Cardinal Health’s OptumRx Contracts Will Not Be Renewed as of June 30, 2024

Cardinal Health announced that its pharmaceutical distribution contracts with OptumRx, which expire at the end of June 2024, will not be renewed. Expectations are that McKesson will be receive the new contracts.

Despite the non-renewal of the OptumRx contracts, the company also reiterated both its Pharmaceutical and Specialty Solutions long-term segment profit CAGR target of 4% to 6% and its consolidated non-GAAP EPS CAGR target of 12% to 14% for fiscal years 2024 to 2026, relative to a fiscal 2023 baseline.

Affirming these targets reflects the company’s ability to achieve sustained growth over the long term and deliver attractive returns for shareholders through an ongoing focus on value creation.

While Cardinal Health has not yet provided financial guidance for fiscal 2025, the company expects growth in fiscal 2025 in both Pharmaceutical and Specialty Solutions segment profit and non-GAAP diluted EPS. The company expects to partially offset the impact of OptumRx through a combination of new customer wins, specialty growth and other actions.

Sales to OptumRx generated 16% ($32.8 billion) of Cardinal Health’s consolidated revenue in fiscal year 2023. The OptumRx contracts were signed in 2015. Non-specialty medicines comprised most the contracts.

Fiscal year 2023 revenues were $205.0 billion, a 13% increase from fiscal year 2022. Approximately 90% of these sales were serviced by the company’s Pharmaceutical Distribution business and primarily consisted of non-specialty bulk shipments to Optum’s mail dispensing facilities. Total sales to OptumRx generate a meaningfully lower operating margin than the overall Pharmaceutical and Specialty Solutions segment.

Furthermore, Cardinal Health continues to expect to generate adjusted free cash flow of approximately $2B on average from fiscal 2024 to 2026; however, the company anticipates lower-than-average adjusted free cash flow in fiscal 2025 due to the unwinding of negative net working capital associated with the OptumRx contract and day-of-the-week timing.

Cardinal Health’s most recent (February 1, 2024) second quarter revenue increased 12% to $53.5 billion, driven by brand and specialty pharmaceutical sales growth from existing customers. The company saw strong pharmaceutical demand across product categories: brand, specialty, consumer health, and generics, and from our largest customers.

Cardinal Health also continued to see robust demand for GLP-1 medications, which provided a revenue tailwind in the quarter. Segment profit increased 12% to $518 million in the second quarter, driven by positive generics program performance and a higher contribution from brand and specialty products, including distribution of COVID-19 vaccines.

Cardinal Health is a distributor of pharmaceuticals, a global manufacturer and distributor of medical and laboratory products, and a provider of performance and data solutions for healthcare facilities. With more than 50 years in business, operations in more than 30 countries and approximately 48,000 employees globally, Cardinal Health is essential to care.