This morning the WSJ reported that more than 20 states have rejected an opioid litigation settlement framework that would have led to the distributors paying out $18B over 18 years. Instead the group of dissenting states have asked that distributors contribute $22-$32B. There was nothing in the report on whether the requested payment timeframe has changed. We note that the $27B midpoint of the new “ask” is only modestly worse than the $25B we assume in our target prices, which is generally consistent with our view of investors’ line of demarcation here before today’s news – meaning that any settlement less than this amount would be viewed positively.
Search Coverage List, Models & Reports
Search Results1-10 out of 72
This morning (2/4/20) MCK reported 3Q20 EPS that exceeded expectations, with upside vs. our model primarily driven by Corporate and Europe. The guidance raise at the JPM Healthcare Conference now looks like it was primarily driven by Q3 results, with implied guidance for Q4 appearing somewhat conservative particularly for U.S. Pharma and Med-Surg. Momentum is strong across most of MCK’s businesses at present and from here we expect stock performance to primarily driven by the sustainability of U.S. Pharma profit growth in fiscal 2021. Our 2020 EPS increases to $14.80 from $14.70 previously, the high end of MCK’s $14.60-$14.80 guidance. Our forward estimates don’t change much coming out of the quarter given that for now we are not flowing the entire lower Corporate expense in fiscal 2020 through.
This morning (2/4/20) MCK reported fiscal 3Q20 adjusted EPS of $3.81, above WR/Consensus EPS of $3.56/$3.50. We note that not all consensus estimates have been updated following MCK’s 1/13/20 $0.40 guidance raise. We had spread the raise relatively evenly between Q3 and Q4 when we updated our model, but it appears the raise was primarily reflective of Q3 upside – by comparison, consensus EPS was $3.39 at year-end. Our estimates are still under review, but this could potentially indicate some conservatism to implied Q4 guidance. Compared to our revised model, upside in Corporate and Europe drove the beat. MCK reiterated fiscal 2020 EPS guide of $14.60-$14.80.
Ahead of MCK’s fiscal Q3 earnings this morning (2/4/20), Change Healthcare (CHNG, not covered) filed an S-4 registration statement that indicates “following the Internal Reorganization, SpinCo will consummate a split-off followed, if necessary, by a spin-off”. We are still reviewing the S-4 and expect MCK will provide additional details today.
We have updated our generic drug market tracking files to reflect December data. Overall, generic sales decreased 2.4% y/y in December. The December decrease was worse than November, driven by pricing – with volumes basically flat in both months. Interestingly, our tracking indicates that the rate of deflation on mature drugs picked up in December – with chain stores appearing to drive the change. While this is somewhat surprising after several months of relative stability, we have not been able to identify any obvious anomalies or extreme outliers within the data. Following November’s data release our analysis suggested modest pressure on margins for independent pharmacy customers in calendar Q4, but inclusive of December the data now suggests independent acquisition costs and chain store acquisition costs declined by comparable amounts. See Slides 3-10 for visuals illustrating the trends discussed below.
Yesterday (1/27/20) a status conference was held for the Track 2 bellwether case of the ongoing opioid multidistrict litigation (MDL). Recall that the Track 2 bellwether case consists of Huntington, WV and Cabell County’s cases against ABC, CAH, and MCK. From status briefs filed last week, the plaintiffs and defendants were more than a year apart in their thinking on when a trial could realistically start – with plaintiffs arguing for March 2020 and defendants arguing that any time before the summer of 2021 “would be rushed”. According to a local news report, U.S. District Judge David Faber pushed back fairly hard against the defendant’s proposed timeline: “You asked for 18 months? I’m not inclined to give you anything close to 18 months”. Judge Faber stopped short of setting a trial date and instead scheduled another status hearing in March. We suspect the ultimate timing will end up splitting the difference, leaving the trial to start in Q3 or Q4 of 2020.
Late yesterday (1/23/20) status briefs were filed ahead of a status conference for the Track 2 bellwether case of the ongoing opioid multidistrict litigation (MDL). Recall that the Track 2 bellwether case consists of Huntington, WV and Cabell County’s cases against ABC, CAH, and MCK. After reviewing the briefs, plaintiffs and defendants are more than a year apart on when they think a trial could realistically start. We will likely have a better idea of where things stand following Monday’s status conference. We have included key excerpts inside the note. Please email us for the full status briefs.
Last week MCK raised fiscal 2020 EPS guidance by ~3% to $14.60-$14.80 ahead of their appearance at the JPM Healthcare Conference. The company cited momentum in both U.S. Pharma and Med-Surg and noted the upside was operational in nature. We don’t have to push our assumptions very hard to get there, particularly for U.S. Pharma – we see the revised guidance there as a continuation of 1H20 “core” growth. The company also addressed one of the key overhangs on the stock by noting on the renewal of the Veterans Affairs contract ($7B of revenue annually), “we don’t expect it to be a material impact to our FY21 results” – dispelling some aggressive sell-side estimates. Following significant underperformance in Q4, MCK is +13% YTD and outperforming the S&P 500 and XLV by 10% - more than making up the Q4 deficit.
A status conference for the opioid MDL Track 2 bellwether cases in West Virginia (Huntington & Cabell County) will be held Monday 1/27/20. Statements from the parties ahead of the status conference are due Thursday 1/23/20. Key questions include: 1) are the cases ready for trial, 2) are any unresolved motions pending in MDL court, 3) are additional pre-trial motions forthcoming, 4) are any discovery issues outstanding, and 5) what does forthcoming trial look like – jury vs. bench trial, length of trial. Following the briefs and status conference, we will likely have a better idea of when the Track 2 trial could reasonably start. Recall that before being remanded to WV, the Track 2 cases were streamlined to only include distributors and retail pharmacies. MDL attorney Paul Farrell is the primary attorney for Cabell County and has previously discussed targeting a $500M settlement from the 3 distributors here if a trial is to be avoided.
Yesterday Oklahoma joined the 20+ states that have sued the 3 major drug distributors (ABC, CAH, MCK) for their alleged role in the ongoing opioid crisis. Interestingly, the lawsuit has been filed in Cleveland County District Court and assigned to Judge Thad Balkman, the same judge who oversaw the Johnson & Johnson opioid trial in August. There are some key differences relative to the J&J lawsuit – Oklahoma is seeking damages here rather than $ for an abatement plan – which was apparently challenging for the state to develop long-term estimates for. Oklahoma will also seek a jury trial instead of a bench trial. Our review of the 38 page petition found very little in terms of new allegations against the companies relative to the dozens of other complaints we have reviewed.
- 1 of 8
- next →