(Reuters) -Cardinal Health said on Monday its contracts with UnitedHealth Group's OptumRx will not be renewed after they expire at the end of June, sending the drug distributor's shares down over 4% in premarket trade.
It said it expects to partially offset the impact of losing the OptumRx contracts, which contributed 16% of Cardinal's total revenue in fiscal year 2023, through a combination of customer additions and growth in its high-margin specialty pharmacy business.
"Today's announcement was a worst-case scenario for Cardinal Health's Optum renewal," EvercoreISI analyst Elizabeth Anderson wrote in a note.
Anderson estimates the loss of Optum contracts to impact Cardinal's 2025 profit by 45-50 cents.
Bulk of the shipments to Optum mainly comprised non-specialty medicines, Cardinal Health said, indicating a short-term impact from the loss of the contracts.
The company, which also manufactures and distributes Cardinal Health branded medical and surgical equipment, said it anticipates lower adjusted free cash flow in fiscal 2025 due to impact from loss of the contract.
It reiterated its 2024 adjusted profit forecast and long-term adjusted profit target of 12% to 14% for fiscal years 2024 to 2026.
"We are excited about the many other opportunities in the marketplace, such as the onboarding of new customers and the additional capabilities from the integration of Specialty Networks in fiscal 2025," said Debbie Weitzman, CEO of Cardinal's pharmaceutical and specialty solutions division.
Cardinal Health declined to provide any further comment on the OptumRx contracts, and UnitedHealth did not immediately 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)
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