Cardinal Health profit declines as generic drug prices deflate

Cardinal Health reported an 18% drop in earnings in its fourth quarter, driven by dwindling generic drug prices, the company said Wednesday.

The Dublin, Ohio-based pharmaceutical and medical products distributor saw its earnings fall to $274 million for the quarter ended June 30, down from $333 million from the same period the year before. Revenue was up 5% to $33 billion.

Cardinal's pharmaceutical segment profit dropped 7% to $505 million, largely due to deflating generic drug prices and ongoing investment in its pharmaceutical IT platform, the company said. Fourth quarter revenue for its pharmaceutical business was up 5% to $29.6 billion, helped along by a growing customer base and a boost from its specialty products.

On the year, Cardinal's pharmaceutical segment profit decreased 12% due to declining generic prices, a lost drug distribution contract with Safeway and a slowdown in price increases for branded drugs. Cardinal's rival McKesson Corp. also cited the sluggish branded drug price increases as a cause of its diminished profit last week. Companies along the pharmaceutical supply chain have taken a financial hit resulting from the increasing scrutiny surrounding surging drug prices.

"While these last 12 months were clearly a dynamic period in healthcare and certainly presented challenges for our fiscal 17, it was also a year in which we took important actions to strengthen our market positioning, grow our scale, add new, long-term drivers of growth, and improve the overall balance of our integrated portfolio," George Barrett, chairman and CEO of Cardinal Health, said in a statement.

Cardinal scaled up when it closed its $6.1 billion acquisition of Medtronic's patient care, deep vein thrombosis and nutritional insufficiency business Monday, which will likely bolster its medical supply segment.

Fourth quarter profit for Cardinal's medical supply segment jumped 13% to $138 million on revenue of $3.4 billion, a 6% increase from the fourth quarter last year, led by positive post-acute product performance and growth in distribution services, the company said.

On the year, profit for that segment increased by 25% to $572 million while revenue rose 9% to $13.5 billion.

Overall profit for fiscal year 2017 dropped 10% from 2016 to $1.29 billion and revenue increased 7% to $130 billion.

In April, the company cautioned that its 2018 outlook would reflect continued declines in generic drug prices, which could result in a drop in profit for the company's pharmaceutical business. The company's operating expectations have not meaningfully changed, Barrett said, but they are taking some "discrete actions" to improve its trajectory.