UPDATE 3-Medco profit rises, helped by generics, mail-order
(Adds CEO, analyst comments, shares, byline)
By Lewis Krauskopf
NEW YORK, Nov 1 (Reuters) - Medco Health Solutions Inc (MHS.N) reported on Thursday a better-than expected third-quarter profit on growth in generic drug sales and mail-order prescriptions.
The U.S. pharmacy benefit manager also projected earnings per share, excluding special items, would rise 19 percent to 24 percent next year and its shares rose.
Medco, which says it derives more than 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.
Shares of both Medco and rival Express Scripts Inc (ESRX.O) have soared about 80 percent this year, amid a raft of blockbuster drugs that have become available as generics.
"We believe the pharmacy benefit management business model is clearly in the sweet spot," Morgan Stanley analyst David Veal said in a research note.
Medco shares were up 2.8 percent to $97.02 in early afternoon trading on the New York Stock Exchange after going as high as $97.82 earlier in the session.
Pharmacy benefit managers, or PBMs, administer prescription drug benefits for employers and health plans and operate large mail-order pharmacies.
Medco also said it was buying privately held Critical Care Systems, after a long search for an acquisition to expand its specialty business. CCS specializes in services related to medicines given by infusion and serves 38,000 patients at their homes or at the company's walk-in sites, Medco said.
Chief Executive David Snow said the deal was an example of how Medco was focusing more on its clinical medicine capabilities as a pharmacy company.
"We're a very, very strong PBM," Snow said in an interview. "But I expect more of us. I expect us to be a superior clinical company around that PBM."
Third-quarter net income rose to $214.7 million, or 78 cents per share, from $185.8 million, or 62 cents per share, a year earlier.
Excluding items, earnings were 88 cents per share, 9 cents ahead of the analysts' average forecast, according to Reuters Estimates.
Revenue rose 4.4 percent to $10.9 billion.
Medco's adjusted volume of prescriptions handled rose 2 percent to 182.7 million prescriptions. Its volume of mail-order prescriptions rose 5.4 percent to 23.5 million.
The Franklin Lakes, New Jersey-based company said a record 60.3 percent of its prescriptions handled were for generic drugs, up 4.3 percentage points from a year earlier.
Among the drugs that recently have become available as generics are versions of AstraZeneca's (AZN.L) heart drug Toprol XL, and GlaxoSmithKline's (GSK.L) blood-pressure drug Coreg.
Medco's clients also seek greater use of lower-cost generics to cut their overall drug bills.
Its specialty pharmacy segment generated revenue of nearly $1.5 billion, up 11 percent.
The company projected 2007 earnings per share, excluding items, would be $3.55 to $3.60 per share, up from the previous range of $3.50 to $3.55. Analysts had expected $3.56.
It forecast 2008 earnings, excluding items, of $4.29 to $4.41 per share. Analysts had expected $4.31.
"Medco continues to deliver strong results, and we believe the initial 2008 guidance is conservative," JP Morgan analyst Lisa Gill said in a research note.
