Profits were relatively stable at Cardinal Health in the second quarter, but executives at the distribution giant said they are beginning to see a return to normal generic drug-pricing trends as a result of increased competition.
Cardinal reported $324 million in profits for the three months ended December 31, down less than a percent from the same period the year before. Revenue was up 5% at $33.2 billion.
CEO George Barrett and his counterparts at drug distributors McKesson and AmerisourceBergen have expressed concern about the effects of generic-drug price deflation and slowed branded price increases on their business, but Barret said during a conference call Tuesday that the company is optimistic. Lower-than-expected prices can have a significant effect on drug distributors, because the companies are generally paid a percentage of the value of the drugs they handle.
Profits from Cardinal’s pharmaceutical segment still dropped due to generic pricing, and to a lesser extent due to the company’s lost drug distribution contract with grocery chain Safeway. Revenues for the segment were up 5% as the company gained more business from existing drug distribution customers and saw strong performance in its specialty pharmaceutical business.
Barrett said the company’s specialty offerings are growing across therapeutic areas, the company believes its well-positioned as early biosimilars emerge.
Cardinal’s smaller medical products segment saw profit growth of 50%, due to contribution from the company’s brand-name products, including Cordis, the cardiovascular device subsidiary it acquired in 2015. The profit increase reflects an unfavorable impact of $21 million due to accounting changes related to the Cordis acquisition – profit growth was 25% when that adjustment is excluded. Revenue for the segment was up 8%.
Barrett also took time during the earnings call to comment on Republican efforts to replace and repeal Obamacare, noting that Cardinal is advocating for a stable insurance market regardless of what happens to the law. He pointed to GOP commitments to retain certain provisions like required coverage for preexisting conditions as a good sign.
Barrett also commented on President Donald Trump’s talk of imposing border taxes on imports of products from outside the U.S., including a proposed 20% tax on imports from Mexico. Medical product distributors import significant portions of their inventory from outside the U.S.
“We generally have been a supporter of tax reform, but we want to make sure we are educators and informers on certain dynamics,” Barrett said. “Many medical products are made outside of the U.S., and we want to make sure that’s understood.”
In response to the second quarter results, Cardinal lowered its fiscal 2017 earnings guidance to $5.35 – $5.50 non-GAAP diluted earnings per share from continuing operations from a previously disclosed range of $5.40 – $5.60. The company doesn’t provide GAAP EPS guidance, and it isn’t offering specific revenue targets, instead saying it expects high-single digit percentage growth over the prior year’s revenue of $121.5 billion.