When a COVID-19 vaccine is ready, this company is ready to act
First, set up distribution centers for different types of vaccines. Then manage shipments from five different manufacturers to all 50 states so they can immunize those most at risk. Sounds like a playbook for early 2021 as the COVID-19 vaccine rolls out, doesn’t it? Instead, this is how McKesson (NYSE: MCK) – the leading provider of healthcare logistics – responded to the swine flu crisis in 2009. Now the company is once again responsible for distributing vaccines to administration sites across the United States to curb a virus outbreak.
A history of support for medical distribution
McKesson partnered with the Centers for Disease Control (CDC) in 2006, three years before the H1N1 swine flu epidemic. Since then, the company has been responsible for distributing over 150 million vaccines each year, against diseases such as seasonal flu, polio, chickenpox, measles, and more.
Vaccines are only part of the business. McKesson also provides medical and surgical supplies. Through the company’s 117 distribution centers, it supplies more than 150,000 items to end users such as hospitals, pharmacies, clinics and medical practices. As benign as it may sound, this role in the supply chain has put the company in legal jeopardy for non-vaccine drugs.
Although he is only a middleman, McKesson could still be forced to pay a significant sum into the industry’s calculation because of the opioid crisis. Last month, the company said it could have to pay $ 8 billion as part of a settlement with attorneys general in four states over its role in the distribution of opioids. The settlement would resolve 3,200 cases accusing the company and its competitors of ignoring warning signs that lethal drugs were being rerouted illegally. The company’s role in delivering a COVID-19 vaccine to the masses is a welcome distraction from the controversy.
Support the distribution of the COVID-19 vaccine
In August, the company’s traditional vaccine deal with the CDC was extended as part of Operation Warp Speed. For $ 178 million, McKesson will leverage its expertise to deliver COVID-19 vaccines to selected administration sites across the country. Under a September contract, the company received an additional $ 568 million to provide vaccine delivery kits. The kits contain enough needles, syringes, alcohol swabs, vaccination cards and other items to perform 100 vaccinations.
To achieve this logistical feat, McKesson is setting up several new facilities and adding employees. The company is not sharing any additional details about its plans. But one challenge he won’t face is dealing with the extreme cold demands of the Pfizer vaccine. This vaccine needs to be stored at a negative temperature of 94 degrees Fahrenheit, so the top-notch drug maker has decided to run its own distribution. ModernaThe vaccine, on the other hand, will be distributed by McKesson. The drug presents fewer challenges because it remains stable between 36 degrees and 46 degrees Fahrenheit.
Analysis and conclusion
Initially, CEO Brian Tyler said working for the CDC was unlikely to be financially significant for the company. After the kits deal, Tyler appeared more optimistic, raising the midpoint of the 2021 earnings per share forecast by nearly 8%. The deals are a victory for McKesson, as competitors AmerisourceBergen and Cardinal Health have no involvement in the distribution of the COVID-19 vaccine.
With a positive outlook, McKesson stock is trading at its highest level in over four years. Despite the higher price tag, the company’s valuation is still cheap compared to its history. It looks like investors are giving McKesson credit for the extra revenue from the vaccine rollout, but don’t want to forget the possible massive implantation the business might be on the hook for.
The company plays an essential role in vaccinate millions of people against COVID-19 of people across the country. He is a trusted partner of the CDC and has experience with the H1N1 crisis that will stand him in good stead in the months to come. The legal overhang is worrisome, but it’s usually one-time events that don’t hurt a business in the long run. With the health care stock Trading at a historically cheap valuation and the potential for a new annual vaccine to add to its business, McKesson represents one of the surest ways to profit from the rollout of the COVID-19 vaccine.
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