Medco Health Solutions announces record 16.7% increase in total net revenues for 2009

Fourth-Quarter 2009 Highlights:

• GAAP diluted EPS increased 29.6 percent to a record $0.70 from $0.54 in 2008
• Diluted EPS, excluding $0.06 in amortization of intangible assets from the 2003 spin-off, increased 28.8 percent to a record $0.76 from $0.59 in 2008
• Total net revenues increased 17.6 percent to a record of more than $15.2 billion
• Total adjusted prescriptions increased 14.8 percent to a record 227.4 million
• Specialty pharmacy revenues increased 17.7 percent to a record $2.5 billion
• Generic dispensing rate increased 3.4 percentage points to a record 68.3 percent

Full-Year 2009 Highlights:

• GAAP diluted EPS increased 22.5 percent to a record $2.61 from $2.13 in 2008
• Diluted EPS, excluding $0.22 in amortization of intangible assets from the 2003 spin-off, increased 21.5 percent to a record $2.83 from $2.33 in 2008
• Record total net revenues of $59.8 billion increased 16.7 percent over 2008
• Specialty pharmacy revenues rose 19.5 percent to a record $9.5 billion
• Generic dispensing rate increased 3.4 percentage points over 2008 to a full-year record of 67.5 percent
• Mail-order volume totaled 103.1 million prescriptions, with 2.4 percent growth in generic prescriptions
• Total adjusted prescriptions increased 12.9 percent to a record 898.8 million
• Record EBITDA of more than $2.75 billion, yielding $3.06 per adjusted prescription
• Cash flow from operations increased 114 percent to a record $3.5 billion
• Cash balance at year-end of more than $2.5 billion

2010 Guidance Reaffirmed:

• Full-year 2010 GAAP diluted EPS expected in the range of $3.05 to $3.15, representing 17 to 21 percent growth over 2009
• Full-year 2010 diluted EPS, excluding amortization of intangible assets from the 2003 spin-off, expected in the range of $3.28 to $3.38, representing 16 to 19 percent growth over 2009

Medco Health Solutions, Inc. (NYSE: MHS) today reported record fourth-quarter 2009 GAAP diluted earnings per share of $0.70, up 29.6 percent compared to $0.54 in fourth-quarter 2008.  Excluding the amortization of intangible assets that existed when Medco became a publicly traded company in 2003, fourth-quarter 2009 diluted earnings per share increased 28.8 percent to a record $0.76.  Medco also reported record full-year 2009 GAAP diluted earnings per share of $2.61, up 22.5 percent -- exceeding the high-end of the company's guidance.  Adjusting for the amortization of intangible assets that existed when Medco became a publicly traded company in 2003, full-year 2009 diluted earnings per share was a record $2.83.  Medco also reaffirmed its 2010 earnings guidance, projecting incremental GAAP EPS growth in the range of 17 to 21 percent over 2009.

"On the heels of record selling seasons, with new-named sales exceeding $17 billion in 2008 and 2009, Medco's clinically driven programs are continuing to win in the marketplace.  For 2010 to date, Medco has won $4.3 billion in annualized new-named sales, and $4.2 billion in net-new sales. As a further testament to the value we deliver to our clients, we expect to achieve a record 99 percent client retention rate for 2010," said Medco Chairman and Chief Executive Officer David B. Snow Jr.

"Medco's clinical innovations are continuously elevating the standard of pharmacy practice.  Our pharmacists, trained as disease-specific specialists and based in Medco Therapeutic Resource Centers®, are empowered by a state-of-the-art technology platform complemented by sophisticated evidence-based clinical protocols and a fully integrated pharmacogenomics program.  Our commitment to advancing the science of personalized medicine is further evidenced by our recently announced acquisition of DNA Direct, Inc., a leader in providing guidance and decision support to payors, physicians and patients on a range of complex issues related to genomic medicine.  All of these unique Medco initiatives better manage chronic and complex diseases for the benefit of our clients and our members.  Medco is improving outcomes while driving down total healthcare costs – the essence of healthcare reform – by Making Medicine Smarter(TM) for our 65 million members," said Snow.

Fourth-Quarter Financial and Operational Results

Medco reported record fourth-quarter net revenues of more than $15.2 billion, an increase of 17.6 percent from fourth-quarter 2008 – primarily as a result of contributions from significant new client wins and price inflation on brand-name drugs, partially offset by higher volumes of lower-priced generic drugs.  Medco's generic dispensing rate increased 3.4 percentage points to a record 68.3 percent.  The mail-order generic dispensing rate increased 2.4 percentage points to 58.3 percent and the retail generic dispensing rate increased 3.0 percentage points to 70.0 percent.  Higher volumes of lower-priced generic drugs reduced net revenues for fourth-quarter 2009 by approximately $600 million, delivering significant savings to clients and members.

Total prescription volume, adjusting for the difference in days supply between mail-order and retail, was a record 227.4 million, a 14.8 percent increase over the fourth quarter of 2008.  Generic mail-order prescription volume increased while overall mail-order prescription volume decreased 2.6 percent to 26.0 million, and retail prescription volume increased 26.9 percent to 150.1 million.  The adjusted mail-order penetration rate decreased 6.3 percentage points to 34.0 percent, reflecting strong retail volume from significant new client wins in 2009.

Gross margin for the fourth quarter increased 5.9 percent to more than $1.0 billion.  As a result of the significant incremental retail volumes from new clients, the total gross margin percentage decreased 80 basis points to 6.7 percent, compared to 7.5 percent in the fourth quarter of 2008.

Selling, general and administrative (SG&A) expenses of $375.5 million decreased 1.4 percent or $5.5 million compared to fourth-quarter 2008, reflecting efficiencies throughout the business.

Earnings Before Interest Income/Expense, Taxes, Depreciation and Amortization (EBITDA) for the quarter reached $694.9 million, an increase of $65.9 million, or 10.5 percent, over the same period last year.  EBITDA per adjusted prescription decreased 3.8 percent to $3.06 from $3.18 in the fourth quarter of 2008, a result of the higher retail volume.  (Please refer to Table 6 for a reconciliation of EBITDA to reported net income).

Total interest and other (income) expense, net, of $39.9 million in fourth-quarter 2009 decreased $17.7 million compared to the same period in 2008, largely attributable to lower interest rates on debt, lower debt levels and higher cash balances.

Income before the provision for income taxes for fourth-quarter 2009 of $536.2 million increased 17.2 percent compared to $457.6 million in 2008.

The fourth-quarter 2009 effective tax rate amounted to 36.3 percent, in line with guidance, compared to 40.0 percent in the fourth quarter of 2008.  The lower effective tax rate for fourth-quarter 2009 primarily results from previously planned state-related income tax items.

Net income of $341.5 million increased 24.5 percent over the same quarter last year.

Full-Year 2009 Financial and Operating Results

Full-year 2009 net revenues increased 16.7 percent from 2008 to a record $59.8 billion, primarily as a result of contributions from significant new client wins and price inflation on brand-name drugs, partially offset by higher volumes of lower-priced generic drugs.  Medco's generic dispensing rate increased 3.4 percentage points to a full-year record of 67.5 percent from 64.1 percent in 2008.  The mail-order generic dispensing rate increased 2.8 percentage points to 57.8 percent and the retail generic dispensing rate increased 3.2 percentage points to 69.2 percent.  Higher volumes of lower-priced generic drugs reduced net revenues for the full year by over $2.4 billion.  

Total prescription volume for the year, adjusting for the difference in days supply between mail-order and retail, was a record 898.8 million, a 12.9 percent increase from 2008.  Mail-order prescription volume was in line with expectations at 103.1 million, a 2.6 percent decrease from 2008.  Mail-order volume reflects a decline in brand name drugs of 8.6 percent, partially offset by a 2.4 percent increase in generic drugs, where clients and members benefit from the highest savings.  Significant new 2009 business wins drove strong growth in retail volumes, reaching a record 591.4 million, a 23.2 percent increase over 2008.  The strong growth in retail volumes reduced adjusted mail-order penetration by 5.5 percentage points to 34.2 percent for 2009.  

Gross margin for 2009 increased 8.0 percent to a record of over $4.0 billion.  As a result of the significant incremental retail volumes from new clients, the total gross margin percentage decreased 60 basis points to 6.7 percent, compared to 7.3 percent in 2008.

Total SG&A expenses of $1.5 billion increased 2.1 percent or $30.5 million over 2008, reflecting enterprise-wide efficiencies, while continuing to invest in client support activities and differentiating initiatives.

EBITDA increased 11.8 percent to a record $2.8 billion compared to 2008.  Even with the strong retail volumes from 2009 new business wins, EBITDA per adjusted prescription decreased only 1.0 percent to $3.06, compared to $3.09 in 2008.  (Please refer to Table 6 for a reconciliation of EBITDA to reported net income).

Total interest and other (income) expense, net, of $162.6 million decreased from 2008 by 28.5 percent, or $64.9 million, largely attributable to lower interest rates on debt, reduced debt levels and higher cash balances.

Record income before the provision for income taxes of $2.1 billion increased 17.5 percent from $1.8 billion in 2008.

Record net income of $1.3 billion increased 16.1 percent from $1.1 billion in 2008.  Additionally, the full-year 2009 effective tax rate was 39.1 percent, compared to 38.4 percent in 2008.

Medco generated record cash flows from operations of $3.5 billion, compared to $1.6 billion in 2008, and closed the year with over $2.5 billion of cash on its balance sheet, up from $0.9 billion at year-end 2008.

"Our strong balance sheet, record cash flow from operations, and greater than expected return on invested capital of 27.1 percent, compared to 20.1 percent in 2008, are the result of a disciplined financial strategy focused on setting the stage for future growth," said Richard J. Rubino, chief financial officer.  "We are committed to deploying capital in a manner that we believe will fuel long-term shareholder returns.  We will continue to invest internally to further propel our differentiated model to deliver services in support of Making Medicine Smarter, and actively seek opportunities to drive future growth both inside and outside of the United States.  Additionally, we expect to continue repurchasing shares under our $3 billion share repurchase program."

Specialty Pharmacy

For fourth-quarter 2009, Accredo's net revenues increased 17.7 percent to a record of $2.5 billion.  For full-year 2009, revenues for Accredo grew 19.5 percent to a record of $9.5 billion, compared to $8.0 billion in 2008.  This is primarily the result of the contribution from significant new client wins and continued growth across the specialty business.

Accredo's fourth-quarter 2009 gross margin was 7.0 percent, down 90 basis points from 7.9 percent in the fourth quarter of 2008.  Full-year 2009 gross margin was 7.4 percent, down 50 basis points from 7.9 percent in 2008.  The gross margin percentages reflect new client wins resulting in a higher retail channel mix.

Accredo's operating income for fourth-quarter 2009 grew 17.1 percent to $84.1 million.  For the full year, operating income increased 27.0 percent to a record $357.1 million from $281.2 million in 2008, reflecting strong business growth and continued operational efficiencies.

Share Repurchase Program

As part of its $3 billion share repurchase program, Medco repurchased 3.7 million shares during fourth-quarter 2009 at a total cost of $231 million with an average per-share cost of $62.36.  For full-year 2009, Medco repurchased 27.3 million shares at a total cost of $1.24 billion with an average per-share cost of $45.38.  Since the inception of the current $3.0 billion share repurchase program in November 2008, Medco has repurchased 32.4 million shares for a total cost of $1.44 billion with an average per-share cost of $44.34 through year-end 2009. 

For 2010 to-date, as of Friday, February 19, 2010, Medco repurchased 12.8 million shares at a total cost of $804 million with an average per-share cost of $62.94 and has approximately $758 million remaining under the current share repurchase program.

2010 Guidance Reaffirmed

For full-year 2010, Medco expects to achieve GAAP diluted EPS in the range of $3.05 to $3.15, representing growth of 17 to 21 percent over 2009 results.  Diluted EPS in 2010 excluding amortization of intangible assets from the 2003 spin-off, of $3.28 to $3.38, represents 16 to 19 percent growth over 2009 results.

"We remain confident in the power of our business model to drive meaningful value for our clients and members, and we continue to expect strong earnings growth in 2010," said Rubino.  

SOURCE Medco Health Solutions, Inc.