Medco 2nd-quarter profit grows 14 percent on new client wins and higher brand-name drug prices

Medco 2Q profit rises 14 percent on new business

NEW YORK — Pharmacy benefits manager Medco Health Solutions Inc. said Thursday new clients and higher drug prices helped lift its net income 14 percent in the second quarter.

The Franklin Lakes, N.J., company earned $356.9 million, or 77 cents per share, in the June quarter, up from $312.1 million, or 64 cents per share, a year ago.

Excluding one-time costs and gains, Medco earned 80 cents per share. Analysts expected 79 cents per share, according to Thomson Reuters.

Medco, the largest U.S. pharmacy benefits manager, handles prescription drug benefits for employers and health plan sponsors. At the beginning of the year, Medco started doing business with major new clients including retired Chrysler employees and the commercial insurance and workers’ compensation businesses of Coventry Health Care. The company said it has received $5 billion in revenue from its new clients.

Overall revenue rose 10 percent to $16.41 billion from $14.93 billion and topped the average analyst estimate of $16.21 billion. The company said drugmakers continued to raise prices on brand-name medications. Medco passed along those increases, which boosted its revenue.

Looking ahead, Medco expects its annual profit will reach the high end of its previous forecast. It now expects to earn $3.34 to $3.39 per share excluding spinoff costs. Previously the company’s forecast was $3.28 to $3.38 per share. Analysts expect $3.37 per share.

The guidance include a charge of 6 cents per share related to Medco’s spinoff from Merck & Co. in 2003. Also included is a gain of 3 cents per share from the settlement of a class action lawsuit antitrust suit. Medco said the lawsuit was filed by companies who directly purchased an unidentified drug.

Medco filled 11.5 percent of its prescriptions through the mail. Mail order prescriptions are more profitable for Medco and cheaper for its clients. The company handled 238.4 million prescriptions during the quarter, up 6 percent from a year ago. It said more prescriptions were filled at retail pharmacies than it previously expected.

Medco also said it has $1 billion in new business under contract for 2011. The company is about halfway done renewing contracts and signing new clients starting in 2011.

In morning trading, Medco shares fell $2.34, or 4.4 percent, to $50.99.