REFILE-UPDATE 5-Medco posts higher net, keeps forecast

(Refiles to fix stock symbol (RIC) format in paragraph 1)

* Q1 EPS 63 cents ex items vs 62-cent Wall St estimate

* Backs 2009 profit forecast

* Prescription volume up 9.4 percent

* Shares fall 3 pct (Adds CFO comment from interview, updates shares)

By Lewis Krauskopf and Bill Berkrot

NEW YORK, April 29 (Reuters) - Medco Health Solutions Inc MHS.N said on Wednesday that quarterly net income rose, helped by new business, but the pharmacy benefit manager did not raise its full-year forecast, disappointing some investors.

Analysts suggested disappointment over the forecast and concern that the company’s burgeoning cash pile would lead to a potentially disruptive acquisition were putting pressure on the stock, which was down 3 percent.

“They had a good quarter, but they didn’t do anything with guidance,” said Jefferies & Co analyst Arthur Henderson. “I assume people hoped they might raise it.”

On a conference call with analysts and investors, Medco officials said the company had $1.8 billion of cash at the end of the first quarter and expected that to grow by the end of 2009. It also said it would be open to a major acquisition.

“Any time there’s a big acquisition, people worry about integration risk,” Henderson said.

Gabelli & Co analyst Jeff Jonas said “fear of a big deal” could be driving down the stock.

But Chief Financial Officer Richard Rubino said the company’s healthy cash position does not mean a big acquisition is imminent.

“It’s good to have when there’s very little liquidity in the market,” Rubino said in a telephone interview. And, he added, “if there was an (acquisition) opportunity that would drive long-term shareholder value, at least we have the powder to take advantage of it.”

Medco’s net income rose 8 percent to $291 million, or 58 cents per share, from $270.2 million, or 50 cents per share, a year earlier.

Excluding items, Medco earned 63 cents per share, 1 cent more than analysts’ average forecast, according to Reuters Estimates.

Revenue jumped 14.4 percent to $14.83 billion.

“For any company to have a record revenue quarter in this day and age is pretty phenomenal,” Rubino said.

Medco continues to project 2009 earnings, excluding items, of $2.67 to $2.77 per share, representing annual growth of 15 percent to 19 percent.

Chief Executive David Snow said the forecast “takes into account both the opportunities and challenges posed by economy.”

Medco’s rate of dispensing more profitable generic drugs rose 3.5 percentage points to 66.8 percent in the quarter. The company said it expected introductions of new generic medicines to contribute 11 cents a share to 2009 earnings.

Adjusted prescription volume rose 9.4 percent to 226.1 million. Mail-order prescription volume slipped 3.4 percent to 25.7 million.

“Declines in employer-sponsored health insurance from the managed care companies in the first quarter leaves us concerned that drug volumes will weaken at some point in 2009,” Wachovia Capital Markets analyst Matt Perry said in a research note.

Rubino said Medco’s overall second-quarter performance should not differ materially from the first quarter, except for an additional 2 cents a share from generic opportunities.

The company said it continued to sign new business, with $900 million of net new sales in the first quarter.

Revenue from the Accredo Health Group grew 21 percent to $2.3 billion, reflecting contributions from new clients and growth in specialty pharmaceuticals, such as medicines given by infusion.

Pharmacy benefit managers, or PBMs, administer prescription drug benefits for employers and health plans and operate large mail-order pharmacies.

Medco says it derives more than half its profit from delivering generic drugs by mail. Like other PBMs, it can take advantage of low prices from generic manufacturers and capture more profit by dispensing the drugs itself.

Medco shares were off $1.32 cents, or 3 percent, at $42.34 in midday New York Stock Exchange trade. (Reporting by Lewis Krauskopf and Bill Berkrot; Editing by Maureen Bavdek, Dave Zimmerman and Steve Orlofsky)