Medco Health 3Q profit rises 38 pct, beats view

FRANKLIN LAKES — Pharmacy benefits manager Medco Health Solutions Inc. said Wednesday its third-quarter profit rose 38 percent on greater mail-order and specialty drug sales, topping Wall Street forecasts.

Medco reaffirmed its full-year profit guidance and also announced a repurchase of up to $3 billion of stock.

Its shares rose $3.47, or 9.1 percent, to close at $41.47 in Wednesday trading.

The company earned $295.7 million, or 58 cents per share, in the three months ended Sept. 27 compared with $214.7 million, or 39 cents per share, a year earlier. Revenue rose 15 percent to $12.56 billion from $10.92 billion.

Excluding amortization from the company's 2003 spinoff from Merck and Co., it earned 63 cents per share.

Analysts polled by Thomson Reuters expected a profit of 62 cents per share on revenue of $12.53 billion. The earnings estimates typically exclude one-time items, but did include a state income tax benefit worth 5 cents per share.

Medco's retail product revenue grew 8 percent to $6.95 billion, and mail order product revenue rose 26 percent to $5.44 billion. During the quarter, 64.4 percent of the drugs Medco dispensed were low-cost generics, up from 60.3 percent a year ago. While generic drugs bring Medco less revenue per sale, they are more profitable, and save money for the company and its clients.

The makers of branded drugs often raise prices on their products as patent expirations approach, as revenue usually falls sharply once generic competition begins. That aids the company's revenue.

Total adjusted prescriptions rose 6 percent to 193 million. Mail order prescription volume climbed 11 percent while retail prescriptions increased 2 percent. Revenue per prescription was $3.19, compared with $2.61 per prescription a year ago.

"We have seen clients and consumers alike choosing the cost-saving benefits of mail-order and generics in these difficult economic times, and our strong 2009 net-new business growth provides additional evidence that our value proposition is resonating with both current and new clients," said Chairman and Chief Executive David Snow.

At the Accredo specialty pharmacy business, which provides treatment for chronic and complex diseases, revenue jumped 34 percent, to more than $2 billion. Those results were aided by Medco's purchase of Critical Care Systems Inc. in November 2007.

Snow said Critical Care Systems is exceeding the company's own expectations, and so is recently-acquired Europa Apotheek Venlo, a clinical health care and mail-order pharmacy services company based in Germany.

Snow he said the company is focusing on increasing its cash balance and isn't planning any other acquisitions at the moment. But in a telephone interview, he said Medco might expand its reach into Europe if the right opportunity comes along.

He said some European countries have laws that are favorable to the company, as Germany does, and noted that Medco is also developing software for the Swedish government's retail pharmacy system.

The company reaffirmed full-year adjusted profit guidance between $2.30 and $2.33 per share and expects 2009 profit to range from $2.67 to $2.77. Analysts expect 2008 profit of $2.31 per share and 2009 profit of $2.72 per share.

Medco's 2009 profit outlook assumes economic conditions will remain more or less as they are, the company said. But Snow said the company gets a majority of its profit from the specialty pharmacy business, which handles drugs for patients with serious diseases — meaning they won't cut stop buying drugs to save money.

"Those are drugs associated with people with rare and seriously chronic if not catastrophic diseases," Snow said . "We don't make a lot of our money from the drugs dispensed in retail."

He said the economic downturn helps Medco because its services allow patients and health plans to save money. Both those groups appear to be growing more cost-conscious.

"When the consumers (feel) pressure around their pocketbook ... they look for lower cost alternatives, which directs that person to go to mail and to generics wherever possible," he said.

___

Associated Press business writer Damian Troise in New York contributed to this report.

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