美源伯根 (ABC) 2020 Q3 法說會逐字稿

Hello.

And welcome to the AmerisourceBergen Q3 FY '20 Earnings Conference Call.

(Operator Instructions).

Please note, today's event is being recorded.

I would now like to turn the conference over to Bennett Murphy, Head of Investor Relations.

Mr. Murphy, please go ahead.

Thank you.

Good morning, and thank you all for joining us to the conference call to discuss AmerisourceBergen's Fiscal 2020 Third Quarter Results.

I am Bennett Murphy, Senior Vice President, Investor Relations.

And 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 and are also available on our website at investor.amerisourcebergen.com.

We have 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, earnings per share, 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 expressed permission of the company.

You'll have an opportunity to ask questions after today's remarks by management.

(Operator Instructions)

With that, I will turn the call over to Steve.

Thank you, Bennett, and good morning to everyone on today's call.

AmerisourceBergen delivered strong results in the third quarter of 2020 driven by the resilience of our business and our associates who worked diligently to ensure continued patient access.

Our teams are leveraging AmerisourceBergen's scale, expertise and culture to deliver collaborative and innovative services and solutions to our partners as they navigate the complexities of the current environment.

My remarks this morning will center on 2 key topics: first, I will highlight how AmerisourceBergen continues to protect and support our associates.

Specifically, how we remain focused on advancing our talent and culture through development, career growth and diversity initiatives and why this is a clear competitive advantage; second, I'll discuss how AmerisourceBergen is positioned to deliver value over the long term.

For our shareholders and also for our associates, customers, suppliers and the communities we serve.

As we shared last quarter, the health, safety and well-being of our associates continues to be our top priority.

We have taken a number of steps to support our associates, particularly those on the front line, guided by our purpose and value at every turn.

We have prioritized the safety of our associates.

We have continued to work diligently to facilitate patient access, supporting our manufacturer and provider customer as well as navigating these challenging times.

I remain incredibly proud of the work our associates are undertaking across all areas of our business.

As I discussed on our earnings call last November, our talent is one of AmerisourceBergen's biggest competitive advantages.

Our associates power our culture and are driven by our purpose.

We are united in our responsibility to create healthier futures, and this is demonstrated across the entire organization.

We know the experience of our associates is enhanced when they believe in the values and purposes of their employer.

And as a company, we have prioritized this by focusing on talent development, career growth and diversity initiatives.

In May, AmerisourceBergen was named a DiversityInc noteworthy company for the fourth consecutive year due to our hiring, retention and promotion of women, minorities, people with disabilities, LGBTQ people and veterans.

While I'm proud that AmerisourceBergen has been direct -- recognized for our diversity and inclusion efforts, we are committed to fostering an even more diverse and inclusive workforce.

We are dedicated to growing, learning and shaping our approach to diversity and inclusion for the betterment of our workforce and the communities we serve.

With this in mind, we took time over the past several weeks to discuss social injustice and racial inequity and fostered a candid dialogue to discuss topics, including racism and unconscious bias.

We facilitated all associate town halls with black leaders and other leaders of color volunteered to share their insights and personal experiences in dealing with discrimination and systemic racism.

These discussions, though somewhat difficult, are a necessary step to foster true change.

We recognize this is an ongoing effort, and we are committed to continuous improvement.

There is significant intrinsic value created for all our stakeholders by having a strong culture and diversity that mirrors society as a whole.

I look forward to sharing more about the progress we are making in this important area in the quarters to come.

Now turning to our results.

The June quarter demonstrated the resiliency of our business as we successfully managed through the new challenges across the global health care system.

The supply chain has become the invisible pillar of medical innovation.

During the COVID-19 pandemic, AmerisourceBergen and our industry as a whole have become understood for what we truly are.

A strategic asset as awareness has been heightened around the importance of pharmaceutical security, channel data and sustainability of supply.

AmerisourceBergen is taking this opportunity to deepen our relationship with our partners and expand on our value proposition as we continue to execute on our pharmaceutical-centric strategy.

The 4 key differentiators that serve as pillars of our company continue to position us for continued value creation.

First, our broad and strategic relationships provides stability and partnerships with key customers in each segment of the health care system.

Members of our good neighbor pharmacy network demonstrated the essential roles they play within their communities during this difficult times.

Thousands of independent pharmacists, pharmacy technicians and staff members have been working tirelessly on the front lines to ensure their patients continue getting the care they need, even when things are at their most chaotic.

They have all adapted at lightning speed to combat the pandemic and serve their communities in new and inventive ways, whether through delivering care packages to the immunocompromised or offering a meal to those who lost their jobs during this crisis.

Independent pharmacies have supported patients while maintaining the highest level of customer service.

We are proud to partner with these frontline health care providers to deliver care to those who need it most.

Second, we continue to build on our leadership position in specialty distribution and services.

Our industry-leading specialty distribution businesses have AmerisourceBergen positioned to leverage our relationships and expertise in a key part of the market.

We continue to see increased biosimilar utilization, particularly in oncology, where our ION business differentiate our value proposition for both our provider customers and manufacturer partners.

The growth we are seeing in biosimilars uptake is encouraging for the future, not only for AmerisourceBergen, but for patient access and the U.S. health care system overall.

On the distribution side, we have been working closely with our provider customers as they take the necessary actions to improve operability.

Community-based practices have adapted to continue treating patients through telehealth visits and by implementing new safety protocols to treat the most critical cases in the office.

In order to minimize patient care disruption, health care providers have implemented new distancing protocols, enhanced office cleaning procedures and acquired additional PPE for staff.

The value proposition of community-based care has never been clearer in the past few months, have further illustrated the vital role of specialty practices in the treatment of critically ill patients in controlled environments.

Patients are keenly aware of specialty physician practices' ability to provide safe, effective and convenient treatment at a time when health and well-being have never been so important.

I mentioned last quarter that the initial restrictive measures negatively impacted necessary patient access to things such as screenings and testing.

As the country continues to navigate the complexities of this pandemic, it is vital that care is not deferred.

Providers are more equipped to operate in the current environment to the benefit of the health and well-being of all patients.

Third, AmerisourceBergen associates continue to focus on providing innovative services and solutions for our partners in the health care system to navigate these challenging times.

AmerisourceBergen is uniquely positioned to help our customers in the current environment and is focused on providing them with important resources.

For example, our sourcing and distribution teams are leveraging our commercial expertise and data and analytics capabilities to provide manufacturing and government entities with actionable channel insights.

We are able to provide significant transparency into the pharmaceutical supply chain and related end markets, which is an important resource as stakeholders seek to be fully informed by data as they face new challenges.

AmerisourceBergen is focused on being solutions-oriented and continuing to identify ways to add value, particularly at this time of heightened focus on the pharmaceutical supply chain.

And at our MWI Animal Health business, we announced 2 new offerings designed to help veterinarians manage the financial impact of COVID-19.

The offerings allow practices to provide flexible financing solutions for clients who may be struggling to afford quality care for their pets or we may just find more certainty in an uncertain economic landscape.

The offering ease the financial burden of both routine and emergency pet care, while also helping practices achieve more consistent revenue, long-term client engagement and most importantly, better outcomes for their patients.

Finally, turning to our fourth differentiator.

We continue to focus on strong corporate stewardship in order to create value for all our stakeholders.

In addition to some of the initiatives I mentioned earlier, during the quarter, the AmerisourceBergen Foundation brought together more than 60 nonprofit partners and peers during a virtual conference to facilitate collaboration, share best practices and learn from one another.

The event focused on developing strategies to address some of the most difficult issues affecting society today, including pandemic resilience, social justice and racial equality, health and community improvement.

AmerisourceBergen is committed to strong corporate citizenship and continuous improvement.

We are driven by our talent and culture, differentiated by our robust customer relationships and leadership in specialty distribution and services and United in our responsibility to create healthier futures.

Our values, strategic partnerships and market leadership position AmerisourceBergen to continue to create long-term value for all of our stakeholders.

Thank you, again, for your interest in AmerisourceBergen.

With that, I will turn the call over to Jim for a more in-depth review of our third quarter fiscal 2020 results.

Jim?

Thanks, Steve, and good morning, everyone.

My remarks today will focus on our adjusted non-GAAP financial results, unless otherwise stated.

Growth rates and comparisons are made against the prior year June quarter.

For a detailed discussion of our GAAP results, please refer to our earnings release.

As we enter the fourth quarter of our fiscal year, I can say without hesitation that I have been profoundly impressed by the execution and dedication across AmerisourceBergen as our businesses have proven resilient as we continue our essential work of enabling patient access.

I am even more proud of the engagement and commitment by our associates and leaders as we come together to address systematic racism and commit to progressing towards equality and justice in everything we do.

The actions we are taking to improve diversity, equity and inclusion will make AmerisourceBergen an even better company.

Turning now to discuss our third quarter results.

I will provide commentary in 2 main areas this morning: first, I will detail our adjusted quarterly consolidated results and our segment performance; second, I will cover the upward revision to our fiscal 2020 adjusted EPS guidance.

Moving now to our third quarter results.

We finished the quarter with adjusted diluted EPS of $1.85, an increase of 5%, primarily due to solid operating income slightly above prior year, a lower effective tax rate and a lower share count.

Our consolidated revenue, gross profit, operating expenses and operating income were each up only slightly as the timing of COVID-related impacts dampened our growth rates in the June quarter.

Rather than spending time discussing these small year-over-year increases at the consolidated level, I will instead focus on the segment-level items and provide incremental color in the guidance section.

Net interest expense increased $2 million to $38 million, primarily due to a decrease in interest income, resulting principally from a decline in investment interest rates.

Given the current interest rate environment, we expect our fourth quarter net interest expense to be in line with the third quarter.

Moving now to income taxes.

Our effective income tax rate was 18.8%, down from 21% in the prior year quarter due to a benefit resulting from a discrete tax item.

Our diluted share count declined 3% to 205.5 million shares, primarily due to share repurchases, net of stock option exercises.

Regarding free cash flow and cash balance, year-to-date, our adjusted free cash flow was $715 million.

Our cash flow guidance for the fiscal year is unchanged as we expect the fourth quarter will generate meaningful cash flow.

We ended the quarter with $3.4 billion in cash, of which $490 million was held offshore and generally in U.S. dollar-denominated holdings.

This completes the review of our consolidated results.

Now I'll cover our segment results.

Beginning with Pharmaceutical Distribution Services.

Segment revenue was $43.6 billion up only slightly due to the increased March quarter customer purchases associated with the onset of COVID-19, which resulted in fewer purchases in the June quarter.

Segment operating income increased about 3.6% to $427 million with our operating income margin up 3 basis points as we benefited from lower administrative expenses and higher gross profit.

As a reminder, the segment's operating income had a $9 million tailwind due to the exit of the PharMEDium business.

While the timing and complexity of the impact of COVID-19 somewhat distorts the comparability of our numbers this quarter, it is abundantly clear that our pharmaceutical-centered strategy, deep relationships, talented associates and leading businesses have enabled AmerisourceBergen's resilience.

The teams and associates across our Pharmaceutical Distribution businesses have done commendable work to deliver on our purpose of being united in our responsibility to create healthier futures, ensuring safe and secure patient access to pharmaceuticals and supporting the evolving needs of our manufacturer and provider partners.

I will now turn to the other segment, which includes businesses that focus on Global Commercialization Services & Animal Health, including World Courier, AmerisourceBergen Consulting and MWI.

In the quarter, total revenue was $1.8 billion, up 4% primarily due to growth at our Consulting group and World Courier.

Operating income for the group declined by $12 million or 13% primarily due to impacts from COVID-19 at our MWI business.

In May, we called out expected volume pressure for our MWI business associated with COVID-19-related impacts.

During the June quarter, we saw MWI's companion animals business rebound very well as vet visits normalized.

However, MWI's production animal business stepped down meaningfully in April and again in May and then leveled off.

The production animal business continued to see pressure stemming from a decline in food service demand.

This completes the review of our segment results, so I will now turn to our fiscal 2020 guidance.

As we said in this morning's press release, we are raising our fiscal 2020 adjusted EPS guidance range from $7.35 to $7.65 to our new guidance range of $7.80 to $7.95 as AmerisourceBergen's business has proven even more resilient than we had incorporated into our previous range.

When we provided our guidance back in May, we anticipated that June quarter EPS would decline due to the March pull forward of pharmaceutical sales and negative COVID-19-related impacts on our various businesses throughout the quarter.

We characterized the expected disruption stemming from COVID-19 as manageable.

But our teams and businesses exceeded our own expectations and worked diligently to successfully meet the needs of our customers.

We have seen stability and return to growth in both our full line and specialty distribution channels as our business saw a return to growth over the course of the quarter.

Our distribution businesses saw sales increase from May to June based on the average weekly sales in each month.

These positive trends as we exited June set us up well for the fourth quarter.

For example, our specialty physician business has proven resilient as practices adaptive to operating in the current environment, allowing them to meet the needs of their patients.

Even our non-oncology physician business saw a steady return to pre-COVID levels across therapeutic areas.

Additionally, we have seen increased demand from our health systems customer base as hospitals and clinics have adjusted their operations to provide care in the current environment.

In our Global Commercialization Services & Animal Health businesses, World Courier has continued to prove its value during a time of increased complexity with June being a record month for the business as volume and weights were up globally.

Turning now to our updated financial guidance metrics for fiscal 2020.

Revenue is now expected to be in the mid single-digit percent growth range as the June quarter proved to be resilient as doctor-patient interactions returned and patients focused on adherence and well-being, allowing for continued care and pharmaceutical utilization.

Turning now to operating income.

We now expect to grow operating income in the mid- to high single-digit percent range as a result of raising our pharmaceutical distribution operating income guidance to the same range and to reflect our improved expectation for the other segment's operating income to grow in the low single digits instead of a decline for the fiscal year.

As a reminder, due to exiting the PharMEDium business, the pharmaceutical distribution segment has a tailwind of $35 million for the fiscal year and $18 million of that tailwind is in the fourth quarter.

Regarding tax rate.

Entering the last quarter of the year, we are narrowing our tax rate guidance from a range of 21% to 22% to guidance of approximately 21%.

Lastly, we are slightly lowering our expectation for CapEx to approximately $375 million, down from $400 million.

As it pertains to fiscal 2021, our corporate planning process remains unchanged.

We will provide comprehensive financial guidance at the end of the current fiscal year.

This approach allows for guidance to be fully informed by the output of our year-end business planning process.

In closing, I continue to take great pride in being part of AmerisourceBergen, and I'm inspired by the commitment, sincerity and focus on execution that are embedded in AmerisourceBergen's culture.

The resiliency of our business and the determination of our associates to leverage AmerisourceBergen's knowledge and reach makes us even more confident today that we will emerge from this unprecedented time with enhanced capabilities and innovative solutions for the health care system.

Our company is strong and well positioned, and we are committed to making it even better for all our associates, which will enable and accelerate long-term value for all stakeholders.

Thank you for your interest in AmerisourceBergen.

Now I will turn the call over to the operator to start our Q&A.

Operator?

(Operator Instructions)

And the first question comes from Steven Valiquette with Barclays.

I guess, I was curious just on the strength of all the results.

Just to hear whether or not there is any notable changes in the generic pricing trends, particularly on the buy side part of your ledger.

Is that any factor in the increased profitability and just better outlook for the remainder of fiscal '20?

Yes.

Sure.

I'll handle that.

Thanks for the question.

Yes.

As we've indicated previously, in fiscal year '20, we have seen generic deflation moderate compared to prior years.

We think there's probably focus by manufacturers on maintaining supply in the current environment.

And so overall, while we still are seeing generic deflation, we've seen it moderate, and that certainly has been benefit compared to the past years.

Okay.

And then also as far as the profitability of biosimilars within fiscal '20, is that kind of also accelerated as the year has gone on?

Yes.

Steve, thanks for the question.

We're very pleased with the progress in biosimilars.

We actually are quite proud of -- after all, a couple -- about 2 years ago, a write editorial saying that it was too early to throw in the towel and buy some of those.

And I think that subsequent events have proven that it's really increased patient choice.

And I think it's -- the role of biosimilars will be to make role for the new -- way for the new innovative progress.

So it's a very important part of our business and our ION contracting and physician services organization has been very, very profound in the influence that they've had in their education to the provider community, and especially provider community about biosimilars, and we really are seeing them having an impact on our customer base.

And the next question comes from Eric Coldwell with Baird.

A couple of questions.

First one, I'm curious of any cost or efficiency actions that we're taking in response to COVID.

How much of those might persist over the next few months, quarters?

And then secondarily, new markets.

You've mentioned some new offerings in MWI to help their accounts with challenges their customers have faced.

I'm curious if you've seen any other new market opportunities that have arisen due to COVID.

Does it change any of your strategy or long-term thinking on where you're investing and how you're going to market?

Yes.

I'll start, and then I'm sure Steve would want to add.

In terms of cost efficiency, really, in this environment during the June quarter, we were really focused on not skimping on costs.

We had some extra compensation that we invested in our front-line associates who really were heroic in their efforts in our distribution centers, and that's worked out very well.

We've had additional cleaning costs and those sorts of costs in our distribution centers.

So we've had some additional costs but really, we've also had natural savings in other areas such as travel.

Travel expenses were well down during the quarter.

So those things, the large extent, offset each other.

And you can see we did quite well during the quarter from -- and from an operating expense standpoint.

Some of the things you said that what are we doing from a customer standpoint?

You mentioned that Steve commented on MWI during his script.

There are really a number of value-added services that MWI has been rolling out the customers to help in this environment, whether it be telehealth or digital payment plans that Steve talked to or social distancing tools like parking lot drop off.

So these are value-added tools that MWI is providing to customers.

Kind of the same type of thing.

We've just seen businesses like World Courier be able to provide even more services and managing complexity in this type of environment.

And as air transport capacity was limited, customers put more value on the types of services that World Courier can provide.

So those are just a couple of the -- a couple of samples of additional customer services we were providing.

Yes.

The only other thing I'd say is that we've looked for ways to expand our services and be innovative and responsive to this new environment.

So some of the innovation is really the internal, the way that we communicate with our associates.

So we do these global calls, and we have usually 6,000 to 7,000 people on them, they -- every second Friday, and that's a great opportunity to communicate.

But we've also done a lot of things like -- again, I talked about ION earlier.

ION has been able to transfer their meeting environment to online.

And a lot of companies have done it, but it's still been very important then we have that strong sense of continuity with our customers.

I think we've been able to manage in this digital environment with both large and small customers.

And that's been very important.

The small customers really appreciate that touching base, that connectivity.

So, thank you.

And the next question comes from Lisa Gill with JPMorgan.

I just had a couple of questions.

And I don't know if it's maybe a little too early to start thinking about your ['20] ['21] but the moving as we go into 2021 quarter [better-than-anticipated].

It looks like your guidance for your fourth quarter.

It's fairly conservative given what you were able to do.

Can you maybe just think about the moving pieces going into 2021?

And then -- so I just want to -- how things (inaudible) so are practices fully back up?

What were the types of volume (inaudible) even in July?

And as we think about specialty going forward?

Yes.

Let me -- Lisa address the first part of that is we're looking at 2021.

And then I think there is a follow-up there on specialty which, of course, Steve will address it.

I will say that you were breaking up there on the telecom.

And so -- but I think I caught most of the question.

So heading into 2021, we're in the midst of our internal planning process like we always are at this time of the year.

Some of the things that we're looking at as we're doing our '21 planning, our COVID impacts and what could be the COVID impacts on the health care system.

We're -- again, we're looking, of course, at all of our business units' expectations.

We're looking at OpEx.

We did have some benefits to OpEx in the most recent quarter, which might be hard to get that level of OpEx benefit in fiscal year '21, particularly as we look at things like reentry costs in fiscal year '21.

Of course, we're looking at brand and generic pricing, and we've talked about some of the moderation of generic deflation that we've seen this year and what happens there in fiscal year '21.

So we're really focused on expanding our value proposition, deepening our relationships and growing operating income as we look at fiscal year '21.

And then also, one thing that is important to note is, as you look at fiscal year '21 growth, when we do come out with guidance compared to fiscal year '20, as we did have a meaningful PharMEDium benefit in fiscal year '20.

It was, as I said in the prepared remarks, about $9 million in the June quarter, about $18 million expected in the fourth quarter and $35 million for the fiscal year.

So that's another thing to take into account.

And then I think you had a follow-up on specialty.

Yes.

I'm sorry if you can't hear me, but just that -- just on the specialty, I just want to understand what -- going into July, the recovery that [is set at] the marketplace, any drivers around the specialty business would be helpful.

Yes.

Lisa and I have a question for you.

I hope you're going to have your conference in January, but I guess we'll see.

So -- but...

Well I hope (inaudible) that as well.

So yes, it will be a good chance to see everybody again.

So specialty is -- look, we had -- if you look at oncology, obviously, our biggest business, we were off a couple of percent in April and then recovered very well and we're back to the levels we were -- we're back to pre-COVID levels basically in oncology.

In some of the other businesses, it was a little bit different.

Some of the Besse-based businesses they were a bit weaker, but we're now seeing them really lift up.

And I'd say that just going into July, this -- the trends have stabilized.

So there was a pent-up demand.

So we saw some really strong numbers and it's not like that.

It's not like we saw you where it's going to keep on going up high.

So it's back to pre-COVID levels and I think that -- again, if you have MS, if you have muscular degeneration, obviously, if you have a chemotherapy treatments, those are incredibly important.

And as soon as you feel at all safe, you're going to return.

One thing that's very interesting is that the distribution of services into the community for specialty is unique in this country, and it's proven, I think, very durable for the patients.

And that's what we've always, I'm trying to make the point that it's very important that patients can access care where they need to.

And I think in this crisis, a lot of patients felt a lot safer going to the physician's office than they went into a health system or even a larger outpatient system.

So it's a good example of the resiliency of the U.S. health care system, the way that we have such strong community practices.

So, thank you.

And the next question comes from George Hill with Deutsche Bank.

Maybe 2 brief ones.

Given how you guys adjusted the guidance, I assume that the trends in the core pharma business from July kind of reflected what you saw at the end of June.

So strength in July has been good.

And then maybe just a quick comment on what you've seen in the World Courier business as it relates to the ability to deliver our products and samples to clinical trial sites.

Would you be interested in any commentary around that business?

Sure, sure.

This is Jim.

I'll be happy to answer that.

Before talking about July, I think what was really notable and important as we saw really all our distribution businesses grow from the month of May to the month of June.

And so we really saw very nice growth in June compared to May.

And then what we saw is the business has stabilized in the month of July, consistent with June.

And so we are pleased by the trends that we're seeing.

But of course, as Steve said, what we saw in July was more of a stabilization.

And then World Courier, as I indicated during the prepared remarks, World Courier had a record month in the month of June, just very strong results.

Customers really placing value on World Courier's service.

World Courier, as I've said before, we've said before, really excels at managing complexity and as air transport capacity was limited.

Customers value the service.

There were some COVID-related opportunities like direct to patient.

And so -- and overall, just seeing positive trends at World Courier that like our other businesses, I mean, we saw good growth in June, and it's continued in July.

And the next question comes from Charles Rhyee with Cowen.

Maybe just 2 questions here.

You guys didn't really touch on sort of the current opioid litigation.

Any updates there that you could provide us with.

Obviously, some of the recent news there that like the judge had kind of shut down a request for some piece from the plaintiff's attorneys.

Any kind of update you can provide us there?

And then secondly, I think there's also been a lot of talk recently about on -- because of the crisis, in part, but onshoring production of either generic drugs or API for those drugs.

Can you give us your thoughts on what that would mean either more broadly for the generics market and more specifically, what it might do on the distribution side of things?

Yes.

Charles, first of all, on the opioids, yes, there's no substantive update.

So we said on the last call that we've been focused on the pandemic, and I think a lot of the counterparties have also been.

And given the complexity and the issue of the number of parties involved, we continue to prepare for trials, obviously.

We continue to hope that the counterparties, the other parties, will see the merits of a potential global framework.

And we remain focused on the essential work we do in the supply chain to meet the critical needs of patients during the pandemic.

And then just repeat the second part of your question, please?

Yes.

It was -- yes, the -- yes, there's been some talks about bringing onshore manufacturing of generic APIs, et cetera?

Okay, sorry.

Sorry.

Yes.

Yes, sorry.

And I was just on a call this week with one of the senators who's involved in this, and they were talking about PPE, but also API.

And it's -- there is some discussion in Washington that this is just from the reading I do and different calls that we are on and that parts of PPE and maybe even API are essential security infrastructure needs of the company -- of the country.

So of course, these things don't happen overnight.

There's also a lot of environmental issues.

There's the cost issue, which I think everyone has always taken very seriously.

The global supply chain has become incredibly complex.

And of course, AmerisourceBergen will work with policymakers, offer our services as we have, offer our expertise and also work with the industry.

So to see if there are any major changes.

And if there are, then it would have to be done through a statute.

So it would have to be done through the legislative process.

So we would be involved in that.

So, thank you.

Thank you.

And the next question comes from Ricky Goldwasser with Morgan Stanley.

Yes.

So there are some headlines last week on government working with the private sector on the distribution and administration of the COVID vaccines once it comes to market.

Can you talk a little bit about kind of like your capability?

How do you think about available capacity?

And when we think about the channel that vaccines will be administrated there, where does it fit with your infrastructure and relationships?

Yes, Ricky, Hi.

Good to hear your voice.

We are deeply involved in the supply chain.

I mean, I actually was on a panel for the World Economic Forum a few months ago.

And I said in the -- look, I can't speak for the rest of the world, but in the U.S., we have deep cold supply chain capabilities.

Now some of the reported temperature storage requirements are quite significant.

We'll see what the final dosage and the requirements are, but I'm confident that we would work with the manufacturers to make sure that we can meet the needs in the U.S. market, where, of course, we have very large market share in other countries.

We probably wouldn't play as prominent a role.

You should know, of course, that we have been involved in active discussions with manufacturers as we start to plan.

It's probably, -- to be honest, it's an event that I think AmerisourceBergen would be very galvanized and excited around just as part of the health care community and the smart global citizens.

You hear that there could be emergency-use authorization for the first candidate for health care workers.

And whatever it is, we have the capabilities.

We have good insights into where the hot spots are.

We have a good capability to blend those data sets together.

So I feel confident that if asked to serve, AmerisourceBergen will be strongly positioned to be able to do that.

So, thank you.

And then just one follow-up on the seasonal flu vaccine.

I'm with an earlier call today with a discussion around this being under normal flu vaccine season.

How kind of like is that incorporated into your guidance?

And on a normal year, can you maybe give us some sort of a guidance of what is the contribution from the flu vaccine in a normal year versus what it could be this year?

Ricky, so vaccines are much more distributed than other products because there's so many different points of service, physicians offices, for example, they do not use specialty products.

So they're not typically AmerisourceBergen customers, and they would access products through their vet -- their med-surg distributor often.

So there's a lot of other companies besides our 2 best known peers that do vaccine distribution.

So also, the manufacturers do, do some of that direct.

But the flu vaccine, it is not material to ABC.

It's not a very expensive product.

It is somewhat difficult to manage.

I was responsible -- I have responsibility from managing it for years because it was in our ASD division, which reported into me.

And we would literally start working on it as that -- as the season ended.

We started working on bookings and the issues with the manufacturing, the strains, but it's not material to ABC.

About 40% to 45% of the country as you know, gets the vaccine, and we expect that it could be higher this year, and we hope it will be higher this year or so.

That's really it.

Jim, anything to add on the materiality updates?

Yes.

It's a very relatively small part of our plan for the balance of the year in our current guidance.

Yes.

it could drive business in our communities -- at our community pharmacies as they do in occulation.

So that could be a good way to -- for patients to start getting used to going back into pharmacies, those who have been reluctant to do it.

So I think that, that could be a positive benefit from this flu vaccine year, but that's just an idea.

So, thanks, Ricky.

And the next question comes from Eric Percher with Nephron Research.

A question on the health of the independent pharmacy marketplace.

It sounds like the move to 30- to 90-day and cash discount cards has been a pressure.

Have you seen those pressures?

And then within your assets and the PSAO, do you offer any tools for offsetting, particularly the cash discount card pressure?

So if you look at -- Eric, hi.

If you look at the overall -- the grand scheme of the marketplace, there's not very significant market share service.

Of course, in March, we saw our mail uptick quite significantly, and it is well documented that there was an increase in the 90-day scripts.

However, the counterargument to that is there is an increase in patient adherence, which is very good for business.

And certainly, one of the things when -- I remember when I first became CEO and I talked to our Good Neighbor Pharmacy group, I said, "You guys have to do 90-day scripts." And at that time.

10 years ago, I must say then people would -- pharmacists weren't as interested in the 90-day scripts.

But it's certainly something that has become more common in the market, as you know.

And again, we would point to the unique role that the community pharmacists have today as one of the most trusted and accessible health care professionals and literally with very good value.

I mean, you can go and pick up your generic prescription and pay a $5 co-pay in most cases and get access to a professional at your independent pharmacy.

So we know that independent pharmacists have some headwinds, but we're working well with them.

We think we add a lot of value and we think that they, again, will carry on differentiating themselves by the customer service and the entrepreneurial approach to the business.

Jim?

Yes.

Steve, the one thing I'll add, Eric, is that kind of the shape of the rebound in independent pharmacy sales over the quarter was comparable to our -- many of our other distribution businesses with pull forward in March, lower sales in April.

But then like our other distribution businesses, a rebound in sales growing from May to June and then stabilization in the month of July, consistent with June.

Thanks.

Thank you.

If I could -- if there's concern that we see furloughs move to unemployment and more cash, that could deepen things, but as you see it today, you haven't seen a significant change in the independent data.

Is that fair?

Yes.

I mean, we've always said, I think we said many years when the Affordable Care Act was implemented that we maybe saw -- we thought it might have accounted for a 1% to 2%, at the most, impact on script volumes because there's no doubt that having insurance coverage is important for patients.

So it's been so profound and so seismic that the impact to employment that we -- it's hard to assess all the trends here.

But there's also a lot of prescriptions are accessed by seniors, right?

Seniors are on Medicaid often, and they have supplemental insurance, and they are sometimes not employed or they have their retirement set.

And we don't -- as you well know, we don't really differentiate between a Medicaid, but we're selling in aggregate.

So it doesn't really matter to us what coverage it is, but I would agree with you that it's very important that patients continue to access coverage.

And the final thing I'll say is that our businesses like Lash truly do support patient assistance programs, which manufacturers have stepped up in this time to make sure that there's continuity of patient care and we're very proud of that work..

And the next question is from Elizabeth Anderson with Evercore.

Thanks for all clarity on the outlook so far.

I have a question on Animal Health.

I think you gave some commentary on how you saw it during the second quarter.

But as we sort of go from July forward, like how are you seeing that business transition?

And do you see sort of that business continuing to consolidate for you've obviously had some share gains over the recent months?

Yes.

Yes.

And so as we commented, Animal Health had its operating income impacted by COVID-19 during the quarter.

But really, the fundamentals there for Animal Health and MWI are quite strong.

As we commented, we had a good quarter in companion animal.

Where we impacted was Production Animal and in the U.K. And so if you just actually look at our animal health business in the U.S., sales were up during the quarter.

The rebound in companion animal was relatively fast and quite nice.

It looks like it will be a slower rebound in production animal, which has been -- which was impacted during the quarter for a while due to plant capacity, but these plants' capacity, but also by some slowness in food service.

But the fundamentals for the business are very strong, good market.

Our revenue trends are good there, market share, as you commented, has been quite good, really good execution by the team and good execution on value-added services.

So we feel very positive about the business for the long term.

And as that was the last question, I would like to return the floor to management for any closing comments.

Yes.

So thank you, everyone, for your participation this morning.

I know it was a busy day.

And I also want to give a special thanks to our associates, those who's serving all roles, including those on the front line, but to all of our associates for delivering on our essential role in health care.

We are really proud of the dedication and innovation to expand our value proposition and deepen our relationship with our customers.

Thanks for your time today.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect your lines.