Cardinal Health posts Q2 revenues of $22.2 billion, increases outlook for fiscal year
DUBLIN, Ohio — The loss of the Walgreens contract was a key consideration in Cardinal Health’s 12% decline in overall revenue for the company’s second quarter 2014, George Barrett, Cardinal Health chairman and CEO, told analysts Thursday morning. Revenue totaled $22.2 billion. The loss of the Walgreens contract totaled $5 billion.
But Cardinal Health is bullish regarding its future. Cardinal Health increased its outlook for the next six months, raising its non-GAAP EPS range to $3.75 to $3.85.
There are three significant revenue events behind Cardinal’s results to date, Barrett said. "The largest one by far was the performance of generics, both our core performance and the impact of price inflation. Second was the roll-off of [Walgreens] which as you’d expect was a lower-margin business than our average business in pharma," Barrett said. "Then third was the higher brand inflation than we saw last year in Q2. Those all three were material drivers and in that order," he concluded.
"Our businesses continue to adapt to a dynamic health care environment with a focus on creating value for our customers and patients at a time of great change," Barrett noted. "The signing of our generic sourcing joint venture with CVS Caremark reflects this focus and strengthens our long-term positioning in our Pharmaceutical segment. Our Medical segment continues to pursue new ways to serve the health care system, building out our preferred medical products portfolio and expanding our platform to serve patients in alternate sites of care, including the home."
Cardinal Health expects the joint venture CVS Caremark to be operational by July 1.
"We remain deeply committed to retail pharmacy," Barrett said. "Whether that is delivered through a chain drug, a food and drug retailer, or one of our thousands of independent pharmacy customers. We believe pharmacy must and will play a more vital role in the delivery of healthcare."
Revenue for the Pharmaceutical segment declined 15% to $19.4 billion due to the continuing impact of the expiration of the Walgreens contract. However, even as revenue declined segment profit increased 9% to $482 million, primarily driven by strong performance from both generic programs and branded agreements, including the impact of price inflation. Segment profit growth was partially offset by the loss of the Walgreens contract.
Specialty pharmacy and the delivery of home health services is a focus at Cardinal, Barrett said. "Our Specialty Solutions team continues to deliver robust growth, validating our perspective [that] working at the intersection of the provider, biopharmaceutical manufacturer and payer will be important for the future," Barrett said. "Over these past three years, it has been important for us to build scale in specialty distribution in order to enable greater touchpoints with clinicians," he added. "Now that we’ve achieved critical mass, … we are beginning to realize some of the benefits. At the same time our Specialty Solutions team has been gaining momentum with our biopharmaceutical partners."
The result is a compelling distribution platform for specialty drug manufacturers, Barrett said. "We’ve created a team and made the moves to build a best-in-class patient-centric hub, serving the needs of patients and reinforcing the work of our manufacturing partners," he said. "We’re seeing an increasing interest among payers who want to see a better alignment in the system to improve cost effectiveness."
Revenue for the Medical segment was up 13% to $2.8 billion, driven by the home health platform, reflecting the acquisition of AssuraMed, and growth from strategic hospital network accounts. Segment profit increased 40% to $131 million, primarily driven by home health. "Looking forward we believe we can increase our medical consumable penetration in non-traditional medical channels such as home health and long-term care," Barrett said. "We remain very committed to following the patients into the home. The demographics are inescapable and the cost-effectiveness of keeping patients well cared for in the home is hard to dispute."
In December 2013, Cardinal Health and CVS Caremark announced the signing of an agreement to form what the company’s maintain is the largest generic sourcing entity in the U.S., which is the world’s largest generic drug market. Both companies are contributing their sourcing and supply chain expertise to the 50/50 joint venture and are committing to source generic drugs through it. The U.S.-based joint venture is expected to be operational as soon as July 1 and will have an initial term of 10 years.
President Obama addresses health reform during State of the Union, industry responds
WASHINGTON — A call to make 2014 a year of action and for the government to work on behalf of Americans was the underlying theme of President Obama’s State of the Union address Tuesday evening.
During his remarks, Obama touched upon a string of topics ranging from immigration reform, to education, to job creation. He also called for the raising of minimum wage and urged businesses to do what they can to raise employees’ wages, citing Costco as an example.
And, of course, health reform was no doubt a topic of discussion during Tuesday evening’s address.
“For decades, few things exposed hard-working families to economic hardship more than a broken health care system. And in case you haven’t heard, we’re in the process of fixing that. … Health insurance reform is all about, the peace of mind that if misfortune strikes, you don’t have to lose everything,” Obama said.
During his address, Obama noted that, because of the Affordable Care Act, more than 3 million Americans under 26 years of age have gained coverage under their parents’ plans, and that more than 9 million Americans have signed up for private health insurance or Medicaid coverage.
Obama’s comments and policies, however, drew some criticism and sparked what Rep. Cathy McMorris Rodgers, R-Wash., a call to “real action.”
“Not long ago I got a letter from Bette in Spokane, who had hoped the President’s health care law would save her money – but found out instead that her premiums were going up nearly $700 a month. … No, we shouldn’t go back to the way things were, but this law is not working. Republicans believe health care choices should be yours, not the government’s,” said McMorris Rodgers, who was tapped by congressional leaders to deliver the Republican response to Obama’s address.
Described by the National Assocation of Chain Drug Stores as a "friend of pharmacy," McMorris Rodgers introduced bipartisan legislation — the Medication Therapy Management Empowerment Act of 2013 — with Reps. Ron Kind, D-Wisc.; Lee Terry, R-Neb.; and Bruce Bradley, D-Iowa, to expand access to medication MTM services for senior citizens enrolled in the Medicare program.
On Wednesday morning, several industry associations responded to the address, including the Generic Pharmaceutical Association and the Pharmaceutical Research and Manufacturers of America.
“In last night’s State of the Union address, President Obama said, ‘Today in America… [a] rural doctor gave a young child the first prescription to treat asthma that his mother could afford,’ vividly capturing the critical importance of access to safe, affordable medicines for our nation’s patients and our health care system,” stated Ralph G. Neas, president and CEO of the GPhA. “Indeed, in the 30 years since the enactment of the enormously successful Hatch-Waxman law in 1984, which struck a balance between competition and innovation in the pharmaceutical marketplace, generic utilization has now grown to be 84% of medicines dispensed. This success has generated savings for the U.S. health system of $217 billion in 2012 and $1.2 trillion over the most recent decade, according to the fifth annual Generic Drug Savings in the U.S. report.”
GPhA argued that the FDA’s current Proposed Rule on Labeling would undermine the Hatch-Waxman Act, putting both patient safety and health care savings at risk.
“As drafted, the proposed rule would create substantial confusion for pharmacists, doctors, nurses, patients and others in the health care system by allowing for multiple, different drug labels in the market for the very same product, upending 30 years of law and regulation,” Neas stated.
Meanwhile, PhRMA president and CEO John Castellani issued a statement that read, "President Obama’s address comes at a time when America’s biopharmaceutical research companies are bringing pioneering new medicines to patients, supporting high-value American jobs and helping strengthen local communities and our national economy. Continued progress – the kind that President Obama urged for last night – is only possible, however, if we fully embrace innovation.”
Castellani added that the association will “continue to work with the Administration and members of Congress on bipartisan solutions that can help spur growth in the U.S. economy, ensure patient access to new medicines, and foster future development of life-saving medicines.”
Responding to Obama’s announcement during his address to sign an executive order increasing the federal minimum wage to $10.10 per hour for workers on new government contracts and ask Congress to approve the same increase for all workers, NRF president and CEO Matthew Shay stated, “If you want to create minimum opportunities, then raise the minimum wage. We welcome the president’s focus on the economy and jobs, but a minimum wage hike runs counter to that goal. Raising the minimum wage would place a new burden on employers at a time when national policy should be focused on removing barriers to job creation, not creating new regulations or mandates. It’s simple math – if the cost of hiring goes up, hiring goes down.
Shay added that, “Fewer than 5% of hourly workers are paid the minimum wage. It’s really a starting wage that allows teen-agers or others with little job experience to enter the workforce. A mandated hike in labor costs would negatively impact businesses that employ people in entry-level jobs and ultimately hurt the people it is intended to help. This isn’t economic theory – when the minimum wage went up in 2009, half a million part-time workers lost their jobs. That’s a risk our economy can’t afford to take.”
Columbia nursing dean applauds VHA recognition of NPs as independent providers
NEW YORK — The Veterans Health Administration is weighing new guidelines that would enable nurse practitioners with advanced education to practice medicine without direct supervision by physicians — a move that is being applauded by the dean of Columbia University School of Nursing.
“This is really a win for patients,” said Bobbie Berkowitz, dean of Columbia University School of Nursing. “At a time when there is a worsening shortage of providers in primary care and in many specialties, advanced practice nurses can help offer patients timely access to quality care. Nurse practitioners absolutely have the education and experience necessary to work without the direct supervision of a physician and to lead teams of healthcare professionals in providing coordinated care.”
The new guidelines being weighed by the VHA, the largest healthcare system in the United States, would let nurse practitioners, nurse anesthetists, nurse midwives and clinical-nurse specialists practice independently.
The proposed policy shift at the VHA system follows recommendations from the Institute of Medicine’s “Future of Nursing” report, which advocates that nurses practice to the full scope of their education.