The industry that makes money by saving its customers
money seems to be chugging along. We'll have to wait until
Medco Health Solutions (NYSE: MHS) and
CVS Caremark (NYSE: CVS) report next week,
but
Express Scripts ' (Nasdaq: ESRX) earnings
report looks fairly solid.
The two most important numbers to look at for
pharmacy-benefit managers are the mail-order numbers and the
generic-drug fill rate, since they come at reduced costs.
Mail orders rose as clients took advantage of the mail-order
copays, which are typically lower than the ones for retail
pharmacies. The generic fill rate was also headed in the
right direction, increasing from 66.2% last year to 68.3%
this year. The combined lower costs contributed to a 22%
increase in adjusted earnings per share.
Quite a few blockbuster drugs will see generic competition
in a couple of years and should help continue the increase in
generic-drug use. In the meantime, Express Scripts is driving
earnings by getting bigger. It should close on its
acquisitionof
WellPoint 's (NYSE: WLP) pharmaceutical
business management division, NextRx, in the fourth quarter.
As with any retailer, getting bigger is almost always a good
thing. It'll give Express Scripts more buying power with drug
distributors and allow it to share fixed costs over a larger
revenue stream.
I like the business model of the pharmacy-benefit managers
for a couple of reasons:
forefrontof health-care reform.
Any time a company can align the interests of its users
with the company's, there's bound to be money to be
made.
The only problem is that it seems everyone else has
noticed, too. If Express Scripts can continue to grow, it
shouldn't have any problems supporting its lofty valuation,
but I don't see much of a safety net, either.
This article was originally published as
Expressing Itself Nicelyon
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