Medco Health Solutions'
The Franklin Lakes, N.J.-based firm revealed Tuesday that its fourth-quarter revenue declined 1% to $8.9 billion. The slight drop in the top line isn't necessarily a negative, though, because it was due in part to Medco clients' increased use of generic drugs. And that's actually good news for Medco, since it earns more by dispensing generic medicines than it does selling branded pharmaceuticals.
Medco's bottom line bears it out. Even with the slight drop in revenue, earnings increased 12% to $132.8 million as gross margins rose to 5% versus 4.6% in the fourth quarter of 2003. Along with the generic-drug uptick, the company's mail-order pharmacy business is bolstering results, too. By sending health-plan participants their drugs directly through the mail, Medco gets to cut out the middlemen -- retail pharmacies such as CVS
Still, Medco's success in winning over clients such as General Motors
Medco's assertion that it drives down clients' pharmaceutical benefit costs with its mail-order system will come under even more scrutiny. But as long as Medco can show that it keeps clients' overall pharmaceutical expenses down, its prospects look good.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.