Medco ( MHS) beat Wall Street's fourth-quarter targets and guided in line for 2006.The Franklin Lakes, N.J., pharmacy benefit manager made $177 million, or 57 cents a share, for the quarter ended Dec. 31, up from the year-ago $133 million, or 48 cents a share. Excluding amortization of intangible assets that existed when Medco became a publicly traded enterprise, earnings were 66 cents a share in the latest quarter, beating the Thomson Financial estimate by a nickel. Revenue rose 21% from a year ago to $10.8 billion. The company said its gross margin rose to 5.3% in the fourth quarter from 5% a year ago, and its generic dispensing rate rose 4.4 percentage points to 52.5%. The company said its Accredo Health specialty pharma unit shaved 2 cents from earnings for the quarter. The increase in net revenue reflects volume from new clients and higher prices charged by pharmaceutical manufacturers on brand-name drugs, partially offset by previously announced customer losses, and a greater representation of lower cost generic drugs and steeper client discounts, including an increase in rebates passed back to clients. Higher generic dispensing rates, which benefit clients and members and contribute to higher gross margins, resulted in a reduction of approximately $450 million in net revenues in the fourth quarter of 2005 from the prior year. Gross margin benefited from an increase in the generic dispensing rate, the contribution from Accredo's higher-margin business and improvements in service margin. Service margin increased to 79.4%, up from 59.1% in the fourth quarter of 2004, as a result of higher service revenues related to clinical programs and other fees, as well as lower program costs resulting from the termination of a pharmaceutical manufacturer patient assistance program. Accredo Health Group's net revenue totaled $1.3 billion for the quarter. This is the first full reporting quarter for Accredo Health Group. Operating income amounted to $46.5 million, including $9.5 million in intangible asset amortization, with gross margins of 7.6%.
"Medco closed 2005, our second full year as an independent company, significantly advancing each of our strategic objectives: Winning and retaining business to achieve strong net-new growth; forming the nation's largest specialty care pharmacy by virtue of our acquisition of Accredo; accelerating the acceptance and use of generic medicines; and launching a nationwide Medicare-approved Part D benefit with a broad suite of products and services to support the needs of our clients and provide millions of seniors access to affordable coverage," said CEO David B. Snow Jr. "In addition to surpassing its financial targets for 2005, Medco closed the year with more than $3 billion in annualized new business. This new sales momentum continues into 2006, with $2.7 billion in new annualized business wins to date -- placing the company in a net-new sales position of $700 million, to date." The company said it expects to make $2.57 to $2.64 a share for 2006, excluding amortization costs. That's in line with the $2.61 Thomson estimate.