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Diplomat’s profit, margin feel impact of DIR fees in Q3


FLINT, Mich. — Diplomat Pharmacy on Wednesday shared the financial results for its third quarter ended Sept. 30, showing increases in revenue and dispensed prescriptions, but alongside a drop in profit per prescription dispensed and its gross margin. 


For the third quarter, Diplomat saw $1.18 billion in revenue, up 25% from Q3 2015, and representing a 12% organic revenue growth. The growth was driven by about $79 million in revenue from drugs launched in the last year and $65 million was from the impact of manufacturer price increases. The company credits its acquisition of TNH Advanced Specialty Pharmacy with 4119 million of its increased revenue. Diplomat also saw total prescriptions dispensed grow 9% to 266,000. 


However, the company saw its gross profit per dispensed prescription drop to $289 from $301 during the same time last year. Though the company’s gross profit increased to %78.5 million from $75.8 million last year, it saw gross margin fall from 8% to 6.6%. In addition to a one-time $3 million pharmaa incentive received last year, higher-priced drugs with lower margins, the impact of the TNH acquisition and lower growth and margins in its infusion business, Diplomat also attributed the decline in margin to direct-indirect remuneration fees totaling $8 million, half of which were retroactive to Q1 and Q2 2016. 


“We are disappointed with our third quarter results, which were significantly impacted by the softness in the hepatitis C business nationwide, as well as by DIR fees,” Diplomat CEO and chairman Phil Hagerman said. “The methodology and transparency around how PBMs are applying these DIR fees changed materially in 2016, and while we cannot reverse the impact they had on this quarter, we are working with our partners in the specialty pharmacy industry and with legislators to achieve an amicable solution to this problem.”


Diplomat’s selling , general and administrative expenses for Q3 were $77.1 million, an increase of $28.3 million over the same period last year. Included in this was a $6.8 million increase related to employee expense, which the company attributed to its dispensed prescription volume and increased clinical and administrative complexity around its acquired and organic business. The company’s net income was $5.4 million, compared to $16 million in Q3 2015. This decrease was driven by the revenue, gross profit and SG&A, and partially offset by a $13 million income tax improvement. Adjusted Q3 earnings before interest, taxes, depreciation and amortization were $22.6 million, down from $33 million in Q3 2015. 


“Despite the pressure we felt during the third quarter, our largest therapeutic category, oncology, continued to lead our growth,” Hagerman said. “Driven by strong trends such as limited distribution, our oncology business increased 57% year over year, and 36% on an organic basis. We also have confidence in Diplomat’s future prospects as we see continued growth in the robust drug development pipeline, a number of early wins from our strategy of marketing directly to payers and health plans, and our ability to make strategic acquisitions in the core specialty pharmacy industry, as well as in expanding complementary service areas.”


The company projects full-year revenue of between $4.4 billion and $4.6 billion, compared to an earlier range of $4.5 billion to $4.9 billion. Projected EBITDA is between $107 million and $111 million (down from between $121 million and $129 million). The company’s projected earnings per share has gone down from $0.90 to $0.95 to between $0.83 and $0.87. 


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