Shares of Cardinal Health (NYSE:CAH) fell 5% Monday after the company said that its contracts with UnitedHealth Group's (NYSE:UNH) OptumRx will not be renewed after they expire at the end of June.
Analysts from at least two firms believe that McKesson, a rival company, is likely to secure the contracts previously held by Cardinal.
Analysts referred to the loss of the Optum contracts as an "unexpected disappointment." They noted that Cardinal is expected to counterbalance this setback through "buybacks, deals, cost cuts and new customers."
The contracts with Optum, established in 2015, accounted for 16% of Cardinal's total revenue in fiscal year 2023.
According to Cardinal Health, these contracts primarily involved non-specialty medicines. The company also mentioned its strategy to mitigate the financial impact of these lost contracts by gaining new customers and expanding its more lucrative specialty pharmacy segment.
The healthcare firm is focusing on the sale of high-priced specialty drugs for conditions like cancer and rheumatoid arthritis, especially as it faces challenges in its medical devices distribution sector due to increasing transportation and labor costs, along with supply issues.
Cardinal now expects a reduction in its adjusted free cash flow for fiscal 2025 as a result of the contract loss and has reaffirmed its profit forecast for fiscal 2024.
Analysts have projected that the loss of the Optum contracts could reduce Cardinal’s profit by 45-50 cents in 2025.