February 22, 2019 / 3:27 PM / 5 months ago

Diplomat Pharmacy pulls forecast, delays results; shares hit record low

(Reuters) - Diplomat Pharmacy Inc said on Friday it would withdraw its 2019 forecasts and delay its fourth-quarter and annual results as lower-than-expected performance in its pharmacy benefits management (PBM) business could result in a charge.

The company’s shares tumbled about 37 percent to a record low of $8.50 in morning trade.

Diplomat said additional customer losses since January, when the company provided its preliminary 2019 expectations, and a softer outlook for client wins had weighed on in its pharmacy benefits business.

“This is an important transitional year for the PBM business. We have a clear path to stabilization and growth but ... our patience is not unlimited,” said Chief Executive Officer Brian Griffin, a former CEO of Anthem Inc’s PBM unit who joined Diplomat in May last year.

The company also said its specialty pharmacy business was getting hit by aggressive techniques used by competitors, resulting in loss of script volumes.

“Diplomat is clearly facing pressures on a number of fronts, and we, therefore, expect the stock to struggle until operations can be stabilized,” said John Kreger, an analyst with William Blair.

Diplomat forayed into the PBM business in 2017 with back-to-back purchases of LDI Integrated Pharmacy Services and National Pharmaceutical Services.

The entry had then stoked investor fears, with some analysts questioning the move into a business that faced heightened regulatory scrutiny.

PBMs, along with other so-called “middlemen” in healthcare, have been blamed for rising healthcare costs. President Donald Trump’s administration last month proposed a rule that would overhaul the use of drug company rebates, or discounts, that are a pillar of pharmacy benefit management.

The companies’ shares have suffered, with Diplomat’s stock down about 43 percent in the past one year.

The pressure on the PBM unit has led to Diplomat missing profit estimates in three out of the past four quarters.

The company has outlined a plan to return the business to growth in 2020, and has made top level changes including engaging a consultant with “deep PBM operational experience”.

The charge is expected to be equal to a significant portion of the PBM unit’s goodwill assets, which totaled about $630 million as of Dec. 31, the company said.

Reporting by Manas Mishra in Bengaluru; Editing by Sriraj Kalluvila

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