McKesson Sees Value Plunge, Ratings Lowered Amid Drug-Price Pushback From Consumers

Pharmaceutical retailer McKesson’s (MCK) stock price plunged and analyst ratings were cut on Friday as the price of branded drugs declined amid pushback from consumers.

The San Francisco-based company, which has a market capitalization of about $28 billion, on Thursday lowered its 2017 earnings outlook and reported second-quarter results that trailed expectations. The company said earnings next year will come in at about $12.35 to $12.85 a share, down from a prior outlook for $13.43 to $13.93 a share. Analysts had forecast $13.22 a share, according to data compiled by Capital IQ.

In the quarter that ended on Sept. 30, earnings came in at $2.94 a share, missing the forecast for $3.05 from Capital IQ. Revenues in the second quarter were reported at $49.96 billion, behind estimates for $51.23 billion. Shares plunged about 25% on Friday.

John H. Hammergren, the company’s chief executive, said in a conference call after its earnings report was released that the company reduced forecasts for the full year due to recent pricing activities from consumers and branded pharmaceutical inflation trends that have moderated.

“As we built our plan and entered Fiscal 2017, we assumed some moderation around drug inflation activity,” he said. “In particular, we commented on our expectation for a nominal contribution from generic pharmaceuticals that increase in price. We also commented that our expectation that branded pharmaceutical price trends would be modestly below those experienced in fiscal 2016. First generic price inflation has been largely in line with our original assumption. However, customer pricing and branded inflation continue to evolve.”

Price hikes tend to benefit companies like McKesson, but lately consumers have been pushing back against large pharmaceutical companies that raise the price of certain drugs beyond affordability. Mylan (MYL) has faced scrutiny after hiking the price of its EpiPen product, a life-saving anti-anaphylaxis drug, six times while increasing the pay of its executives.

McKesson said it saw pricing softness that was in line with assumptions in the first quarter this year, but the weakness was more pronounced in the second quarter, he said.

Deutsche Bank on Friday lowered its price target on the company to $153 a share from $196 a share, and downgraded the stock to a hold from a buy rating. Baird cut McKesson to a neutral from an outperform rating.

By Caroline Williams