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McKesson Reports Fiscal 2020 Second-Quarter Results

On October 30, 2019 McKesson Corporation (NYSE:MCK) reported results for the second quarter ended September 30, 2019 (Press release, McKesson, OCT 30, 2019, View Source [SID1234550055]).

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Represents continuing operations attributable to McKesson

Represents a non-GAAP financial measure; refer to the reconciliations of non-GAAP financial measures included in accompanying schedules

"McKesson’s second-quarter results reflect continued momentum across the business as well as further progress against our cost savings initiatives," said Brian Tyler, chief executive officer. "As we look forward to the second half of our fiscal year, we remain confident in the strength of our broad set of solutions and capabilities, delivering execution against our strategic imperatives as we become a more focused and efficient organization."

Revenues increased 9% year-over-year, primarily driven by growth in the U.S. Pharmaceutical and Specialty Solutions segment, largely due to branded pharmaceutical price increases and higher volumes from a retail national account customer.

Loss per diluted share of $(3.99) included charges of approximately $1.4 billion, or $5.73 per diluted share, primarily related to an impairment in connection with McKesson’s planned exit of its investment in Change Healthcare. Adjusted Earnings per diluted share of $3.60 was flat year-over-year, as a lower share count and growth in the Medical-Surgical and McKesson Prescription Technology Solutions (MRxTS) businesses were offset primarily by the lapping of a prior year pre-tax benefit of $90 million, or $0.33 per diluted share, related to a reversal of a contractual liability associated with McKesson’s investment in Change Healthcare. Excluding the prior year benefit of $0.33 per diluted share from Adjusted Earnings, second-quarter results per diluted share increased 10%.

During the first half of the fiscal year, McKesson returned $1.6 billion of cash to shareholders via $1.4 billion of common stock repurchases and $148 million of dividend payments. For the first half of the fiscal year, McKesson used cash from operations of $159 million, and invested $184 million internally, resulting in negative free cash flow of $343 million.

U.S. Pharmaceutical and Specialty Solutions Segment

Revenues were $46.0 billion, up 10%, driven primarily by branded pharmaceutical price increases and increased specialty pharmaceutical volume from the company’s largest retail national account customer, partially offset by branded to generic conversions.
Operating profit was $639 million and operating margin was 1.39%. Adjusted operating profit was $641 million, up 1%, due to continued growth in the specialty businesses, partially offset by customer and product mix. Adjusted operating margin was 1.39%, down 14 basis points, primarily resulting from the higher volume of specialty pharmaceuticals.
European Pharmaceutical Solutions Segment

Revenues were $6.6 billion, down 1% on a reported basis and up 4% on an FX-adjusted basis, driven primarily by growth in the pharmaceutical distribution business.
Operating profit was $1 million and operating margin was 0.02%. Adjusted operating profit was $41 million, down 23%, and adjusted operating margin was 0.62%. On an FX-adjusted basis, adjusted operating profit was $43 million, down 19%, and adjusted operating margin was 0.62%, down 18 basis points, driven by the challenging retail pharmacy environment in the U.K.
Medical-Surgical Solutions Segment

Revenues were $2.1 billion, up 6%, driven primarily by growth in the Primary Care business, largely due to the increase in volume of pharmaceutical products.
Operating profit was $129 million and operating margin was 6.27%. Adjusted operating profit was $166 million, up 20%, and adjusted operating margin was 8.07%, up 99 basis points. The year-over-year growth primarily reflects growth in the Primary Care business and the lapping of bad debt expense in the prior year.
Other remaining businesses

Revenues were $3.0 billion, up 4% on a reported basis and up 5% on an FX-adjusted basis, driven by growth in the Canadian and MRxTS businesses.
Operating loss was $(1.3) billion driven by charges of approximately $1.4 billion, primarily related to an impairment in connection with McKesson’s planned exit of its investment in Change Healthcare. Adjusted operating profit was $221 million, down 26% on both a reported and FX-adjusted basis, primarily due to the lapping of the $90 million contractual liability reversal in the prior year and lower contribution from the company’s investment in Change Healthcare, partially offset by higher volumes in the MRxTS business.
Company Updates

On October 21, 2019, the company announced an agreement in principle to settle all claims against the company in the first track of the multi-district opioid litigation, related to two Ohio counties. As a result, McKesson recorded a pre-tax charge of $82 million within operating expenses for the second quarter of fiscal 2020.
McKesson recently published its FY19 Corporate Responsibility Report, describing how the company continues to work to use its economic, environmental, social and governance resources thoughtfully and responsibly. This global report puts emphasis on three topics: product quality and patient safety; eco-efficient transportation and operations; and better health for employees and communities.
McKesson opened a new distribution center in the Seattle area, an eco-friendly facility featuring the latest in supply chain technology and state-of-the-art automation.
Maria Martinez joined McKesson’s Board of Directors as a new independent director effective October 18, 2019.
Fiscal 2020 Outlook

McKesson reaffirmed fiscal 2020 Adjusted Earnings per diluted share guidance range of $14.00 – $14.60.
Conference Call Details

The company has scheduled a conference call for today, Wednesday, October 30th, at 8:00 AM ET to discuss the company’s financial results. A live audio webcast of the conference call will be available on McKesson’s Investor Relations website at View Source The conference call can also be accessed by dialing 786-815-8297. The password is ‘McKesson’. A telephonic replay of this conference call will be available for 14 calendar days. For individuals wishing to listen to the replay, the dial-in number is 404-537-3406 and the pass code is 6206708. An archive of the conference call will also be available on the company’s Investor Relations website at View Source

Upcoming Investor Events

McKesson management will be participating in the following investor conference:

38th Annual J.P. Morgan Healthcare Conference, January 13-16, 2020, in San Francisco, CA.
Audio webcasts will be available live and archived on the company’s Investor Relations website at View Source A complete listing of upcoming events for the investment community is available on the company’s Investor Relations website.

Adjusted Earnings

McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments as well as the related income tax effects for each of these items, as applicable. A reconciliation of McKesson’s GAAP financial results to Adjusted Earnings is provided in Schedules 2 and 3 of the financial statement tables included with this release.

The company does not provide forward-looking guidance on a GAAP basis prospectively as McKesson is unable to provide a quantitative reconciliation of this forward-looking non-GAAP measure to the most directly comparable forward-looking GAAP measure, without unreasonable effort, because McKesson cannot reliably forecast LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments, which are difficult to predict and estimate. These items are inherently uncertain and depend on various factors, many of which are beyond the company’s control, and as such, any associated estimate and its impact on GAAP performance could vary materially.

FX-Adjusted

McKesson also presents its financial results on an FX-adjusted basis. The company conducts business worldwide in local currencies, including the Euro, British pound and Canadian dollar. As a result, the comparability of the financial results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. FX-adjusted information is presented to provide a framework for assessing how the company’s business performed excluding the effect of foreign currency exchange rate fluctuations. The supplemental FX-adjusted information of the company’s GAAP financial results and Adjusted Earnings (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release.

Free Cash Flow

McKesson also provides free cash flow, a non-GAAP measure. Free cash flow is defined as net cash provided by (used in) operating activities less payments for property, plant and equipment and capitalized software expenditures, as outlined in the company’s condensed consolidated statements of cash flows.

DURECT Corporation to Announce Third Quarter 2019 Financial Results and Provide Business Update on November 4

On October 30, 2019 DURECT Corporation (Nasdaq: DRRX) reported that it will report third quarter and nine months ended September 30, 2019 financial results and host a conference call after the market close on Monday, November 4, 2019 (Press release, DURECT, OCT 30, 2019, https://investors.durect.com/news-releases/news-release-details/durect-corporation-announce-third-quarter-2019-financial-results?field_nir_news_date_value[min]=2019 [SID1234550054]).

Monday November 4 @ 4:30pmET/1:30 p.m. Pacific Time

Toll Free:

877-407-0784

International:

201-689-8560

Conference ID:

13695661

Webcast:

View Source

NantHealth to Report 2019 Third-quarter Financial Results and Host Conference Call on Thursday, November 7

On October 30, 2019 NantHealth, Inc. (NASDAQ-GS: NH), a next-generation, evidence-based, personalized healthcare company, reported that it will report financial results for its 2019 third quarter on Thursday, November 7, 2019, after market close (Press release, NantHealth, OCT 30, 2019, View Source [SID1234550053]). NantHealth management will host a conference call that same day at 1:30 p.m. PT (4:30 p.m. ET) to review the company’s performance.

The conference call will be available to interested parties by dialing 844-309-3709 from the U.S. or Canada, or 281-962-4864 from international locations, passcode 3294717. The call will be broadcast via the Internet at www.nanthealth.com.

argenx to Participate in Upcoming Investor Conferences

On October 30, 2019 argenx (Euronext & Nasdaq: ARGX), a clinical-stage biotechnology company developing a deep pipeline of differentiated antibody-based therapies for the treatment of severe autoimmune diseases and cancer, reported that management will participate in several upcoming investor conferences in November (Press release, argenx, OCT 30, 2019, View Source [SID1234550052]):

2019 Wolfe Research Healthcare Conference. Company presentation on Wednesday, November 6, 2019 at 12:55 p.m. ET in New York.

28th Annual Credit Suisse Healthcare Conference. Management will participate in investor meetings on Wednesday, November 13, 2019 in Scottsdale, AZ.

Guggenheim Healthcare Talks | Idea Forum | Neuro / Immunology Day. Company presentation on Monday, November 18, 2019 at 3:15 p.m. ET in New York.

Stifel 2019 Healthcare Conference. Company presentation on Tuesday, November 19, 2019 at 10:55 a.m. ET in New York.

Live webcasts of each presentation will be available on the Company’s website at www.argenx.com. Replays of the webcasts will be available for 90 days following each presentation on the argenx website.

Vertex Reports Third-Quarter 2019 Financial Results

On October 30, 2019 Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) reported consolidated financial results for the third quarter ended September 30, 2019 and reiterated its full-year 2019 total product revenue guidance (Press release, Vertex Pharmaceuticals, OCT 30, 2019, View Source [SID1234550047]).

"2019 has been a year of significant progress for Vertex across all parts of our business. With the historic approval of TRIKAFTA, we are now one step closer to providing treatment for up to 90% of all people with CF. We’ve also had tremendous success bringing our CF medicines to more patients globally with reimbursement agreements recently reached in England, Spain, Australia, and Scotland, and through label expansions to younger patients," said Jeffrey Leiden, M.D., Ph.D., Chairman, President and Chief Executive Officer of Vertex. "The company also continues to successfully execute on our strategy of creating transformative medicines for serious diseases through serial innovation. The rapid progress of our pipeline is expected to yield proof-of-concept data in multiple diseases in 2020, which will position Vertex for continued growth in the years ahead."

Total product revenues increased 21% compared to the third quarter of 2018, primarily driven by the global uptake of SYMDEKO and SYMKEVI in patients ages 12 and older.
GAAP net income decreased compared to the third quarter of 2018, primarily driven by a $175 million upfront payment as part of Vertex’s recently expanded collaboration with CRISPR Therapeutics, and was partially offset by the strong growth in total product revenues.
Non-GAAP net income increased compared to the third quarter of 2018, driven by the strong growth in total product revenues, and was partially offset by increased operating expenses and income taxes.
Cash, cash equivalents and marketable securities as of September 30, 2019 were $4.0 billion, an increase of approximately $800 million compared to $3.2 billion as of December 31, 2018.
Combined GAAP R&D and SG&A expenses increased compared to the third quarter of 2018, primarily due to the $175 million upfront payment to CRISPR Therapeutics.
Combined Non-GAAP R&D and SG&A expenses increased compared to the third quarter of 2018, primarily due to the incremental investment to support the global use of Vertex’s medicines and the expansion of Vertex’s pipeline in CF and other new disease areas.
GAAP and Non-GAAP income taxes increased significantly compared to the third quarter of 2018 due to Vertex’s release of its valuation allowance on the majority of its deferred tax assets in the fourth quarter of 2018. GAAP and non-GAAP income taxes in the third quarter of 2019 include a provision for income taxes on Vertex’s pre-tax income using an estimated effective tax rate approximating statutory rates. This provision for income taxes includes a significant non-cash charge due to Vertex’s ability to offset its pre-tax income

against previously benefited net operating losses. Refer to "Supplemental Income Tax Information" for discussion of the cash versus non-cash components of Vertex’s provision for income taxes.

Clinical Development
Cystic Fibrosis (CF):

On October 21, 2019, the company announced that the U.S. Food and Drug Administration (FDA) approved TRIKAFTA (elexacaftor/tezacaftor/ivacaftor and ivacaftor) for the treatment of CF in people ages 12 years and older who have at least one F508del mutation. TRIKAFTA is Vertex’s fourth breakthrough medicine approved to treat the underlying cause of CF.

Enrollment is ongoing in a Phase 3 study evaluating the elexacaftor/tezacaftor/ivacaftor combination regimen in children with CF ages 6 to 11 years who have two F508del mutations and in children who have one F508del mutation and one minimal function mutation.

Vertex continues to make progress toward gaining approval and reimbursement for its CF medicines globally. Recent highlights include:

Reimbursement for ORKAMBI and SYMDEKO for eligible patients in England, Spain, Australia, and Scotland.

CHMP positive opinion for KALYDECO in the European Union (EU) for infants as early as 6 months old.

A Marketing Authorization Application (MAA) submitted to the European Medicines Agency (EMA) for the elexacaftor/tezacaftor/ivacaftor combination regimen to treat people with CF ages 12 years and older.
Alpha-1 Antitrypsin (AAT) Program:

VX-814: In the fourth quarter of 2019, Vertex plans to initiate a Phase 2 proof-of-concept study of its first oral small molecule corrector, VX-814, for the treatment of alpha-1 antitrypsin (AAT) deficiency. This study is expected to enroll approximately 50 patients with AAT deficiency who have two Z mutations. The study will evaluate multiple doses of VX-814 administered for 28 days compared to placebo. The primary endpoints will be the change in the level of functional AAT protein in the blood as well as safety and tolerability. Pending enrollment, Vertex expects to obtain data from this study in 2020.

VX-864: A Phase 1 study is ongoing in healthy volunteers evaluating VX-864, the company’s second investigational small molecule corrector for the treatment of AAT deficiency.
Sickle Cell Disease and Beta Thalassemia:

Enrollment is ongoing in the Phase 1/2 studies evaluating the novel gene-editing therapy CTX001 for the treatment of severe sickle cell disease and beta thalassemia. Vertex and its partner CRISPR Therapeutics plan to provide the first clinical data from these studies in the fourth quarter of 2019. These data will include measurements of safety and efficacy for patients with beta thalassemia and sickle cell disease treated with CTX001.
APOL1-Mediated Kidney Diseases:

A Phase 1 study in healthy volunteers evaluating VX-147 is expected to be complete in the fourth quarter of 2019. VX-147 is the company’s first investigational oral small molecule medicine for the treatment of APOL1-mediated focal segmental glomerulosclerosis (FSGS) and other serious kidney diseases. Pending the results of the Phase 1 study, Vertex plans to initiate a Phase 2 proof-of-concept study in 2020 to evaluate the ability of VX-147 to reduce protein levels in the urine. Vertex is also advancing multiple other APOL1 inhibitors through preclinical development.
Pain:

A Phase 1 study is ongoing in healthy volunteers evaluating the investigational NaV1.8 inhibitor VX-961 for the treatment of pain. VX-961 has been granted Fast Track Designation by the FDA.

Investments in External Innovation
Type 1 Diabetes:

On October 10, 2019, Vertex completed its previously announced acquisition of Semma Therapeutics, a privately held biotechnology company pioneering the use of stem cell-derived human islets as a potentially curative treatment for type 1 diabetes.

Non-GAAP Financial Measures
In this press release, Vertex’s financial results and financial guidance are provided in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP financial measures. In particular, non-GAAP financial results and guidance exclude from Vertex’s pre-tax income (i) stock-based compensation expense, (ii) revenues and expenses related to business development transactions including collaboration agreements, asset acquisitions and consolidated variable interest entities, (iii) gains or losses related to the fair value of the company’s strategic investments, (iv) acquisition-related costs and (v) other adjustments. The company’s non-GAAP financial results also exclude from its provision for or benefit from income taxes the estimated tax impact related to its non-GAAP adjustments to pre-tax income described above. These results are provided as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help indicate underlying trends in the company’s business, are important in comparing current results with prior period results and provide additional information regarding the company’s financial position. Management also uses these non-GAAP financial measures to establish budgets and operational goals that are communicated internally and externally and to manage the company’s business and to evaluate its performance. The company adjusts, where appropriate, for both revenues and expenses in order to reflect the company’s operations. The company provides guidance regarding product revenues in accordance with GAAP and provides guidance regarding combined research and development and sales, general, and administrative expenses on both a GAAP and non-GAAP basis. The company also provides guidance regarding its anticipated income taxes as a percentage of pre-tax income on a non-GAAP basis. The guidance regarding GAAP research and development expenses and sales, general and administrative expenses does not include estimates associated with any potential future business development activities. A reconciliation of the GAAP financial results to non-GAAP financial results is included in the attached financial information.

Notes and Explanations
1: The company records gains and losses related to changes in the fair value of its strategic investments to "Other income, net."
2: In the fourth quarter of 2018, the company recorded a non-cash benefit from income taxes of approximately $1.5 billion related to the release of its valuation allowance on the majority of its net operating losses and other deferred tax assets. As a result, the company recorded deferred tax assets of $1.5 billion on its consolidated balance sheet as of December 31, 2018, which were previously subject to its valuation allowance. Starting in the first quarter of 2019, the company began recording a provision for income taxes on its pre-tax income using an estimated effective tax rate that approximates statutory rates. The provision includes a significant non-cash charge due to the company’s ability to offset its pre-tax income against previously benefited net operating losses. The company expects the majority of its tax provision to represent a non-cash expense until its net operating losses have been fully utilized. As of December 31, 2018, the company’s federal net operating losses and credits that were available to offset future pre-tax income were approximately $4.5 billion.
3: During the three and nine months ended September 30, 2018, the company consolidated the financial statements of a variable interest entity, or VIE, because Vertex had licensed the rights to develop the VIE’s most significant intellectual property asset. During the nine months ended September 30, 2018, the fair value of the contingent payments payable by Vertex to the VIE increased by $23.1 million. This increase was attributable to noncontrolling interest and resulted in a decrease in net income attributable to Vertex on a dollar-for-dollar basis. The company deconsolidated the VIE as of December 31, 2018; therefore, there were no comparable amounts during the three and nine months ended September 30, 2019.
4: "Collaborative revenues and expenses" in the three and nine months ended September 30, 2019 and 2018 primarily related to collaborative upfront and milestone payments. "Collaborative revenues and expenses" in the three and nine months ended September 30, 2018 also included revenues and expenses attributable to our VIE’s operations.
5: "Acquisition-related costs" in the three and nine months ended September 30, 2019 primarily related to costs associated with the company’s acquisition of Exonics. There were no comparable amounts during the three and nine months ended September 30, 2018.
6: In the three and nine months ended September 30, 2019, "Estimated income taxes related to non-GAAP adjustments to pre-tax income" primarily related to (i) stock-based compensation (including an adjustment for excess tax benefits related to stock-based compensation), (ii) increases or decreases in the fair value of the company’s strategic investments and (iii) collaborative upfront payments. In the three and nine months ended September 30, 2018, "Estimated income taxes related to non-GAAP adjustments to pre-tax income" were related to a provision for income taxes attributable to the company’s VIE and excess tax benefits related to stock-based compensation.