Morningstar | Amerisource Posts Solid First Quarter as the Core Drug Distribution Business Drives Growth
AmerisourceBergen reported first-quarter (fiscal-year 2019) results that largely matched our expectations and ran ahead of consensus expectations with strength in the core drug distribution business partly offsetting pressures in the drug compounding arm. Overall, we don't expect any major changes to our fair value estimate or moat rating based on the results.With pricing pressures weighing on the drug distribution business from increasing pharmacy leverage, the quarterly results help support some stabilization in the company's core drug distribution business line. The pharmaceutical distribution division posted top-line gains of close to 12% with strength coming from larger customers and specialty drugs. We continue to believe the growth in specialty drugs will be a driver for the overall market and the quarterly strength in this segment for Amerisource bodes well for the company. However, the PharMEDium drug compounding challenges persist with its Memphis facility not likely reopening in fiscal 2019. As a reminder, as the FDA has grown more focused on drug compounding facilities overall, Amerisource's segment has been hit with quality concerns by the FDA. Despite these challenges, we expect the company will meet its full-year fiscal 2019 revenue growth rate guidance of midsingle digits. Longer term, a key growth driver for the firm will be its ability to successfully negotiate with smaller pharmacies that are banding together to force more pricing discounts. We expect the company's strong market positioning will help support successful pricing with both these smaller pharmacy groups as well as the larger pharmacies.
AmerisourceBergen is a pharmaceutical sourcing and distribution services company. The company's Pharmaceutical Distribution Services reportable segment provides pharmaceutical distribution and additional services to physicians who focus on a variety of disease states, especially oncology, and to other healthcare providers, including hospitals and dialysis clinics. Additionally, this segment provides data analytics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers. This segment also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers.
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