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NEW YORK — Pharmacy benefits manager Medco Health Solutions Inc. said Tuesday its profit climbed 24 percent in the fourth quarter on rising revenue due to higher prices for brand-name drugs and winning new clients.
The results narrowly topped analysts' expectations and Medco reaffirmed its earnings outlook for 2010. But Wall Street was concerned about the company's first-quarter outlook, and Medco shares fell $1.98, or 3 percent, to $62.70 in afternoon trading.
The Franklin Lakes, N.J., company said profit rose to $341.5 million, or 70 cents per share, in the three months ended Dec. 26, up from $274.4 million, or 54 cents per share, a year ago.
Revenue rose 18 percent to $15.25 billion from $12.96 billion a year ago. At the company's Accredo specialty pharmacy business, revenue jumped 18 percent to $2.46 billion.
Excluding valuation costs still being recognized related to its 2003 spinoff from Merck and Co., Medco said it earned 76 cents per share — a penny more than analysts surveyed by Thomson Reuters expected. Revenue also topped analysts' $15.09 billion estimate.
But the company made less money for each prescription it filled. Medco said it took in $3.06 per adjusted prescription in the fourth quarter, down about 4 percent from a year ago, because of business with new clients who had more prescriptions filled at retail pharmacies while filling fewer scripts through the mail. Medco said that figure will decline further in the first quarter of 2010.
Medco also said its revenue will grow about 5 percent compared to the fourth quarter, which is in line with analysts' views.
Deutsche Bank analyst Ross Muken said the company is essentially predicting a profit in the low 70-cent-per-share range, while analysts were expecting 77 cents per share on average. But Muken said Wall Street's expectations were not realistic, and the business is doing well.
Costs from new clients are higher at the beginning of the year, he said, and Medco is expecting a smaller contribution from new generic drugs in the first quarter.
Chief Financial Officer Rich Rubino said the average price of a brand-name drug rose more than 9 percent in 2009. It rose a little less than that in 2008, and he said he expects growth of 8 or 9 percent in 2010 as well.
Medco said it has won $4.2 billion in business with new clients for 2010.
With a slew of top selling drugs scheduled to lose patent protection in 2011 and 2012, Muken said he is encouraged by Medco's success in winning new clients.
"Medco remains a best-in-class PBM with a core focus on improving clinical outcomes in addition to reducing broader healthcare costs," he said.
Billion-dollar drugs that will face generic competition in the next few years include the cholesterol drug Lipitor, which is the world's best selling prescription drug, the blood thinner Plavix, and the allergy drug Singulair.
For the full year, the company earned $1.28 billion, or $2.61 per share, compared with profit of $1.1 billion, or $2.13 per share, in 2008. Revenue rose to $59.8 billion from $51.26 billion.
The company also said it plans to do more research comparing the effectiveness of different drugs. That research will be handled by its newly-created Medco Research Institute. Rubino said the institute could help bring new business to Medco because the work could help its clients save money by choosing the least expensive option.
Medco is beginning a study comparing Plavix to a newer blood thinner, Effient. Medco also bought genetic test consulting company DNA Direct Inc. earlier this month.
The company reaffirmed it expects earnings of $3.28 to $3.38 per share, excluding charges, for this year. Analysts expect $3.36 per share, on average.
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Associated Press Writer Damian Troise in New York contributed to this story.
