Shares drop, lawsuits follow McKessonHBOC restatement
A Healthcare InfoTech Staff Report
Shares of McKessonHBOC (San Francisco) fell off the table on Wednesday after the company issued a statement saying it will revise its fourth quarter and 1998 earnings statements because of improper recording of software sales.
The company said it had improperly counted, because of "contingencies," transactions of $26.2 million for the fourth quarter ended March 31, and $16 million in prior quarters. It did not spell out those contingencies. Besides revising previous earnings statements, the company said it is lowering its expectations for FY2000 on the "assumption that the Healthcare Information Technology business software revenues will decrease from fiscal 1999."
In reaction, several analysts immediately issued downgrade statements, and McKessonHBOC shares fell nearly 48% to $34.50 in NYSE trading. Additionally, a flurry of shareholder lawsuits were filed against the company on Thursday, charging the filing of misleading financial statements. Still more are likely to follow.
The news comes on the heels of the announcement of losses for the most recent quarter. The company on April 22 reported a net loss of $60.4 million for the quarter ended March 31, on revenue of $8.4 billion, or a net loss of 25 cents. Now the company is projecting a net loss of 27 cents. For the full year, net income was $237.1 million on revenue of $30.6 billion.
The bleeding may not be over, according to the company’s statement, since all auditing has not been completed and the full audit may identify additional "contingent sales."
Company Chairman Charles McCall and CEO Mark Pulido issued a joint statement saying that they were "disappointed that these items weren’t identified sooner, but the company recognizes the importance of promptly disclosing this information and is doing so now."
The statement went on to say that "both we and McKesson HBOC’s board of directors and its audit committee are focusing on the processes we have in place in order to determine the steps necessary to ensure that this will not happen again," McCall and Pulido said.
Following release of the earnings restatement, the company held a brief conference call restating its findings, but did not accept any questions.
A very key question that many industry watchers will be asking is to what extent the problems may be related to the merger of McKesson and HBO and Co. (Atlanta) late last year. With the merger, the company became the largest pharmaceutical supply management and healthcare information technology company in the U.S., but many industry watchers have questioned the combination of drug distribution services with healthcare IT products.
Announcement of the company’s new problems appear to cap a period of reduced expectations about the company. While the firm’s share price had reached a 52-week high of nearly $90 early in the year, they have been trading this month in the $60 to $70 range.
Despite the restatement of charges, McCall and Pulido said in their joint statement that they "reaffirm our belief in the underlying strength and opportunities in our markets."
In other news, the company announced Tuesday that it had established a multi-year national sales alliance with DuPont Pharmaceuticals (Wilmington, Delaware), a DuPont subsidiary. The deal calls for a general sales force to be recruited and trained by McKessonHBOC to assist DuPont Pharmaceuticals in promoting its products for cardiovascular disease and Parkinson’s disease. The new venture will be called Alliance Sales Partners.
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