What: Diplomat Pharmacy's (NYSE:DPLO) stock came to life today as a result of its particularly strong third quarter earnings report released after the bell yesterday. Specifically, the specialty pharmacy's shares rose by as much as 23% on unusually heavy volume, sparked in large part by a 59% increase in revenue to $947 million for the three month period, compared to a year ago.
So what: Like most specialty pharmacies, Diplomat's shares have been tanking over the last two months as the debate over rising drug prices has escalated to fever pitch. In a nutshell, specialty pharmacies have been hit particularly hard for reportedly inflating the prices of some older drugs to astronomical levels, as well as discouraging the use of generics in place of branded combination medicines.
On the quarterly conference call, however, Diplomat's management pointed out that only a small fraction of its growing revenue stream stemmed from increases to drugs already on the market, and the recent acquisitions of companies like BioRx and Burman's Specialty Pharmacy should lessen the impact of drug price inflation even further on the company's core business model moving forward. Diplomat could thus be getting ready to recapture some of its lost ground in the last few weeks:
Now what: This hot button issue certainly isn't going to die out anytime soon. After all, Express Scripts (NASDAQ:ESRX), a leader in the world of pharmacy benefits managers, is already starting to amp up the rhetoric surrounding high-priced cancer medicines, which seemed unfathomable only a few years ago. And some Big Pharma companies are indeed taking Express Scripts' alternative pricing proposals, such as linking a drug's price tag to its performance in a specific condition, under consideration.
In light of these events, Diplomat's recent move to diversifying its business seems like an awfully good idea. As such, this beaten down specialty pharma might be worth a deeper dive by risk-tolerant investors looking for contrarian buys.
George Budwell has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Express Scripts. The Motley Fool recommends Diplomat Pharmacy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.