Drug distributor Cardinal Health to lose OptumRx contracts

FILE PHOTO: UnitedHealth Group's headquarters building is seen in Minnetonka, Minnesota

By Mariam Sunny

(Reuters) - Cardinal Health said on Monday its contracts with UnitedHealth Group's OptumRx, one of its largest customers, will not be renewed after they expire at the end of June, sending the drug distributor's shares down about 6%.

At least two analysts said rival McKesson would get Optum's contracts. McKesson did not immediately respond to a Reuters request for comment.

The loss of Optum contracts was an "unexpected disappointment," Leerink Partners analyst Michael Cherny said, adding that he expects Cardinal to make up for this loss through buybacks, deals, cost cuts and new customers.

The Optum contracts, signed in 2015, contributed 16% of Cardinal's total revenue in fiscal year 2023, but the bulk of the shipments mainly comprised non-specialty medicines, Cardinal Health said.

Cardinal said it expects to partially offset the impact of losing the Optum contracts through customer additions and growth in its more profitable specialty pharmacy business.

It is banking on strong sales of high-priced specialty medicines that treat diseases including cancer and rheumatoid arthritis, at a time when its medical devices distribution unit struggles with rising transportation and labor costs as well as supply constraints.

The Ohio-based drug distributor said it anticipates lower adjusted free cash flow in fiscal 2025 due to loss of the contracts and reiterated its fiscal 2024 adjusted profit forecast.

EvercoreISI analyst Elizabeth Anderson estimates the loss of Optum contracts to impact Cardinal's 2025 profit by 45-50 cents.

Cardinal has, however, not yet provided guidance for its fiscal 2025, which ends in June 2025.

Cardinal declined to provide any further comment on the OptumRx contracts, and UnitedHealth did not respond to Reuters request for comment.

OptumRx is a pharmacy benefit manager which acts as an intermediary between insurers and drugmakers to negotiate the prices of prescription drugs.

(Reporting by Mariam Sunny in Bengaluru; Editing by Krishna Chandra Eluri and Shinjini Ganguli)