Medco Health Solutions Inc. (MHS) filed Quarterly Report for the period ended 2009-09-26.
Medco Health Solutions Inc. is the nation's largest pharmacy benefit manager or PBM. They provide sophisticated programs and services for clients and the members of their pharmacy benefit plans as well as for the physicians and pharmacies the members use. Their programs and services help clients control the cost and enhance the quality of the prescription drug benefits they offer to their members. Medco Health Solutions Inc. has a market cap of $27.28 billion; its shares were traded at around $57.58 with a P/E ratio of 22.7 and P/S ratio of 0.5. Medco Health Solutions Inc. had an annual average earning growth of 18.8% over the past 5 years.
Highlight of Business Operations:
Our diluted earnings per share increased 19.0% to $0.69 and net income increased 13.5% to $335.6 million for the third quarter of 2009 compared to $0.58 per share and $295.7 million, respectively, for the third quarter of 2008. Our diluted earnings per share increased 20.9% to $1.91 and net income increased 13.3% to $938.7 million for the nine months of 2009 compared to $1.58 per share and $828.6 million, respectively, for the nine months of 2008. These increases primarily reflect higher generic dispensing rates, favorable retail pharmacy reimbursement rates and retail volumes, growth in the Specialty Pharmacy business and service margin, as well as a decrease in the diluted weighted average shares outstanding. These are partially offset by lower mail-order brand-name volumes, steeper client price discounts associated with new clients and renewals of existing clients, and decreased manufacturer rebate retention rates. In addition, these results include the operating results of majority-owned Europa Apotheek commencing on the April 28, 2008 acquisition date. For the nine months ended September 26, 2009, we generated cash flow from operations of $2,543.6 million and had cash and cash equivalents of $2,020.3 million on our unaudited interim condensed consolidated balance sheet at September 26, 2009.
Our total net revenues increased 17.8% to $14,794.8 million for the third quarter, and increased 16.4% to $44,559.1 million for the nine months of 2009. Product net revenues increased 17.8% to $14,590.8 million for the third quarter, and 16.2% to $43,936.6 million for the nine months of 2009, which reflects product price inflation primarily on brand-name drugs, as well as higher retail volume driven by new business, partially offset by a greater representation of lower-priced generic drugs and higher client price discounts, as well as lower mail-order brand-name volumes. Additionally, our service revenues increased 20.9% to $204.0 million for the third quarter, and 26.4% to $622.5 million for the nine months of 2009, which reflects higher client and other service revenues primarily from higher claims processing administrative fees and higher revenue associated with Medicare Part D-related product offerings.
Amortization of intangible assets of $78.4 million for the third quarter and $230.1 million for the nine months of 2009 increased $7.3 million and $18.9 million, respectively, from the third quarter and nine months of 2008, reflecting additional intangible amortization from PolyMedica associated with the Liberty trade name and patient list acquisitions. In addition for the nine months, there was increased intangible amortization as a result of the April 28, 2008 acquisition of a majority interest in Europa Apotheek.
Interest expense of $43.3 million for the third quarter and $131.8 million for the nine months of 2009 decreased $18.2 million and $41.8 million, respectively, from the third quarter and nine months of 2008, primarily reflecting lower interest rates on the floating rate components of outstanding debt. Additionally, during the third quarter of 2009, there was a $400 million repayment on the accounts receivable financing facility.
Interest (income) and other (income) expense, net, of ($3.4) million for the third quarter was in line with the ($3.3) million for the third quarter of 2008. Interest (income) and other (income) expense, net, of ($9.1) million for the nine months of 2009 increased $5.4 million from ($3.7) million in the nine months of 2008, primarily attributable to a first-quarter 2008 charge for the ineffective portion of the forward-starting interest rate swap agreements associated with our March 2008 issuance of senior notes, which is described further below under “ — Liquidity and Capital Resources—Financing Facilities—Swap Agreements.” This is partially offset by decreased interest income reflecting lower interest rates on higher cash balances.
In addition to premiums, there are certain co-payments and deductibles (the “cost share”) due from members based on prescription orders by those members, some of which are subsidized by CMS in cases of low-income membership. For subsidies received in advance, the amount is deferred and recorded in accrued expenses and other current liabilities on the consolidated balance sheets. If there is cost share due from members or CMS, the amount is accrued and recorded in client accounts receivable, net, on the consolidated balance sheets. After the end of the contract year and based on actual annual drug costs incurred, cost share amounts are reconciled with CMS and the corresponding receivable or payable is settled. The cost share is treated consistently as other co-payments derived from providing PBM services, as a component of product net revenues on the consolidated statements of income where the requirements of Authoritative Guidance are met. For further details, see our critical accounting policies included in “—Use of Estimates and Critical Accounting Policies and Estimates” and Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 27, 2008. In the third quarter and nine months of 2009, premium revenues for our PDP products, which exclude member cost share, were $129 million and $420 million, respectively, or less than 1% of total net revenues. In the third quarter and nine months of 2008, premium revenues for our PDP products, which exclude member cost share, were $75 million and $245 million, respectively, or less than 1% of total net revenues.
MHS is in the portfolios of Irving Kahn of Kahn Brothers & Company Inc., Ken Heebner of CAPITAL GROWTH MANAGEMENT LP, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
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