Executives at AmerisourceBergen Corp. are concerned about the company's future, even though revenue growth was moderately positive this quarter.
Revenue at the Chesterbrook, Pa.-based drug distributor was up 9.3% at $35.7 billion, driven by growth in organic drug sales, as well as specialty pharmaceuticals. The company reported that adjusted diluted earnings per share increased 15.9% to $1.68, beating expectations.
But AmerisourceBergen's net income isn't a reliable indicator, because it is skewed by stock warrants issued to Walgreens Boots Alliance, which has become a 15% shareholder in the company. The companies announced Thursday that they have extended their long-term distribution agreement for an additional three years, through 2026. AmerisourceBergen handles all of Walgreens' prescription drug-distribution needs, including generics and brand-name medications.
Revenue from AmerisourceBergen's specialty health group was up 18%, driven by strong performance in oncology and the company's third-party logistics business, as well as growth in the sales of blood products, vaccines and physician-office distribution. Generic drug-distribution revenue was up 6%.
CEO Steven Collis said during a conference call that the company is “severely disappointed” that it must present forecasts for the rest of 2016 and fiscal 2017 that fall below historical performance, because of the increasing rate of generic-drug deflation and fewer generic drug launches, in addition to slower-than-expected sales in generics and independent retail pharmacies. AmerisourceBergen expects adjusted diluted earnings per share between $5.44 to $5.54 in fiscal 2016 and revenue growth of 8%.
Headwinds affecting 2016 include costs related to recent contract renewals and expenses related to the company's information technology infrastructure. Those costs are expected to continue well into fiscal 2017, slowing growth. The company therefore set preliminary expectations for fiscal 2017 with adjusted diluted earnings per share in the range of 4% to 6% above the midpoint of its fiscal 2016 guidance, including a 3% impact from the aforementioned expenses.
“With our unique position in the market, the talent and expertise we have in key growing areas, the strategic investments we have made, and our legacy of operational efficiency and thoughtful capital deployment, I have great confidence that we will successfully navigate the challenges of the changing healthcare landscape,” Collis said.
John Hammergren, CEO of rival distributor McKesson Corp., similarly reported concerns with generic drug price deflation during his company's earnings call Wednesday. McKesson's adjusted earnings were up 13% from the prior year.