Bloomberg News

Express Scripts Third-Quarter Profit Rises on Generic Use

October 25, 2011

(Updates with comment from analyst in ninth paragraph.)

Oct. 25 (Bloomberg) -- Express Scripts Inc., the drug- benefits manager seeking to buy rival Medco Health Solutions Inc., said third-quarter profit rose 7.7 percent on greater use of low-cost generic drugs.

Net income increased to $324.7 million, or 66 cents a share, from $301.5 million, or 56 cents, a year earlier, the St. Louis-based company said today in a statement. Earnings excluding certain items beat by 2 cents the average estimate of 77 cents a share by 17 analysts. Revenue increased 2.8 percent to $11.6 billion.

Express Scripts rose the most in two years on Oct. 6 after cutting its profit forecast less than investors expected. The company blamed the cut on “stagnant economic conditions” and costs stemming from its proposed $29.1 billion acquisition of Franklin Lakes, New Jersey-based Medco. The deal would form the biggest U.S. pharmacy-benefits manager and requires approval from the Federal Trade Commission.

“We continue to have a buy on the stock,” Steven Halper, an analyst at Stifel Nicolaus & Co. in New York, said in an interview before the earnings were released. “We like it with or without Medco.”

Express Scripts gained 3 percent in late trading, after shares fell 4.9 percent to close at $38.47 before the earnings announcement. The company’s shares have dropped 29 percent this year.

Generics, Mail-Order

Generic drugs accounted for 74 percent of prescriptions Express Scripts filled in the quarter, up from 72 percent a year earlier. Mail-order drugs comprised 63 percent of prescriptions filled, up from 61 percent a year earlier.

Revenue from mail-order and specialty drugs increased to $3.68 billion from $3.37 billion in the third quarter of 2010, Express Scripts said today in a regulatory filing.

The company reaffirmed its profit forecast of $2.95 to $3.05 a share for 2011. Express Scripts had cut the forecast on Oct. 6 from an earlier projection of $3.15 to $3.25, citing “greater shortfalls” than expected in prescription-drug claims. Total adjusted claims probably will fall below previous projections of 750 million to 780 million, the company said.

“The overall economic environment is certainly a factor here, as people are less likely to see their doctors, less likely to choose elective procedures” in a weak economy, Eugene Goldenberg, an analyst at BB&T Capital in New York, said in an interview before today’s earnings release. “You may delay filling a script or you may resort to pill-splitting.”

‘Positive Trends’

Lower drug-purchasing costs and increased use of generics are among “positive trends” the company expects to offset the current “adverse economic environment,” Express Scripts said in the regulatory filing.

Pharmacy-benefits managers act as middlemen for drugmakers, pharmacies and health-plan sponsors, negotiating prices and managing the use of drugs by patients. Their profits are tied to cutting their clients’ drug costs.

Express Scripts and Medco executives told a U.S. House subcommittee last month that the deal would preserve competition and lower costs while improving patient care. The acquisition also faces a Senate hearing in November.

The company said it expects to complete the Medco purchase in the first half of next year and won’t issue stand-alone guidance for 2012 until after the deal closes.

Walgreen Co. and Express Scripts have tussled in court over a national contract expiring at the end of the year in which the world’s largest U.S. drugstore chain fills prescriptions for some Express Scripts’ customers.

Express Scripts said it “expects greater than 95 percent of its clients’ prescription volume will move forward into 2012 without Walgreen as a network provider.”

The company also said it expects to retain more than 97 percent of its clients in 2012 based on prescription volume.

--With assistance from Pat Wechsler and Alex Nussbaum in New York and Alex Wayne in Washington. Editor: Andrew Pollack, Angela Zimm

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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