One on One with David Snow, CEO, Medco
Wednesday, February 21, 2007SUZANNE PRATT: Shares of Medco Health Solutions surged over 10 percent today after the company said it does not plan to enter the takeover battle for rival pharmacy benefit manager Caremark. Drug retailer CVS and benefit manager Express Scripts have been battling for control of Caremark. Medco also reported better than expected fourth quarter earnings, showing a 27 percent jump in year-over-year profits to $0.84 a share. In addition, the company upped its 2007 EPS forecast to as much as $3.40 a share, a 22 percent gain over '06. Earlier today, I sat down with Medco chief executive David Snow and began by asking him what was behind the increase in '07 guidance.
DAVID SNOW, CEO, MEDCO: Number one and most importantly is the generics that will be coming out in 2007. Specialty is showing great growth. You know, we are expecting a strong sales year in '07.
PRATT: So I would assume that those same factors are behind the '08 forecast as well. How is it that you are able to be so optimistic about something so far away?
SNOW: It's because we know what the generic pipeline looks like. We know it out to 2011. We also know what we're doing from an innovation standpoint, that I'm very confident will help us retain our current customers and help us win new business. We weren't over the top in terms of our estimates on new business. We're very confident though that we'll have a good sales year in '08.
PRATT: How much though of that 20 percent growth is going to be coming from the stock repurchase plan that you also announced today?
SNOW: This year in terms of our up guidance in '07, one third is tied to the stock buyback. Two thirds of the upped guidance was tied to the fundamentals of our business. In '08 it really depends on what we do in '07. But I would assume similar contributions on the stock buyback in '08.
PRATT: Explain for shareholders why you chose the stock buyback repurchase route.
SNOW: Versus the dividends?
PRATT: Yes.
SNOW: My feeling about a dividend is that once you lock into a dividend, you can't get out of a dividend. I want to have the flexibility to use my cash wherever I get the best return for shareholders.
PRATT: Let's shift to a discussion of the M&A activity that's dominated your industry for the last year. Which is a better combination for Medco? Is it Caremark CVS or Caremark Express Scripts?
SNOW: I can't say one is better than the other. I think that in either case, we have enormous up-side opportunities. I guess I know what the ESI Caremark would do in terms of just being a bigger competitor in the same space. There's an element of unknown in the CVS-Caremark merger because of that retail PBM combination. So that degree of unknown would say I guess I'm a little more comfortable with the Express Scripts because I know what to expect. I can't measure the unknown.
PRATT: You have expressed interest in Caremark. If it were possible, would you still be interested in a combination of Caremark?
SNOW: Only at the right price. The reality is I don't think the price is going to get any lower for Caremark than it today. So I would have to answer no.
PRATT: You've talked about on your conference call this morning the benefits of staying out of the M&A fray and focusing on your business. Does that mean that you no longer have any interest in a major acquisition or a merger?
SNOW: When I say I'm not interested in getting into the fray, what I'm really focused on is the near term hostile environment that has now been created between Caremark and Express Scripts. I'm not interested in getting into that kind of fight. That doesn't mean I wouldn't look at accelerating opportunities if they come about if that makes sense.
PRATT: It certainly appears the company is firing on all cylinders. Your stock is at an all-time high, has to be something that keeps you up at night.
SNOW: Too much regulation, arbitrary price controls, things that really don't foster a competitive environment are things that I would be concerned about.
PRATT: Mr. Snow, thank you for joining NIGHTLY BUSINESS REPORT.
SNOW: Thank you.
