Pharmacy benefit manager Medco in strong shape in face of industry shifts

Question: As a shareholder in Medco Health Solutions Inc., I’m disappointed in its stock and wonder if things are going to get any better.

Answer: Being a profitable industry leader doesn’t make a healthcare company immune from competitive pressures.

The nation’s biggest stand-alone pharmacy benefit manager, providing drug benefits to about one-fifth of the U.S. population, is receiving a boost from the large number of patent expirations now taking place.

This helps it lower prescription costs by encouraging its members to switch to less expensive drugs such as generics. Also in its favor are the rise in mail-order pharmaceuticals and the prospect of more Americans qualifying for health insurance coverage.

On the other hand, the industrywide move toward greater cost containment is taking its toll, as large customers drive harder bargains and competitors cut prices to gain market share. There is also the threat of tougher regulation that could affect pricing and financial reporting requirements, in addition to the ongoing threat of litigation.

Because of such industry concerns, Medco Health Solutions (MHS) shares are down nearly 20% this year, following a 53% gain last year.

With government and companies seeking better ways to assess prices and benefits of various medicines, Medco is, however, expanding into genetic testing and consulting. Head-to-head research on drugs is expected to become more commonplace and the results closely monitored.

Medco, of Franklin Lakes, N.J., has paid $730 million in cash to buy privately held research firm United BioSource Corp. of Bethesda, Md., which studies the safety and effectiveness of drugs and medical devices after they win regulatory approval. United BioSource is expected to have $280 million in revenue this year.

The consensus Wall Street rating of discounted Medco shares is “buy,” according to Thomson Reuters, consisting of 14 “strong buys,” 14 “buys” and five “holds.”

Medco, which administered about 900 million prescriptions last year, is in excellent financial health that could facilitate acquisitions. Chairman and Chief Executive David Snow, who joined the company in 2003, has more than three decades of experience in the industry.

Earnings are expected to increase 19% this year and 17% next year. The five-year annualized return is projected to be 17%.

It is noteworthy that Medco’s biggest customer, UnitedHealth Group Inc., has the potential to bring its prescription benefit management in-house when its Medco contract expires in two years. Such industry shifts are a concern with other customers as well.

Question: When you file for an IRS extension on taxes, what are the stipulations? Can I get an extension on an extension?

Answer: If you are not able to file your federal individual income tax return by the due date, you may be able to get a six-month extension of time to file.

A tax extension gives an extension to file, not an extension to pay, so you must still pay what you owe by April 15. If you don’t pay the amount due by the regular due date, you will owe interest and may also be charged penalties. You don’t have to explain why you’re asking for an extension.

“IRS Extension Form 4868 has to be filed by April 15, and if you don’t know the amount, you should make a good guess and send in that amount,” advised Barbara Steinmetz, certified financial planner and enrolled agent with Steinmetz Financial Planning in San Mateo, Calif. “If you underpay, you will be penalized on the amount you still owe.”

You cannot get an extension on an extension.

Andrew Leckey answers questions only through the column. E-mail him at yourmoney@tribune.com.