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McKesson's revenue misses as pace of drug price hikes slow
January 25, 2017 / 9:46 PM / a year ago

McKesson's revenue misses as pace of drug price hikes slow

(Reuters) - Drug distributor McKesson Corp’s (MCK.N) quarterly revenue missed estimates due to slowing pace of branded drug price increases amid rising concerns over soaring prices of medicines.

Shares of the company, which also announced a deal to buy a privately held healthcare IT company for about $1.1 billion, were down about 8 percent in after-market trading on Wednesday.

“Although we were unfavorably impacted in the third quarter by weaker branded pharmaceutical pricing than anticipated, we are updating our fiscal 2017 outlook to reflect McKesson’s lower full-year effective tax rate,” CEO John Hammergren said in a statement on Wednesday.

In October, McKesson, one of the largest U.S. distributors of pharmaceutical drugs, had slashed its fiscal year earnings forecast, raising concerns about aggressive pricing tactics from rivals and moderating pace of branded drug price increases.

Drug distributors, including AmerisourceBergen Corp (ABC.N) and Cardinal Health Inc (CAH.N), have been weighed down by federal investigations of several drug makers for price gouging.

McKesson said on Wednesday that the acquisition of CoverMyMeds would strengthen its technology offerings to pharmaceutical manufacturers, clinicians and health insurers.

Columbus, Ohio-headquartered CoverMyMeds provides electronic prior authorizations, which are permission slips from health plans, to pharmacies, providers, insurers and pharmaceutical manufacturers.

“We would have preferred that McKesson focus its M&A strategy more on healthcare distribution, rather than health IT,” said Mike Bailey, director of research at FBB Capital Partners, which holds shares in McKesson.

“However, this deal may give MCK a new technology tool to distinguish itself from other distributor peers,” he said.

Revenue rose to $50.13 billion from about $47.90 billion in the third quarter ended Dec. 31, compared with estimates of about $50.50 billion.

Excluding items, the company earned $3.03 per share, beating the average analysts’ estimate of $2.91, according to Thomson Reuters I/B/E/S.

McKesson said on Wednesday it expected adjusted earnings from continuing operations of $12.60-$12.90 per share for the fiscal year ending March 31, up from its previous forecast of $12.35-$12.85 per share.

The company’s shares were down 8 percent at $139 in after-market trading. Shares of rivals AmerisourceBergen and Cardinal Health were down more than 4 percent.

Reporting by Ankur Banerjee in Bengaluru; Editing by Shounak Dasgupta and Sriraj Kalluvila

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