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.