Generics, generics, generics. Everybody wants to talk about generics. Pharmaceutical companies like Glaxo (NYSE:GSK) and Bristol Myers (NYSE:BMY) are getting nailed by them, Teva (NASDAQ:TEVA) keeps making them, and pharmacy benefits manager Caremark Rx (NYSE:CMX) keeps selling them.

Business was strong again for Caremark in the fourth quarter. Sales grew 9% on a pro-forma basis (treating the earnings as though the acquired AdvancePCS business had been included in '03 results), and net income grew 51%. While generics' lower sale prices dinged the top line, Caremark more than made up for it on the gross profit line, since the generics are also more profitable.

Free cash flow growth was very strong for the year, as the company totaled over $1.5 billion for 2004. While the reported year-ago number of about $500 million does not include the AdvancePCS business, it's nevertheless clear that the company generated a significant amount of cash.

Mail pharmacy was strong again, growing 21% on a pro-forma basis while the retail business grew at a 5% clip. As the mail-order business is more profitable than retail, investors should continue to expect that Caremark will move aggressively to increase the relative contributions from this business. Caremark is not the largest mail pharmacy vendor -- that honor goes to MedcoHealth Systems (NYSE:MHS) -- but it clearly has its eye on growing this business.

Caremark is also seeing substantial growth in its specialty pharmacy business, to the tune of more than 30% in the fourth quarter. As specialty pharmaceuticals are even more expensive for Caremark's clients to handle on their own, growing this business is a second major revenue opportunity for the company.

What's more, the industry remains fragmented, and Caremark has a clean balance sheet. The company has more than $700 million in net cash and a strong stock, so Fools should expect that Caremark will continue to canvass the industry for opportunistic acquisition targets. In the meantime, Caremark has done a noteworthy job of returning cash to shareholders, having mostly completed a $750 million share-repurchase program.

Although there are concerns that pharmacy benefit managers are going to come under increasing scrutiny (as Fool colleague Brian Gorman discussed yesterday), Caremark is not yet showing any weakness in its growth outlook. With expectations of higher than 25% growth in 2005, Caremark looks like it will continue to take care of its investors.

Fool contributor Stephen Simpson has no ownership interest in any stocks mentioned.