Drug pricing figures into McKesson settlement, earnings

It is all in the pricing.

On the same day that drug wholesaler McKesson ($MCK) reported better than expected earnings, helped by the price spread on generics, it also agreed to settle a lawsuit with states that claimed that it inflated drug prices they paid as much as 25%.

McKesson, the largest drug wholesaler in North America, insists that it did nothing wrong but is going to pay 29 states and the District of Columbia $151 million anyway. That is on top of the nearly $190 million it earlier paid to settle the federal portion of a case claiming that it fudged the numbers it reported to FirstDatabank, a drug price publisher the states turned to to figure out how much to pay for drugs.

"We did not manipulate drug prices and did not violate any laws," a spokesman tells The Wall Street Journal. McKesson says it settled because of the uncertainty of the outcome of the litigation.

The lawsuit alleges that from 2001 to 2009, the company purposely inflated the prices of 1,400 drugs when reporting them to FirstDatabank, leaving out such things as bulk discounts or rebates it had received. At the time, FirstDatabank used McKesson's information as its sole source for drug prices and most states then used FirstDatabank as their sole source, The Wall Street Journal reports. The government has pursued similar claims against a host of companies and says it has recovered nearly $2 billion.

The news of the settlement came hours after the drug wholesaler reported higher than expected earnings on lower than expected revenue. For its fiscal first quarter that ended June 30, McKesson earned $1.58 a share, up from $1.13 a share a year earlier. Analysts had expected only $1.48 a share. Revenue was up 3% to $30.8 billion, less than the $31.1 billion Wall Street was looking for. Reuters says solid growth in the the company's pharmaceutical distribution business was helped by all of the generics that have been launched this year, which provide better pricing margins than branded drugs.

- read the WSJ story
- here's the Reuters earnings story

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