Demand for weight loss drugs will level off: Cardinal Health

Weight loss drugs are making Cardinal Health (CAH) take flight.

The drug distributor reported fourth quarter results on Tuesday that topped expectations, posting both increased revenue and a rosier outlook for the year ahead thanks to its pharmaceuticals unit and its standout demand for GLP-1 drugs.

In its fourth quarter, Cardinal Health’s pharmaceuticals unit saw revenue rise 15% to $49.7 billion. And over the next fiscal year, the company expects revenues for this business to rise 10% to 12% above 2023, higher than the forecast for 10% revenue growth offered at its investor day in June.

In an interview with Yahoo Finance, CEO Jason Hollar said of this category of drugs, “It is important to customers so it is important to us.”

On a call with analysts on Tuesday, CFO Aaron Alt said that, similar to the third quarter, “GLP-1 medications provided us revenue tailwind in the quarter.” The company noted, however, that given these products are branded — rather than generics — they are not a meaningful contributor to profits.

Compared to those larger increases in the revenue forecasts, Cardinal Health expects profits in its pharmaceuticals business to grow 4% to 6% in 2024, unchanged from its June forecast.

The company reported total revenues in the fourth quarter of $53.5 billion with earnings per share coming in at $1.55, beating Wall Street forecasts for revenues of $52.7 billion and earnings per share of $1.48, according to estimates from S&P Capital IQ.

Lisa Gill, an analyst at JPMorgan, called the quarter a “clean beat” for Cardinal Health.

Cardinal Health stock initially popped on Tuesday but lost ground along with the broader market. The stock is up 18% year to date.

The sharp demand in obesity drugs have caused shortages

GLP-1 drugs are a class of weight loss drugs named for the hormone they mimic in the body which slows digestion.

Demand for these drugs has boomed in the last year, making the drugs increasingly hard to come by.

Novo Nordisk (NVO) is facing shortages as demand continues to outpace production. The company’s twin cash cows are its diabetes drug Ozempic and weight loss drug Wegovy, both GLP-1s.

For Cardinal Health, demand for these drugs accelerated in the final two quarters of its fiscal 2023, though the company said demand may level out in the coming year.

“We saw a strong finish to the year as it relates to [GLP1 drugs],” Hollar told analysts on Tuesday. “And looking forward, we see that there’s nothing that we can foresee in the near term that will change those trends.”

“Now of course, we don’t know what that slope is going to look like into ’24, but we would anticipate as you start to lap the second half of ’23 that, that will be more muted in terms of the year-over-year benefit,” Hollar added.

FILE - In this Wednesday, Oct. 16, 2019, file photo, a sign is displayed at the Cardinal Health, Inc. corporate office in Dublin, Ohio. (AP Photo/Darron Cummings, File)

Wednesday, Oct. 16, 2019, file photo, a sign is displayed at the Cardinal Health, Inc. corporate office in Dublin, Ohio. (AP Photo/Darron Cummings, File)

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