Medco Aids Sanofi-Aventis Study - Analyst Blog
June 28 2011 - 8:52AM
Zacks
Medco Health Solutions (MHS) and its subsidiary
United BioSource Corporation (UBC) have entered into a multi-year
agreement with leading pharmaceutical company
Sanofi-Aventis (SNY). Under the agreement, Medco
would provide real-world evidence assessments during the product’s
development by Sanofi-Aventis. Financial terms of the deal were not
disclosed.
Following this agreement, Sanofi-Aventis would be better placed
to identify patients with huge unmet medical needs. Furthermore,
the companies will strive to trace out patients on whom the drugs
are most effective and also generate real-world comparative
effectiveness data. This is significant as some products that hold
promise in early research does not deliver expected results when
applied.
Medco Health has been recording increase in revenues from
services primarily driven by the UBC acquisition. The acquisition
provides encouraging results for the company with more than 100 of
its clients, representing 40 million lives, ready to be part of the
Medco research consortium.
UBC caters to pharmaceutical and biotechnology companies and
guides them regarding safety, effectiveness and affordable use of
medicines. The company also conducts several studies for its
clients, which include risk evaluation and mitigation studies
(REMS), cost-benefit and cost-effectiveness evaluations among
others.
The agreement with Sanofi-Aventis is a positive development for
Medco, which lost some contracts in the recent past. In May 2011,
Medco lost its Federal Employee Program (FEP) contract to
CVS Caremark (CVS), effective from January 2012.
This was a big blow to Medco’s PBM business as it generated nearly
$3 billion in annual revenues (including approximately 9.8 million
mail order prescriptions) or about 4.5% of the company's total
sales in 2010. Medco also lost a California Public Employees’
Retirement System (CalPERS) contract to CVS earlier this month.
Recommendation
During the last reported quarter, Medco witnessed higher service
revenue growth fueled by the acquisition of UBC. In addition, under
the specialty segment, Accredo's performance remains strong
primarily due to significant addition of new clients and organic
growth across the business.
The company has a strong balance sheet that augurs well for
further acquisitions. Medco also has adopted several strategies in
the recent past to increase its footprint in the European market,
which holds immense potential. Moreover, increased opportunity lies
in the form of introduction of generics over the next few
years.
We are currently Neutral on Medco which also corresponds to the
Zacks #3 Rank (Hold) in the short-term.
CVS CAREMARK CP (CVS): Free Stock Analysis Report
MEDCO HLTH SOL (MHS): Free Stock Analysis Report
SANOFI-AVENTIS (SNY): Free Stock Analysis Report
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