Medco Profits Rise on Greater Use of Generic Drugs

May 5, 2005

A sharp increase in its generic-drug prescription fill rate fueled a 27 percent rise in first-quarter profits for pharmaceutical benefit manager (PBM) Medco, the company said.

Although the boost in generic drug usage increased Medco's profit margin, the company's year-over-year quarterly revenue fell 1.8 percent from $8.9 billion to $8.7 billion.

In the first quarter of 2004, 45.1 percent of Medco prescriptions were filled using generic drugs, company spokesman Jeff Simek said. In the first quarter of 2005, the generic dispensing rate jumped to 50.7 percent. Year-over-year between the first quarter of 2004 and the first quarter of 2005, the increase in the generic-drug dispensing rate saved Medco's clients $540 million, he said.

The profit margins for PBMs like Medco are actually slim on brand drugs, because most of the profit from the higher price goes to the pharmaceutical company. The profit margin on generic drugs, however, is higher, even though the cost of the drug is lower.