Higher profits on lower revenue is usually not a recipe for success, but for pharmacy benefit manager MedcoHealth Solutions
You see, PBMs make their money by saving their clients -- health insurers and employers -- money. Selling generic drugs results in less revenue due to their lower cost, but they result in more profits.
In the third quarter, generics made up 71.6% of the prescriptions dispensed, up 3.9 percentage points from the year-ago quarter.
The coming wave of generic drugs that will hit the market should only drive that number higher. Medco is looking for EPS growth of 12% to 17% next year and characterized 2012 as having the largest contribution from new generic introductions in the company's history.
Of course, the bullish news also helped its competitors -- Express Scripts
If PBM businesses really are so valuable, one has to wonder if more insurance companies that manage their own drug business in house might sell or spin them out to unleash the value for investors. Last year, WellPoint
But we're getting a little ahead of ourselves. For now investors should just enjoy the idea the Medco and its peers look like they have substantial growth left in them.
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