of closely running it. And we really just had 3 or 4 manufacturer contracts. They have several dozen now and continue to grow in the role being the close adviser to the physicians, the practices and the manufacturers. Besse Medical is getting more and more involved in several other physician specialties. They have a key role in ophthalmology. And Oncology Supply is an exemplary business in terms of customer service.

I also could not mention what is our legacy -- I would be remiss if I didn't mention what is our legacy hospital specialty business, our ASD business, which continues to really have been the forerunner for a lot of the COVID work we're doing, a lot of the antiviral therapies because of the limited distribution, the data expertise and the concentrated distribution programs that we've learned to do so well in ASD.

So a little bit of a long answer, but such important work for us. I'm going to just comment on biosimilars, and then I'll hand over to Jim. So biosimilars has become very important to ourselves, to our customers. The sweet spot for us is Part B drugs. We've been encouraged by trends. I think the acceptance of biosimilars is certainly increasing all the time from all elements of the stakeholder system, and we've noticed recent interchangeability approvals. Next year will be tremendously interesting from a Part D perspective, which is also important for the system. But for us, the sweet spot is the Part B therapeutic compatibility and the contracting abilities we have through organizations like ION and IPN.

Jim?

It's tough to follow up Steve on specialty, since he founded that part of our business. But I'll just say quickly and generally from a financial standpoint, specialty physician services is performing as expected, which is really good because we had high expectations, and we're seeing very good trends in the business and continue to see good financial trends with biosimilars.

Our next question comes from Eric Percher of Nephron Research.

I want to return to the antivirals. And I think the commercial comment helps us understand the revenue step-down versus some strong gross profit. For the -- you've increased guidance by $50 million, but your comment was that you expect a larger net contribution versus last year. I believe you disclosed $0.18. So is it fair to assume that we're looking at something above the $0.18 or roughly $80 million for the year and that much of that may come without the full revenue benefit but more of a gross margin benefit?

Yes. Let me provide some more information there that I think will be helpful. And I think we've had a high degree of transparency with regard to impact of the COVID therapies on our bottom line, and we'll plan to continue to do that. So last year, we -- the contribution to the bottom line from COVID therapies was $0.30, and we kind of indicated on a quarterly basis, it was $0.14 in the first quarter, $0.07 in the second quarter, $0.03 in the third and $0.06 in the fourth quarter.

What we saw in the first quarter this year was a $0.10 contribution. So it was a $0.04 headwind. What we'd expect to see in the second quarter would be a few-cent tailwind, so we made a contribution of $0.07 in the second quarter last year, and we'd expect a few-cent tailwind, and then a more substantial tailwind in the back half of the fiscal year as supplies of the product become more available.

And so when we originally guided a few months ago, as I said, we were expecting a headwind to maybe breakeven at the high end from COVID therapies. And we increased the guidance as a result of COVID therapies for U.S. health care solutions by $50 million at the low end and the high end of the range. So I think that gives you a lot to work with there in terms of modeling.

Our next question comes from Jailendra Singh from Credit Suisse.

Now that we are over a month into 2022, I was hoping if you could provide an update on the drug pricing environment and how that has been trending compared to your expectations, both on brand drugs inflation as well as like generic market overall.

Sure. I'll give you thoughts on drug pricing. And it is in line with our expectations. And we'll say on brand inflation, and I'll start there, that it's less important for AmerisourceBergen. We've talked about this, in that over 95% of our brand buy-side dollars are fee-for-service. But I will say that the initial pricing changes in 2022 have been in line with expectations.

And then on generic deflation, there's nothing major to call out. Overall, deflation rates are relatively in line with the last couple of years. And we'd expect that to continue throughout our fiscal year. Supply and demand dynamics remain generally in balance. And again, this is something that we've talked about before, but it's important that our business model is not as reliant on generic pricing as it once was in the past because several years ago, our business leaders recognized the need to have a more balanced profitability across the portfolio of pharmaceuticals. And so we rebalanced to ensure that we receive fair compensation for the value we provide across brand, generics, and specialty.

And of course, the market continues to shift more towards specialty. But in response to your specific question, it's what we're seeing both in brand and generic pricing is in line with our expectations.

Our next question comes from George Hill of Deutsche Bank.

Jim or Steve, I'd ask a quick one on the Express Scripts renewal. I guess any meaningful changes to pricing or economics? Or maybe could you comment on the competitive environment? Because I feel like we haven't seen one of these big contracts switch hands in a while. And Steve, my quick follow-up would be is I haven't heard the train whistle in a while on the earnings call. What have you guys done about that?

George, I always remember your little train that could comment after our 20 -- little engine that could -- after our [23] call, so our 13 announcement. So Jim just answered the question about pricing trends. And when you deal with a sophisticated customer like Express Scripts, they understand the business trends as well as we do. And we do a really good job of servicing large customers like that and focus on the long-term relationships. We're proud because we were a legacy distributor to Medco and went through the Express Scripts transition with Medco and became the distributor for Express Scripts and now, of course, are working with the new Cigna management team.

So it's a tremendous example of our focus on long-term partnership with anchor customers. And again, with the understanding and the fact that we reflect the competitive environment that we're in, there's no headwind to call out at all.

On the train whistle, we are proud to be in new headquarters, which are not as affected by the train whistle, which Jim and I are currently working out of. And we hope that our associates will return to in the next couple of months as things improve.

Sorry, I just wanted to also say, George, that there's really no headwind to call out at all on the Express Scripts renewal. So we're pleased to report that.

Our next question comes from Steven Valiquette from Barclays.

So I also just had a quick follow-up on Express Scripts as well. As time passes, I forgot just the approximate level of penetration of the generic distribution with Express and whether this is primarily a brand-only contract, or have you had pretty strong penetration on distributing the generics to them as well? And then also, was there any change in their level of involvement in WBAD with the renewal?

Yes. Nothing on WBAD that we can report. This is primarily a brand and specialty contract, as you do recall, Steve. And so I think -- Jim, anything else you'd add in Express Scripts? I think we covered it. Yes.

Our next question Comes from Michael Cherny of Bank of America.

Jim, I wanted to go back to the comments you made about the manufacturer services business. I appreciate all the color, especially on the antivirals and how that flows through the year. You made some quick comment about how we're off, I think you said a slow start to the year. Can you dive a little bit into what drives that and especially now that manufacturer services post-Alliance is a much bigger piece of your business? How should we think about leading indicators to support a return towards the robust growth rate that you're looking for?

Yes. Yes. Thank you for the question. We do expect the manufacturer services business to normalize in the fiscal year and to have a good fiscal year. I mean, these businesses are important differentiators for us, and they are very valued by the manufacturing businesses. We have realigned the organization to provide better end-to-end solutions for our customers, and there are opportunities for increased cross-functional collaboration between our manufacturer services businesses.

And it's actually an area with the Alliance acquisition, where there's opportunities to have offerings of our manufacturer services on a more global scale. And there are also good synergy opportunities between our manufacturer services businesses and the Alliance value-added businesses. And so we do expect the businesses to have a good fiscal year and to be on plan. And that was just one of the things that we called out as one of the many puts and takes during the quarter, but we have good long-term confidence in the businesses.

Our next question comes from Kevin Caliendo from UBS.

So I'm still a little confused by the guidance changes. I guess trying to understand where we are now versus where we were before with the addition of the Pfizer contract. Is there any change at all to the way you're guiding the base business? Because the increase in the COVID therapy seems to be more than the guidance range -- raise. And I'm just wondering if there's any change to core earnings or if there's anything below the line, interest expense or anything that's offsetting some of the benefit. Can you just take us through how you bridge it in a way that's easier for me to understand?

Yes. Yes. Thank you for asking that question. That is a great question, and I think a few things. First of all, and most importantly, the business is performing as expected. The outlook is very good, strong fundamentals, continued execution. We have confidence in the businesses and the guidance.

Now to answer your question, the guidance range at the U.S. Healthcare Solutions of $50 million at the low end and the high end of the operating income guidance range. And then the raise at the low end and the high end for EPS was $0.10. And really, the thing to understand there is the raise is related to an updated outlook for COVID therapy contribution, more operating income contribution from COVID therapies, and that's partially offset by higher interest expense and a stronger dollar.

And so the stronger dollar versus what we had in our original guidance, that is part of the bridge. And then the other part of the bridge is higher interest expense that's related to local country debt, for an Alliance Healthcare non-wholly owned subsidiary. And so those are the 2 things to bridge. But really kind of the most important thing is that the operating businesses are performing as expected, very, very well, and we're very pleased by that.

Our next question comes from Elizabeth Anderson of Evercore.

I just to follow up maybe from Kevin's question. Can you sort of talk us through your expectations around -- not biosimilar, new biosimilars -- but new generic oral solids this year. Seems like there's a pretty significant step-up versus prior years. And so I just wanted to understand what was embedded in your expectations from the generic conversion perspective.

No, honestly, nothing important to call out from our vantage point. This has really become much less of an area of differentiation. In terms of the way our earnings momentum rolls out, it's just the whole way that generics have rolled out. It's much more wider industry participation than just the wholesalers. So I really don't think there's anything important to call out, and Jim agrees, so --.

Yes.

Our final question for today comes from Charles Rhyee of Cowen.

Can you hear me, guys?

Yes. We can hear you well.

Okay. Sorry about that earlier. I just wanted to -- I know you've talked about the antivirals a number of times already. But maybe -- I think you mentioned briefly about your role there in Europe. Do you guys have any kind of formal agreements similar to the U.S. for distribution in Europe through Alliance?

And then secondly, just on these antivirals, I think there's a very short time window to get some of these oral therapies to patients for them to really be effective. Does that -- I guess, what can you do to really speed these products to get to the patients? And then really part of that is does that kind of limit really the potential of these therapies being contributors long term?

Let me just deal with the U.S. part of the question first. We do a tremendous job of working with constrained inventory -- of an inventory as it sits coming out of production and is procured and sent to our distribution centers to get it out. In many cases, as is with the oral pills right now, there's incredible demand way beyond the supplies available. And these products are operating under the emergency use authorization.

So at AmerisourceBergen, I can assure you, is not bottleneck in getting these products out as fast and as efficiently and economically as possible. I think that's why we've continued to be selected as the distributor for almost all these therapies. So I would say that. But I also will say that we're always open to new areas of cooperation, both with the manufacturers and the patients that we ultimately serve through their provider models, be it the retail pharmacy or acute care models, infusion centers. Whatever the prescription base that care treatment is, we will be there.

In Europe, we do various things. Our Spanish business does different things. But there's nothing that's really as comparable to the concerted effort and the launches for these therapies that we've seen in the U.S. and the government role. It's -- I'd say that it's -- it's a pretty unique model and the materiality and extent of it. So we haven't seen anything comparable in Europe. I have mentioned that we've done over 100 million vaccines we've distributed. And a large part of that is in Europe where we do about half of the NHS in the U.K. We've done a lot in Spain. World Courier has done distribution in several countries. We also do the lateral flow test. So we have a very pivotal role in COVID therapies throughout the countries we serve. And we could not be more proud to do that.

So, anything, Jim?

Yes, Steve. I would add that in the U.S. for the government-owned emergency use authorization products, the process will be that the government will allocate to the states and then the states will allocate to the providers.

And Jim, I'm going to do some closing comments now as we end our first quarter of fiscal year '22 call. We felt like this was very strong results, and we're off to a good start. AmerisourceBergen is, as we often like to say, well-positioned with our pharmaceutical-centric strategy. We believe pharmaceuticals are the most efficient source of care, as shown by recent overall health care spending analysis, despite frequent misrepresentation of the public forums in terms of the inflation rates that we experienced. We know at the net pricing level, we are almost flat.

We are very proud to be playing such an integral part in this community. As a corporation, I feel like we've made tremendous strides to deliver the purpose that we've selected. We leverage our own capabilities for the benefit of all the stakeholder sets we serve. We've made a strong contribution to our people culture. Our expertise continues to grow. We like to talk a lot about our intellectual confidence. We feel like we've made leaps and bounds during the last few years, and we are focused, as always, on creating long-term stakeholder value. Thank you for your time and attention today.

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