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Medco Beats Targets

Guidance is in line.
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Medco (MHS) beat first-quarter targets Friday as revenue rose 21%, driven by soaring drug prices.

The Franklin Lakes, N.J., pharmacy benefit manager made $45 million, or 15 cents a share, for the quarter ended April 1, down from the year-ago $131 million, or 48 cents a share. On a pro forma basis, excluding a $163 million legal settlement charge and amortization costs, latest-quarter earnings were 56 cents a share, a penny ahead of the Thomson Financial estimate. Revenue rose to $10.56 billion from $8.74 billion a year earlier, beating the $10.26 billion target.

"With continued new-business wins, a successful integration of our Accredo specialty operation, a growing Medicare portfolio, an historic wave of generic medicines poised to hit the market and significant progress towards the resolution of the company's historical legal overhang, Medco's solid performance in the first quarter has positioned the company well for the balance of the year," said CEO David B. Snow Jr.

Total prescription volume in the first quarter of 2006, adjusting for the difference in days supply between mail and retail, increased to 183.5 million from 172.7 million in the first quarter of 2005 as a result of higher mail and retail volume, primarily from new clients. Medco dispensed 22 million prescriptions through its mail-order pharmacies in the first quarter, up 5.3% from 20.9 million prescriptions in the first quarter of 2005. Retail prescription volume increased 7.2% in the quarter to 117.9 million, reflecting volume from new clients.

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Adjusted mail prescriptions as a percentage of total prescriptions declined to 35.8% from 36.3% in the same period in 2005, reflecting the higher concentration of retail prescription volume from the new midyear 2005 clients and 2006 clients. Medco continues to expect 91 million prescriptions in total mail-order volume for the full year 2006.

The overall generic dispensing rate in the first quarter was 53.7%, up 3 percentage points from the first quarter of 2005. Generic dispensing rates by mail reached 42.3%, an increase of 1.2 percentage points from the first quarter of 2005, reflecting recent availability of generic forms of such drugs as Flonase and Amaryl; generic dispensing rates at retail were 55.8%, up 3.3 percentage points from the same period last year, due primarily to the recent availability of Zithromax and Allegra in generic form.

To date, Medco has enrolled an estimated 1.1 million members either through its own Medicare Part D license or with Health Plan partners. Medco's national PDP, YouRx Plan, has 410,000 members with 260,000 individuals and 150,000 group enrollees. This is in line with the company's expectations for individual plan participants and group enrollees for 2006.

"We are on track with our plans to expand our Medicare opportunity through our plan partners, with our employers and directly with consumers. As expected, the first-quarter launch for Medicare Part D included many client installations and associated start-up activities. We also experienced higher-than-expected call volumes, which contributed to higher start-up expenses related to the program," said Snow.

Medco said it expects to make $2.57 to $2.64 a share for the year, excluding the legal charge and amortization, in line with the $2.58 Thomson estimate.