Diplomat Pharmacy's (NYSE:DPLO) shift into the pharmacy benefits manager (PBM) space has been challenging, with the company unable to hold onto many of the clients it received in the acquisitions it made in late 2017.

The losses apparently came from poor service, as the company merged its acquired companies into one brand called CastiaRx. The good news is that management now thinks it can win new clients with all the kinks of the merger worked out.

Diplomat Pharmacy results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$1.36 billion

$1.16 billion

18%

Income from operations

($294 million)

$2.9 million

N/A

Earnings per share

($4.00)

$0.09

N/A

Data source: Diplomat Pharmacy.

What happened with Diplomat Pharmacy this quarter?

  • Diplomat's legacy specialty pharmacy business produced most of the revenue -- $1.2 billion of the total. This was up 4% year over year, driven by the sale of cancer drugs that grew 7% year over year.
  • CastiaRx added another $179 million in revenue.
  • The large losses on the operations and earnings lines came from a $262 million noncash impairment charge for the PBM business and a $46 million noncash charge for the specialty pharmacy segment.
  • The charges are just an accounting issue that stem from a change in value of the company, thanks to the loss of PBM customers mentioned above. On the specialty-pharmacy business side, the charge came from expected lower prescription volumes this year; the company faces increased competition, largely caused by other PBMs and health plans that have limited the specialty pharmacies that their members can use.

Check out the latest earnings call transcript for Diplomat Pharmacy.

Pharmacist taking medication out of a drawer

Image source: Getty Images.

What management had to say

While the lost business is disappointing, Brian Griffin, Diplomat's chairman and CEO, says cutting costs can help the company return to profitability: "Historically, Diplomat experienced very rapid growth, and as a result, operating efficiency was not a priority. However, today our existing cost structure is not supported by the current business environment, and we're making needed adjustments now."

While he characterized 2019 as a "rebuilding year," Griffin is planning on keeping the PBM on a short leash: "While committed to rebuilding the business as I indicated in January, I'm not willing to give an unlimited time frame to observe some traction. Management and the board will always keep shareholder value at the top of mind."

Looking forward

While 2019 will be a rebuilding year for Diplomat Pharmacy, it looks like it's going to take most of the year to get things turned around.

Management is looking for 2019 revenue to fall between $4.7 billion and $5.0 billion, down sharply from guidance issued in January, when the company thought it would bring in $5.6 billion to $5.8 billion. On the bottom line, management expects a loss of $26 million to $37 million this year.