Cardinal Health Adds to Warnings Over Drug Pricing -- 2nd Update
October 31 2016 - 02:15PM
Dow Jones News
By Melanie Evans and Austen Hufford
Cardinal Health Inc. became the latest drug distributor to warn
that the slowing pace of branded drug-price increases, and lower
generic-drug pricing, was hurting results.
During a conference call, Chief Executive George Barrett said
the company faces a "very challenging" environment, as drug
manufacturers react to criticism of high drug prices and pharmacies
shop among distributors for the best generic prices.
"The election cycle is creating an enormous amount of discussion
and noise, which I do think has an effect on the way people
behave," Mr. Barrett said.
Cardinal and other distributors act as middlemen between
drugmakers and pharmacies. Their contracts with branded
pharmaceutical companies often allow them to benefit from rising
drug prices. As some branded drugmakers rein in price increases,
that benefit to distributors gets squeezed.
Cardinal lowered its profit guidance for the year, citing
generic pharmaceutical pricing and reduced levels of branded drug
price increases. The earnings retreat by Cardinal is the latest
sign that drug price inflation may be moderating under intense
public pressure.
The company's profit from its pharmaceutical division dropped
19% in the quarter from the prior year, in part as a result of
pressure on generic prices from the wholesaler's customers, Mike
Kaufmann, the company's chief financial officer told analysts.
Rival distributor McKesson on Thursday said it also faced
pricing pressure last quarter as competition intensified.
Cardinal now expects generic drug prices to fall in the
mid-to-high single digits in the current fiscal year, compared with
its earlier expectation a mid-single digit decrease. It also
expects branded drug manufacturer prices to increase 7% to 9% in
the year, down from 10% previously.
Cardinal Health now forecasts annual adjusted earnings per share
of between $5.40 and $5.60, down from $5.48 to $5.73
previously.
Shares of many drugmakers, wholesale distributors and
pharmacy-benefit managers were battered Friday as evidence emerged
that drug companies aren't increasing prices as sharply as in
previous years. Cardinal shares rose 2.4% Monday afternoon after
falling sharply on Friday along with the rest of the sector.
For the period ended Sept. 30, Cardinal Health reported a profit
of $309 million, or 96 cents a share, down from $383 million, or
$1.15 a share, a year prior. Excluding certain items, per-share
earnings fell to $1.24 from $1.38.
Revenue increased 14% to $32.04 billion.
Analysts polled by Thomson Reuters expected per-share profit of
$1.21 and revenue of $31.04 billion.
Pharmaceutical segment revenue climbed 15% to $28.80 billion,
while medical segment revenue grew 14% to $3.3 billion.
Write to Melanie Evans at Melanie.Evans@wsj.com and Austen
Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
October 31, 2016 14:00 ET (18:00 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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