By Lewis Krauskopf and Bill Berkrot
NEW YORK (Reuters) - Medco Health Solutions Inc's (MHS.N: Quote, Profile, Research, Stock Buzz) expected 2008 growth rate of more than 20 percent is sustainable over the next few years as the company benefits from a wave of major brand-name medicines becoming available as generics, Chief Executive David Snow said on Wednesday.
The pharmacy benefit manager (PBM) will capitalize on drugs with more than $60 billion in annual sales losing patent protection by 2012, Snow said at the Reuters Health Summit in New York. Medco profits more from generic drugs than pricier brands.
The company, whose shares have nearly doubled this year, is already expecting 31 percent to 33 percent earnings growth for 2007.
"We've just given new guidance for '08 that's 21 to 27 percent GAAP (earnings per share) growth," he said.
"The question is, is that sustainable? It is, I believe, sustainable based upon the things Medco is doing uniquely."
Pharmacy benefit managers administer prescription drug benefits for employers and health plans and operate large mail-order pharmacies.
Snow said generics could make up 80 percent of prescription drugs by 2012, up from the current 60 percent.
The one wild card that could slow that pace would be new breakthrough medicines that draw people away from generics, he said. Such breakthroughs would likely come from biotechnology, he said.
"I don't see the pipeline in the science of chemistry, so the typical place you would look for new drugs that would displace the generics is dry," Snow said. "There's nothing coming out. You've got to look on the biotech side."
Medco, which says it derives more than one-half its profits from delivering generic drugs by mail, can leverage low prices from generic manufacturers and capture more of the overall profit by dispensing the drugs itself.
A confident Snow said the company was already taking steps to maintain the growth beyond what he calls the "clear line of sight on the generic side ... through 2013."
"We are actually creating a growth engine that will take us beyond 2013," he said. "My goal is to make sure I have enough other things contributing to pick up for when the generic wave starts to subside after 2013."
Among those future profit drivers are moves into personalized medicine, specialty pharmaceuticals such as infused medicines, and pharmacists dedicated to certain therapeutic areas such as diabetes.
The company's next acquisition targets could come in the cancer area, Snow said. "We still are looking at ways to put together a better program in oncology," he said.
Another area of potential growth would be an expansion into Europe that Snow said could begin as soon as next year. Continued...
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