February 1, 2018 / 12:19 PM / 21 days ago

McKesson says drug prices competitive but not volatile like 2017

(Reuters) - U.S. drug wholesaler McKesson Corp (MCK.N) said prices of generic drugs were still competitive, but not as volatile as in 2017 when prices fell sharply, which should help the company as it benefits from a major tie-up with Walmart.

The comments from the nation’s biggest drug distributor come after a rocky couple of years for distributors of generic drugs, whose profits and revenues declined because of lower prices.

Generic drug prices fell amid increasing supply, heightened political scrutiny into high prices as well as a record number of regulatory approvals for new medicines.

“We continue to believe generic pricing and the related deflation we’ve experienced recently in that marketplace makes generic product prices very competitive,” McKesson CEO John Hammergren said on a call with analysts.

His remarks came after McKesson reported quarterly profit above analysts’ forecasts, helped largely by a partnership with Walmart, which allows it to buy cheap generic drugs.

The results confirmed that drug prices were not falling further and possibly even stabilizing, but not necessarily improving, said Evercore ISI analyst Ross Muken.

McKesson’s shares fell nearly 1 percent on Thursday afternoon after rising 8 percent this month.

Baird analyst Eric Coldwell called the selloff “irrational,” adding that weak results from smaller rival Owens & Minor (OMI.N) also weighed on shares.

Shares of McKesson rivals AmerisourceBergen (ABC.N) and Cardinal Health (CAH.N) also fell.

Stocks across the industry have come under pressure this week after Amazon.com Inc (AMZN.O), Berkshire Hathaway Inc (BRKa.N) and JPMorgan Chase & Co (JPM.N) joined hands to cut healthcare costs for employees.

    Adding to the pessimism, President Donald Trump, in his State of the Union address, called reducing prescription drug prices a priority.

    Like McKesson, other drug distributors have also tied up with large retailers to gain leverage and get huge discounts while buying generic drugs.

    McKesson, which partnered with Walmart in 2016, continues to view the generic market as attractive, it said.

    McKesson’s profit jumped nearly 43 percent to $903 million in the quarter ended Dec. 31, thanks to a $370 million one-time benefit from new U.S. tax laws.

    Excluding one-time items, McKesson earned $3.41 per share, topping analysts’ average estimate of $2.94, according to Thomson Reuters I/B/E/S.

    Total revenue rose 7 percent to $53.62 billion.

    As a result of a lower share count and a smaller tax rate, McKesson raised its 2018 forecast for adjusted earnings to $12.50 to $12.80 per share from $11.80 to $12.50.

    Reporting by Anuron Kumar Mitra and Manas Mishra; Writing by Ankur Banerjee; Editing by Maju Samuel and Sai Sachin Ravikumar

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