Cardinal Health profits down on sterile manufacturing woes
quarter, with revenues rising well on the back of rising demand for
its pharmaceutical distribution services, although operating profit
fell 9 per cent, in line with forecasts, dragged down by Cardinal's
sterile manufacturing business and restructuring costs.
During the quarter ended June 30, operating earnings declined to $532 million from $587 million last year, while revenue grew 15 per cent to $19.5 billion (€15.8bn).
Since September, Cardinal has been in the throes of a major restructuring effort, which is particularly affecting its Pharmaceutical Distribution and Provider Services division. This is adopting a fee-for-service structure to reduce the company's exposure to speculative inventory stocking and make its finances more stable and predictable.
Cardinal is by no means alone in its efforts to revitalise the distribution business, which is only just returning to form after a difficult period. Arch rivals AmeriSourceBergen and McKesson Corp are also shifting their business models, trying to set up fees for handling inventory, instead of the older practice of buying product and re-selling it, making profit as prices increase.
Cardinal's PDPS division saw revenues rise 16 per cent to $15.8 billion in the fourth quarter, with an 18 per cent increase in operating earnings to $326 million.
PTS held back
Cardinal's much smaller Pharmaceutical Technologies and Services revenue continued to grow during the quarter, up 6 per cent to $782 million, driven by oral technologies, nuclear pharmacy services and packaging services.
However, ongoing operational issues within sterile manufacturing caused operating earnings to decline 36 per cent to $85 million. Earnings during the quarter were affected by an $8 million write-down of sterile inventory and nearly $7 million in costs to operate a sterile manufacturing facility in Humacao, Puerto Rico, that the company previously announced will close later this year.
Excluding sterile manufacturing, PTS' oral technologies, nuclear pharmacy services, and packaging services grew their combined earnings 8 per cent over the prior year. In particular, strong sales and earnings contributions came from the development and manufacturing of oral dosage products, according to Cardinal, which cited Wyeth's painkiller Advil (ibuprofen), Abbott's HIV treatment Kaletra (lopinavir/ritonavir), and Adams Respiratory Therapeutics' expectorant Mucinex (guaifenasin extended-release).
During the past year, investments were made to improve existing manufacturing sites, and new facilities in Raleigh, US. and Brussels, Belgium remain on schedule for production in fiscal 2007, according to Cardinal.