Medco 4Q Profit Climbs on Rising Revenue

By LINDA A. JOHNSON

TRENTON, N.J. – Medco Health Solutions Inc., one of the nation’s biggest prescription benefit managers, on Wednesday said its fourth-quarter profit rose 33 percent on record revenues, a higher generic drug dispensing rate and new clients, including Medicare patients. Shares rose more than 6 percent to close out trading.

Quarterly net income rose to $176.8 million, or 57 cents per share, for the three months ended Dec. 31 from $132.8 million, or 48 cents per share, in the year ago quarter. Revenue grew 21 percent to $10.8 billion from $8.91 billion in the previous year.

Excluding 9 cents a share for writing down the declining value of health plan contracts Medco received when it was spun off by pharmaceutical giant Merck & Co. in August 2003, Medco said its earnings were 66 cents a share. That beat the forecast of 61 cents a share by analysts surveyed by Thomson Financial.

The analysts also expected slightly lower revenue of $10.03 billion.

Medco’s chairman and chief executive officer, David Snow Jr., credited factors including significant growth in the number of prescriptions filled with generic drugs or by mail, the $2.3 billion acquisition of specialty drug provider Accredo Health Inc. of Memphis, Tenn., last August, and success in signing new contracts.

“We logged impressive totals in new and renewed business,” in winning more than $10 billion worth of contracts last year, Snow told analysts during a conference call.

Snow added that the launch of Medco’s prescription drug plan under the new Medicare benefit has been strong, with nearly 240,000 members already signed up. He said the plan should boost earnings per share 2 percent to 4 percent this year.

For all of 2005, Medco posted net income of $602 million, or $2.05 per share, up from $481.6 million, or $1.75 per share, in the previous year. Revenue rose 7 percent to $37.87 billion from $35.35 billion.

Medco shares rose $3.56, or 6.4 percent, to close at $59.28, a new 52-week high, on the New York Stock Exchange.

The company narrowed its 2006 guidance range for earnings to between $2.23 and $2.30 per share, from $2.18 to $2.30 per share. The company expects its profit to grow 21 percent to 25 percent over 2005′s results.

“We expect earnings to be more heavily weighted toward the end of the year due to patent expirations then,” said Chief Financial Officer JoAnn Reed, noting that blockbusters Zocor, for high cholesterol, and Zoloft, for depression and anxiety, will face generic competition.

Snow also announced several management changes aimed at making the company more responsive to customers and to boost growth, including making Chief Operating Officer Kenneth Klepper Medco’s president as well.

Meanwhile, Timothy Wentworth, national accounts group president, became president and chief executive of the new Medco unit Accredo Health Group, which combines the acquired Accredo with Medco’s own specialty pharmaceutical business. Under the transition, Accredo’s former chairman and CEO, David Stevens, has been nominated to a new seat on Medco’s board of directors.

“I believe we have the right people in the right positions to continue on our strategy and deliver excellent results,” Snow said.

Specialty drugs treat complex and often expensive disorders such as cancer and multiple sclerosis, and often are genetically engineered, require refrigeration and need to be injected. Medco’s new unit gives it the biggest specialty business in the country.

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