McKesson Eyes $2.25B Precision Medicine Deal as Oncology Growth Accelerates

Key Points

• McKesson plans to acquire Precision Medicine Group for $2.25 billion, expanding its oncology and biopharma-services businesses with clinical-trial, CRO, payer-strategy and market-access capabilities.
• First-quarter results were strong: North American Pharmaceutical Distribution revenue rose about 5% with adjusted operating profit up 19%, while Oncology and Multi-Specialty revenue and profit increased approximately 33% and 41%, respectively.
• McKesson expects to return roughly $5 billion to shareholders this year, including $2.5 billion in first-quarter buybacks and a 15% dividend increase, while continuing investments in automation, artificial intelligence and growth initiatives.

McKesson NYSE: MCK discussed its planned $2.25 billion acquisition of Precision Medicine Group, first-quarter operating trends and capital-allocation priorities during a presentation with Wells Fargo analyst Stephen Baxter.

The company said Precision Medicine Group would expand two areas it has identified as long-term growth markets: oncology and biopharma services. The acquisition is expected to become part of McKesson’s Oncology and Multi-Specialty segment, subject to regulatory review and other approvals.

Company executives said Precision Medicine Group has two principal businesses that align with McKesson’s oncology strategy and its biopharma commercialization operations. The transaction would add clinical-trial capabilities, including biomarker-focused trials, while complementing McKesson’s Sarah Cannon, Ontada and U.S. Oncology Network assets. It would also add services related to payer strategy and market access for biopharma companies.

Precision Medicine Group Adds CRO Capabilities

McKesson said the deal would bring a more established contract research organization, or CRO, capability to its portfolio. The company currently has site-management operations through its Sarah Cannon joint venture and described its existing CRO-related capabilities as more limited.

The Precision Medicine Group CRO business is focused on oncology, rare disease, immunology, and cell and gene therapy rather than the broader services offered by some larger CROs, executives said. McKesson said the focus is important because it aligns with areas where the company already has assets and investments, including its InspiroGene cell and gene operation.

Kenny Cheung, McKesson’s executive vice president and chief financial officer, said the company sees the transaction as complementary to its existing platforms and expects it to create incremental value for biopharma partners across drug innovation, clinical services, commercialization and patient access, particularly in community settings.

Cheung said McKesson would provide further information about expected earnings-per-share accretion as the transaction progresses toward closing. He said the company evaluates acquisitions based on strategic alignment, returns above its cost of capital, return on invested capital, risk and the trade-offs against other uses of capital.

McKesson said on its first-quarter earnings call that it expects to deploy roughly $5 billion to shareholders this year. That included $2.5 billion of share repurchases completed in the first quarter and a 15% increase in its dividend.

First-Quarter Growth and Investment Plans

Cheung said McKesson was pleased with first-quarter performance across its North American Pharmaceutical Distribution, Oncology and Multi-Specialty, and Prescription Technology Solutions businesses.

In North American Pharmaceutical Distribution, revenue increased roughly 5% and adjusted operating profit rose about 19%, according to Cheung. He attributed the results to broad-based growth across products and channels, including brands and generics, as well as strong utilization trends in health-system products. Product launches, including new branded products and brand-to-generic conversions, also supported gross profit.

While the company’s full-year forecast implies slower growth than the first-quarter rate, Cheung said McKesson expects to make investments in business growth, automation and technology during the second half of the year. He said artificial intelligence investments in supply-chain operations are helping coordinate demand, supply and operations while producing working-capital benefits.

McKesson said customer renewals remain a routine part of its operations, with roughly one-third of its business typically up for renewal each year. The company said it seeks to build value-based relationships rather than purely transactional arrangements, pointing to capabilities such as CoverMyMeds, connections with 50,000 pharmacies, supply-chain services and data-driven tools.

Generics, IRA and Biosimilars

Executives described the generic-drug environment as competitive but stable. McKesson said its ClarusONE joint venture supports generic sourcing and that its priorities include stable supply, competitive pricing and product availability. The company said loss-of-exclusivity events are reflected in its guidance, though generics are less material to its North American pharmaceutical distribution business than they were in prior decades because of the broader business’s growth.

Regarding the Inflation Reduction Act, McKesson said it has experienced a revenue headwind from drug pricing changes but generally has not seen a corresponding bottom-line impact. Cheung said approximately 95% of its contracts are structured as fee-for-service arrangements, helping preserve gross profit and operating income even when wholesale acquisition cost pressure affects revenue.

The company said it remains in discussions with manufacturers regarding future IRA-related drug cohorts and expects to manage the next wave similarly to prior pricing changes.

McKesson also expressed optimism about biosimilars, saying they can improve patient choice and healthcare affordability while typically providing more value to its model than innovator drugs. The company said biosimilars generally fall between generics and branded drugs in their value to McKesson, with Part B channels tending to be more favorable than Part D.

Segment Updates and Wellverse Separation

McKesson’s Oncology and Multi-Specialty segment reported approximately 33% first-quarter revenue growth and about 41% adjusted operating profit growth, Cheung said. Excluding the impact of Core Ventures comparisons, he said adjusted operating profit grew roughly 15% year over year. The company cited volume growth in existing practices and networks, new business wins in group purchasing and distribution, and acquisition returns as key drivers.

Prescription Technology Solutions reported first-quarter revenue growth of 9% and adjusted operating profit growth of 13%, at the high end of its long-term adjusted operating profit growth target of 10% to 13%, Cheung said. GLP-1-related activity is contributing to growth, but Cheung said GLP-1s represent roughly 11% of the segment’s total revenue, while non-GLP-1 therapies also grew.

McKesson said its BRIDGE program began in July and therefore did not affect first-quarter results, though it was included in the company’s guidance. Cheung said the program has started more strongly than expected, and the company plans to provide an update with its second-quarter results.

In Medical-Surgical, first-quarter revenue rose roughly 4%, while adjusted operating profit declined about 20% due in part to one-time administrative costs. McKesson reiterated its expectation for full-year adjusted operating profit growth of 0% to 4% in the business, supported by new business wins, private-label expansion and cost initiatives. Executives said illness-season indicators have been somewhat softer than expected so far, though the season is still in its early stages.

The company also said it is progressing with the separation of its Medical-Surgical business, which has been rebranded as Wellverse. Transition service agreements are being established and beginning to wind down, while systems are being moved into a standalone environment. Cheung said McKesson is targeting the back half of the next calendar year and plans to exit its remaining shares following a customary lockup period through a split-off, spin-off or both.

About McKesson (NYSE:MCK)

McKesson Corporation NYSE: MCK is a global healthcare services and distribution company that supplies pharmaceuticals, medical-surgical products and health care technology solutions. Founded in 1833 and headquartered in Irving, Texas, McKesson operates across the drug distribution and healthcare services value chain, connecting manufacturers, pharmacies, hospitals and health systems to help manage the movement of medicines and clinical supplies.

The company's core activities include pharmaceutical wholesale distribution and logistics, specialty pharmacy services, and the provision of medical-surgical supplies to acute and non-acute care providers.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.