Cardinal Health’s dismal forecast drags rivals, drugmakers down

By Akankshita Mukhopadhyay and Manas Mishra

(Reuters) – Cardinal Health Inc forecast fiscal year 2018 profit well below analyst estimates, highlighting the drag on drug distributors and generic drugmakers due to stubbornly low generic drug prices.

The company’s shares slumped as much as 9.8 percent, while rivals McKesson Corp were down nearly 3 percent and AmerisourceBergen Corp 4 percent. Generic drugmakers Teva Pharmaceutical Industries Ltd and Mylan NV were also lower on Wednesday.

Pharma supply chain, including pharmacy benefit managers and drug distributors, has been under pressure due to intense scrutiny over soaring drug prices.

Wells Fargo analyst David Maris said recent cautionary commentary from numerous manufacturers suggests the U.S. generic drug environment may be worsening.

“We are suggesting investors to be more cautious in the generics sector as an already tough environment may be set to get even tougher.”

Cardinal, which bought Medtronic Plc’s medical supplies units in a $6.1 billion deal last month, said on Wednesday it expects generic drug price decline to be in the mid-single digits for the year ending June 30, 2018.

The company, which had given a preliminary forecast for the fiscal year in April, said its “perspective and operating expectations have not meaningfully changed”.

“While management had previously indicated that 2018 earnings would be down year-over-year, the midpoint of the guidance range came in $0.26 below our estimate,” William Blair analysts wrote in a note.

Net earnings attributable to the company fell 17.7 percent to $274 million in the fourth quarter ended June 30.

Excluding one-time items, Cardinal earned $1.31 per share, beating analysts’ average estimate of $1.24, according to Thomson Reuters I/B/E/S. Net sales rose 5 percent to $32.97 billion.

The company’s pharmaceutical unit posted a 7 percent decline in profit in the reported quarter, largely due to low generic drug prices.

Cardinal Chief Executive George Barrett said on the conference call the company was exploring strategic alternatives for its service and distribution business in China.

Reuters reported last month, Cardinal Health had put its China business up for sale, drawing keen interest from state-backed Chinese pharmaceutical firms in a deal that may be worth up to $1.5 billion.

Cardinal said it expects its fiscal year 2018 profit forecast to be $4.85 to $5.10. Analysts on average had expected earnings of $5.27.

“We have more questions than answers given the…

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