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Drug distributor McKesson's upbeat forecast sends shares soaring
May 18, 2017 / 8:27 PM / 6 months ago

Drug distributor McKesson's upbeat forecast sends shares soaring

(Reuters) - McKesson Corp (MCK.N) reported a higher-than-expected quarterly profit and forecast an upbeat full-year earnings, easing concerns about the drug wholesaler’s struggles with moderating branded drug price increases and falling prices for generics.

The company’s shares were up 8.8 percent at $153.90 in after-market trading on Thursday.

The pharmaceutical supply chain, including pharmacy benefit managers and drug distributors, is coping with the fallout of increased scrutiny of soaring drug prices by regulators and politicians.

The scrutiny has led to a drop in the prices of generics and a slowdown in the pace of increase in branded drug prices.

Rival Cardinal Health Inc (CAH.N) said last month it expected its full-year adjusted earnings at the lower end of its forecast.

McKesson said it expects fiscal 2018 adjusted earnings of $11.75-$12.45 per share, above analysts’ average estimate of $11.46, according to Thomson Reuters I/B/E/S.

“The stock is reacting positively because some people were concerned that guidance would come below consensus ... especially after Cardinal Health,” Needham & Co analyst Kevin Caliendo told Reuters.

For its fiscal year 2018, McKesson forecast branded drug percentage price increase to be in the mid-single digits and nominal contribution from generic medicines that are expected to see a price rise.

Analysts have said drug distributors may have to contend with branded and generic drug pricing pressure for some time.

Net income attributable to McKesson rose to $3.59 billion, or $16.76 per share, in the fourth quarter ended March 31, from $431 million, or $1.88 per share, a year earlier.

The latest quarter earnings included a pre-tax net gain of $3.9 billion related to the creation of the Change Healthcare joint venture, the company said.

McKesson said last year it would combine most of its information technology business with Change Healthcare Holdings Inc to create a new company.

Excluding items, the company earned $3.42 per share, ahead of analysts’ average estimate of $3.00.

Revenue rose 4.4 percent to $48.71 billion, but missed analysts’ average estimate of $49.48 billon.

McKesson said the latest quarter results are based on a revised definition of its adjusted earnings and that the company had recast its fiscal 2017 results to the reflect the tweak.

Shares of rivals AmerisourceBergen (ABC.N) and Cardinal Health were both up in extended trading on Thursday.

Reporting by Ankur Banerjee in Bengaluru; Editing by Sriraj Kalluvila

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