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Here's Why Diplomat Pharmacy Slipped 10.5% on Monday

By Brian Orelli, PhD - Updated Apr 15, 2019 at 11:12AM

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The company's PBM business isn't paying off yet.

What happened

Shares of Diplomat Pharmacy (DPLO) closed down 10.5% on Monday after the company said during a presentation at the J.P. Morgan Healthcare Conference that 2018 revenue would fall at the low end of its previous guidance, and 2019's guidance failed to impress investors.

So what

Previous guidance had revenue falling in the range of $5.5 billion to $5.7 billion, but a quick tally of the 2018 totals shows that the revenue won't top $5.6 billion. On the plus side, at least the final revenue number won't be lower than previous guidance.

On the bottom line, there was a bit of good news with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) expected to come in at $167 million to $170 million, at the high end of the previously communicated range of $164 million to $170 million.

Hands taking medications from a pharmacy shelf

Image source: Getty Images.

The bigger disappointment came from guidance for this year, with revenue expected to hover in the $5.6 billion to $5.8 billion range, just a 3% increase at the midpoints of both year's guidance ranges. Guidance for adjusted EBITDA in 2019 was also disappointing, with flat to low-single-digit percentage increases year over year.

Diplomat Pharmacy's move into the pharmacy benefits manager space hasn't gone particularly smoothly. The company combined multiple acquisitions into CastiaRx, which was able to garner $35 million in revenue from new business this year. But that gain was overwhelmed by the loss of $200 million in previously disclosed Medicare Part D contracts, and the loss of an additional $120 million from new client losses and the pricing impact of contract renewals.

Now what

Diplomat Pharmacy is looking to turn CastiaRx around in 2019, hinting that it plans to make "key senior management changes." The company has also employed the counsel of an external consultant to help improve CastiaRx's performance, as it goes for new contracts in 2019 and tries to mitigate additional losses of current customers. Investors should get to hear more about the plan when the company releases complete fourth-quarter results in late February.

Check out the latest Diplomat Pharmacy earnings call transcript.

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