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Generics move McKesson profits up

SAN FRANCISCO — McKesson Corp. on Monday reported revenue of $28.2 billion for its fiscal third quarter, ended Dec. 31, 2010. Third-quarter earnings per diluted share were 60 cents, which included a pre-tax average wholesale price litigation charge of $189 million ($133 million after-tax, or 52 cents per diluted share).

Excluding the AWP litigation charge, third-quarter earnings per diluted share from continuing operations were $1.12, the company noted. In the prior-year's third quarter, earnings per diluted share were $1.19, which included the benefit of higher-margin distribution services revenues associated with the H1N1 flu virus.

The third-quarter AWP litigation charge represents an increase to an existing litigation reserve for current and possible future public entity claims against McKesson relating to drug reimbursement benchmarks known as AWPs. Following the company's announcement of its settlement of all private-party AWP claims in the third quarter of fiscal year 2009, a reserve for estimated probable losses for all public-entity AWP claims was established.

McKesson has continued to engage in settlement discussions with the purpose of resolving various of the public-entity claims, the company stated. McKesson consistently has stated that these cases are without merit and, absent settlements acceptable to the company, they will continue to be defended.

In the third quarter, Distribution Solutions revenues were flat. U.S. pharmaceutical distribution revenues were down 1% due to reduced revenues associated with two of McKesson’s warehouse customers and the prior-year's impact of the H1N1 flu virus.

"Distribution Solutions had strong performance this quarter," stated John Hammergren, McKesson chairman and CEO. "Looking ahead, we are well-positioned to continue to benefit from the pipeline of higher-margin generic drugs. We also have significantly improved our strategic position through our acquisition of U.S. Oncology, and our expanded suite of solutions and services will uniquely enhance oncologists' ability to provide high-quality care to their patients."

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