Reckitt Benckiser Says U.S. Reform to Hurt Drug-Unit Profit

Reckitt Benckiser Group Plc (RB/), the maker of Lysol cleaners, forecast lower sales and profit at its pharmaceutical division in the fourth quarter because of U.S. health-care reforms and a price increase for Suboxone tablets.

The unit’s revenue will drop “by a mid-teens percentage, with profit down by a higher percentage” in the final three months of the year, the Slough, England-based company said today as it reported third-quarter profit that beat estimates.

Rebates payable to the U.S. government under the Medicaid health program for the poor will be higher than previously estimated, having a one-time effect on sales and profit, Reckitt Benckiser said. The pharmaceuticals unit has been the company’s fastest-growing division, benefiting from growth in sales of the Suboxone heroin-dependency treatment. A film-strip version of the drug now has 44 percent of the market, the company said today, which some analysts said was disappointing.

“The pharma one-off and guidance caveat are not particularly enthusing,” Eamonn Ferry, an analyst at Exane BNP Paribas wrote in a note. He has an “underperform” recommendation on the shares.

Reckitt Benckiser fell as much as 6.7 percent to 3,215 pence in London trading, the steepest drop since April 14. The shares were at 3,287 pence as of 2:38 p.m.

U.S. Rebates

Third-quarter pharmaceuticals revenue rose 11 percent to 209 million pounds ($335 million), which was stronger than the company expected as U.S. users of Suboxone tablets stocked up in advance of a price increase. The effect will reverse in the fourth quarter, when the company will also have to pay the increased U.S. rebates, Reckitt Benckiser said.

U.S. government plans to make drugmakers pay rebates for treatments bought by low-income beneficiaries of Medicare, the health program for the elderly and disabled, may cut as much as $20 billion from the industry’s annual revenue, according to Pharmaceutical Research and Manufacturers of America.

Reckitt Benckiser has said its pharmaceutical unit may lose as much as 80 percent of its U.S. revenue if a competitor starts selling a generic version of its Suboxone tablet, prompting speculation that the company may sell the unit. The company said today that a film-strip version of Suboxone, designed to help offset the effect of generic competition, now accounts for 44 percent of the market by volume, up from 41 percent in June.

“The minimal increase is not good news,” Pablo Zuanic, an analyst at Liberum Capital in London, said in a note.

Weaker Margin

Reckitt Benckiser said it has no new information on the timing of any generic competitor for Suboxone.

Gross margin, a measure of profitability, slid 1.1 percentage points to 59.7 percent in the third quarter as the company spent more to support sales and had to contend with higher commodity costs. Reckitt Benckiser makes winter-illness treatments including Nurofen Cold & Flu and Mucinex.

The company, which forecasts full-year adjusted net income growth of 10 percent at constant exchange rates, reported that third-quarter profit on that basis rose 10 percent to 470 million pounds. That compares with the average estimate of 11 analysts surveyed by Bloomberg News of 463 million pounds.

“In the fourth quarter we continue to target further strong like-for-like growth,” Chief Executive Officer Rakesh Kapoor said in the statement.

Group revenue, excluding currency shifts, acquisitions and disposals, rose 4 percent in the third quarter, aided by sales of goods including Dettol No Touch hand sanitizer and increased demand in emerging markets. The company has said sales on that basis will probably rise 4 percent this year, a slower pace than last year. They also rose 4 percent in the first nine months.

Reckitt Benckiser is among consumer-goods companies suffering as sales stagnate in developed markets including Europe and the U.S. Like-for-like sales in developing markets rose 12 percent, while revenue in Europe slid 1 percent.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.