Medco 2Q profit up 22 percent on new deals
FRANKLIN LAKES, N.J.—Pharmacy benefits manager Medco Health Solutions said Thursday its second-quarter profit climbed 22 percent as it won new clients and prices for brand-name drugs increased.
Medco Health Solutions Inc. earned $262.7 million, or 51 cents per share, up from $214.9 million, or 38 cents per share a year ago. The Franklin Lakes, N.J., company said revenue rose 16 percent, to $12.77 billion from $11.05 billion.
Excluding a one-time charge, Medco posted a profit of 56 cents per share. Thomson Financial says analysts expected a profit of 54 cents per share on $12.59 billion in revenue.
The 5-cent-per-share charge is part of a gradual write-down of contracts from Medco's 2003 spinoff from drug maker Merck & Co.
Revenue from retail sales grew 8 percent to $7.16 billion, while revenue from the mail-order business jumped 26 percent to $5.45 billion. In a telephone interview, Chief Executive David Snow Jr. said drug makers raised the prices of their products, which is a pattern he expects to continue.
"What we notice is that as drugs get closer and closer to going off patent, the price goes up faster and faster," he said. "That is a big story in our business, the enormous number of branded drugs that are really blockbuster drugs scheduled to go off patent between now and 2015."
Generic drugs are less expensive than their branded, patent-protected equivalents, allowing Medco to sell larger amounts for lower prices.
"We make our money on generics, consciously," Snow said.
In the company's conference call, Snow said the high price of gasoline helped improve mail orders, as customers chose to order their drugs instead of making trips to drug stores.
Revenue for the Accredo Health Group specialty pharmaceutical business grew 33 percent to almost $2 billion. Medco attributed that growth to clients it won in the first quarter, and the November 2007 buyout of infusion services provider Critical Care Systems Inc.
Pretax profit per adjusted prescription rose to $3.05 from $2.55 a year earlier, and Medco said it expects that measure to improve in the second half due to greater mail orders and generic use. For the full year, profit per prescription is expected to be greater than $3.05, the company said.
Prescriptions for the retail business grew 3 percent to 119.6 million. For the mail-order business, that total rose 12 percent to 26.3 million. Both units reported increased sales of low-cost generic drugs. In total, the dispensing rate for generic products rose to 63.7 percent of total prescriptions, up 4.8 percent from last year.
The company raised its 2008 earnings-per-share forecast to $2.30 to $2.33, from $2.27 to $2.31 previously. Analysts on average expect $2.30 per share.
The company did not offer a per-share forecast for the third quarter, but it said its tax rate will be lower, increasing profits by about 5 cents per share and making that period its most profitable of the year on an earnings per share basis.
Medco said it has already renewed contracts worth more than $11 billion in revenue for 2009, along with $4.6 billion in new contracts that will go into effect during the year. One of the key renewed contracts is an expanded deal with Blue Cross Blue Shield in Michigan. Medco will provide new services and may gain more customers because of cuts in retiree health care from auto makers General Motors Corp. and Ford Motor Co.
During the quarter, Medco bought back 12.4 million shares, or 8.3 percent of its available shares at the start of the quarter, for $562.4 million. The company has $400 million left on a stock buyback plan that began in 2005.
Medco shares rose $1.02, or 2.2 percent, to close at $47.88 Thursday.
