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Donna Marbury/MEDILL

Revenue for Cardinal Health Inc. dipped in the first quarter of 2013 due to patent expirations of brand-name drugs.


Cardinal Health reports 15 percent earnings boost as revenue dips

by Donna M. Marbury
Oct 30, 2012


Hurt by brand-name drugs losing patent protection, health-care distribution company Cardinal Health Inc. reported a 3 percent dip in revenue in its first fiscal quarter even as net income increased by 15 percent.

In the first quarter ended Sept. 30, the Dublin, Ohio-based company’s net income increased 15 percent to $271 million, or 79 cents per diluted share, from $237 million, or 68 cents per diluted share, in the same period last year.

Analysts surveyed by Bloomberg were expecting Cardinal to earn 75 cents per share.

Cardinal’s revenues dipped 3 percent to $25.89 billion from $26.79 billion last year.

Company executives pointed to an industry-wide expiration in brand-name prescription drug patents and an increase in generic brands to explain a 4 percent decrease in revenue to $23.5 billion in the company’s pharmaceutical segment, which distributes drugs from manufacturers to pharmacies, hospitals, mail-order facilities and doctor offices.

Still, the increased amount of generic drugs boosted the segment’s earnings 10 percent to $400 million.

Cardinal’s smaller medical segment, which makes scrubs, gloves, gowns and other surgical products and distributes medical products to doctors, saw a 1 percent increase in revenue to $2.4 billion while earnings fell 6 percent decrease to $74 million.

Cardinal CEO George S. Barrett said the revenue decline in the company’s pharmaceutical segment “masked” growth in its number of customers. Cardinal also saw improvement in its software and business solutions unit. “We expected revenue to be down for the quarter and the full year primarily due to the shift in money associated with the conversion of brand-to-generic drugs,” he said in a conference call with investors Tuesday.

A wave of brand-name drugs losing patent protection has been a concern to not only pharmaceutical companies, but also the companies that distribute their products. In 2012, at least 26 brand-name drugs became available for generic use including heart drug Plavix made by Bristol-Myers Squibb and the asthma treatment Singulair made by Merck. In 2013, at least nine big-name drugs will lose patent protection, including cholesterol drug Niaspan made by Abbott Laboratories and depression drug Cymbalta made by Eli Lilly Co.

John Kreger of William Blair in Chicago maintained his “market perform” rating on Cardinal’s shares amidst concern about “the impact of future generic launches on fiscal 2013 pharma segment profit growth.”

Also during the conference call, Cardinal executives announced the company’s board had approved a 16 percent increase in its dividend, its second quarterly dividend increase in six months. That brings the annual dividend to $1.10. The new dividend will be paid Jan. 15 to Cardinal investors of record at the close of business Jan. 2. In July, Cardinal increased it quarterly dividend by 10.5 percent

Due to severe storms that closed Wall Street, Cardinal shares did not trade Tuesday. Its stock closed at $40.43 Friday.