3 November, 2009
UPDATE 5-Medco profit tops views, sees strong 2010 growth
* Q3 EPS ex-items of 75 cents vs 72-cent Wall St view
* Raises 2009 view to $2.80-$2.82, ex-items
* Sees 2010 EPS of $3.28-$3.38, ex-items
* Shares touch all-time high (Adds CEO comments)
By Lewis Krauskopf
NEW YORK, Nov 3 (Reuters) - Pharmacy benefit manager Medco Health Solutions Inc (MHS.N) posted a better-than-expected third-quarter profit on Tuesday, helped by greater use of higher-margin generic drugs and specialty medicines and new business, and it predicted another year of strong growth.
Medco projected earnings could rise more than 20 percent next year, as it said it had already won more than $4 billion in new business for next year while retaining 99 percent of its clients. Medco shares rose as much as 3.1 percent to an all-time high.
Medco's quarterly net income rose 13.5 percent to $335.6 million, or 69 cents per share, from $295.7 million, or 58 cents per share, a year earlier.
Excluding amortization of intangible assets, earnings were 75 cents per share. Analysts on average had expected 72 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose about 18 percent to $14.79 billion. Analysts had expected $14.68 billion.
Pharmacy benefit managers, or PBMs, which drive greater use of inexpensive generic drugs, are benefiting from a wave of big-selling brand name medicines that will lose U.S. patent protection in the next few years, and desires by their clients to cut costs.
"The fundamentals in this PBM sector remain very strong and I think to some extent the fact that the economy still remains a bit sluggish is playing well to the services that they're offering," Jefferies & Co analyst Arthur Henderson said.
Generic use also helped fuel better-than-expected quarterly profit at pharmaceutical wholesaler AmerisourceBergen Corp (ABC.N), as did lower operating expenses. Shares of Amerisource rose 2.8 percent, as the company also projected growth of 8 percent to 14 percent for its 2010 fiscal year.
Medco Chief Executive David Snow said his company has won $20 billion in business in the past three years, fueled by its programs to improve health outcomes and lower costs.
"When you layer these clinical capabilities on top of an already excellent base ... that is large in scale so that it does drive very competitive pricing, it's been a really winning combination," Snow said in an interview. "The 2010 numbers are just a continuation of a very strong series of sales years."
PBMs administer prescription drug benefit for employers and health plans and operate large mail-order pharmacies.
Medco's rate of dispensing generic drugs, which have higher profit margins for PBMs than more pricey brand name medicines, rose 3.3 percentage points to a record 67.7 percent.
Prescription volume rose 14.1 percent to 220.2 million. But the volume of drugs delivered by mail fell 2.3 percent to 25.5 million, reflecting a decline in brand-name drug volume.
Generic drugs delivered by mail are particularly profitable for Medco. It can leverage low prices from manufacturers and capture more profit by dispensing the drugs itself.
Revenue from Medco's specialty pharmacy unit, which includes infused drugs, jumped 19 percent to $2.4 billion.
Medco reported $2 billion in cash on its balance sheet. "An immense amount," said Jefferies' Henderson.
The large cash position stems from last year's credit crisis, Snow said. "We decided we would work very hard to create our own liquidity," he said.
Medco will look to use its cash on acquisitions or share repurchases, Snow said, with the creation of a dividend far less likely.
"When you're a high growth company, as Medco currently is, it's not smart in our opinion to constrain yourself with a permanent commitment when there might be better ways to deploy cash that have a higher return for shareholders," Snow said.
Medco raised its 2009 forecast, excluding items, to a range of $2.80 per share to $2.82 per share, up from $2.76 to $2.81 previously. Analysts have been expecting $2.80. The 2009 forecast would equate to growth of 20 percent to 21 percent.
On that basis, it expects 2010 profit of $3.28 per share to $3.38 per share, or growth of 16 percent to 21 percent. Analysts have been looking for $3.28.
"Medco continues to take market share from competitors," Wells Fargo analyst Matt Perry said in a research note.
Medco expects new generic launches to contribute 25 cents per share to earnings next year. It also expects mail order prescriptions to rise from 103 million this year to between 107 million and 109 million.
Medco shares were up $1.46, or 2.5 percent, at $59.04 in afternoon trading on the New York Stock Exchange, after rising as high as $59.39. Through Monday, Medco shares had risen about 37 percent this year, less than the 51 percent rise for rival Express Scripts Inc (ESRX.O). (Reporting by Lewis Krauskopf; Editing by Gerald E. McCormick, Dave Zimmerman)
Source: http://www.reuters.com
UPDATE 5-Medco profit tops views, sees strong 2010 growth Added: (03.11.2009)
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