Medco Health Solutions, Inc. Q1 2010 Earnings Call Transcript

Medco Health Solutions, Inc. Q1 2010 Earnings Call Transcript
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Medco Health Solutions, Inc. (MHS)

Q1 2010 Earnings Call Transcript

April 28, 2010 8:30 am ET

Executives

Valerie Hartle – VP, IR

David Snow – Chairman and CEO

Richard Rubino – SVP, Finance and CFO

Mary Daschner – Group President, Retiree Solutions

Timothy Wentworth – Group President, Employer Accounts

Analysts

Ross Muken – Deutsche Bank

Larry Marsh – Barclays Capital

Lisa Gill – JPMorgan

Ricky Goldwasser – Morgan Stanley

Robert Willoughby – Banc of America/Merrill Lynch

Steven Valiquette – UBS

Tom Gallucci – Lazard

Randall Stanicky – Goldman Sachs

Ann Hynes – Caris

Helene Wolk – Sanford Bernstein

Presentation

Operator

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Good morning, my name is Brooke and I’ll be your conference operator today. At this time, I would like to welcome everyone to the MedcoHealth Solutions first quarter 2010 earnings conference call. (Operator instructions)

I would now like to turn the call over to Valerie Haertel, VP of Investor Relations. Thank you Ms. Haertel. You may begin your conference.

Valerie

Haertel

Thank you, Brooke. Good morning and thank you for joining us on Medco’s first quarter 2010 earnings conference call. With me today as speakers are Chairman and Chief Executive Officer, Dave Snow, our Chief Financial Officer, Rich Rubino.

Also joining us for our question-and-answer session are Kenny Klepper, President and Chief Operating Officer, Tom Moriarty, General Counsel, Secretary and Senior Vice President of Pharmaceutical Strategies and Solutions, Steve Fitzpatrick, the President of Accredo Health Group and Mary Daschner President of Retiree Solutions Group.

During the course of this call we will make forward-looking statements and that term is defined in Private Securities Litigation Reform Act of 1995. No forward-looking statement can be guaranteed and actual results may differ materially from those suggested. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements made on this call should be evaluated together with the risk and uncertainties that affect our business, particularly those disclosed in our SEC filing. Copies of Medco’s filings are available from the SEC, the Medco Investor Relations department or the Medco website.

Medco intends to use the Investor Relations section of its website as means of disclosing material, non-public information and for complying with its disclosure obligations under SEC Regulation FD.

The copyrights for the contents of this discussion and the written materials used on this earnings call are owned by MedcoHealth Solutions, Inc. 2010. Slides to accompany our presentation which detail our financial and operating results and the guidance discussed on this call are currently available in the events section of the investor relations site on medcohealth.com. Additionally, please note that our 10-Q will be filed after the close of the market today.

At this time I would like to turn the call over to Dave Snow. Dave?

David Snow

Thank you Valerie and thanks to all of you for joining us this morning. Today we are reporting strong first quarter 2010 earnings growth on top of our record breaking 2009 performance.

GAAP diluted earnings per share reached $0.57 representing 15.5% growth over first quarter 2009. Our diluted earnings per share excluding the amortization of intangible assets from our 2003 spin-off reached $0.73, a 15.9% increase over first quarter 2009. Our continued strong net new sales growth drove our first quarter revenues to $16.3 billion.

This is a new record representing a 10% growth rate over first quarter 2009. Our 2010 selling season continues to be strong with $4.4 billion in annualized new name sales up from our previously reported $4.3 billion.

Our 2010 net new sales now stand at $4.3 billion, up from our previously reported $4.2 billion. We have experienced sales success across all of our market groups, as our clinically focused business model continues to resonate well in the marketplace. Current and prospective customers recognize and appreciate or differentiate clinical approach as we make medicines smarter through our therapeutic resource centers and personalized medicine initiatives improving our comps while driving down total healthcare cost.

We have completed almost 90% of our planned 2010 client renewals representing approximately $15 billion in drug spend. All accounts with drug spends over $500 million have been renewed and 2010 client retention rate remains at a record surpassing 99%. The business environment remains competitive and while we have seen instances of aggressive pricing, the marketplace is valuing our product and service model in a way it allows us to continue winning and retaining business while maintaining our disciplined market approach.

To that point, although it is still early in the 2011 selling season, I am pleased to report that we are new cost to-date for 2011. We will provide further details on the 2011 selling season on our second quarter as has been our normal practice. Our personalized medicine initiatives continued generate increased interest most recently catalyzed by the important work on research study findings that Dr. Rob Epstein and his team recently published. In this study we demonstrated that genetic testing before prescribing a specific dose of Warfarin reduces hospitalization rates more than 30%.

A clear example of how the use of smarter medicine can take the waste out of the healthcare system and more importantly save lives. These pharmacogenomics initiatives are now further augmented by the additional capabilities we are able to offer clients through our acquisition in the first quarter of DNA Direct. In total, our personalized medicine programs have over 220 clients enrolled covering more than 10 million lives up from nearly 8 million lives we reported last quarter.

We expect to continue to advance smarter medicines and have approximately 20 new pharmacogenomic research initiatives underway or in the pipeline for 2010. We also have a significant number of therapeutic resource center research projects underway to further advance our specialized practice of pharmacy for the benefit of our clients and members.

Looking at other key performance metrics, our total prescriptions adjusted for the difference in days supply between mail order and retail for first quarter 2010 increased from the same quarter last year by 5.8% to a record 239.2 million. Mail script volume for the first quarter 2010 was quite strong at a record 27.2 million mail order prescription, a 5.8% increase from first quarter 2009. Importantly, brand name prescription volume at mail remains steady, while our generic prescription volume at mail grew over 10% as members continued to embrace generics for additional cost savings.

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