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Original Source: FD (FAIR DISCLOSURE) WIRE
. Tom Bell, Accredo Health, Inc., SVP, General Counsel, Corporate
Secretary . David Stevens, Accredo Health, Inc., Chairman, CEO
. Joel Kimbrough, Accredo Health, Inc., CFO, Treasurer, SVP
ACDO announced that 4Q04 and FY04 revenues were up 16% vs. 2003. 4Q04 diluted EPS was $0.40 and FY04 diluted EPS was $1.60. Revenue guidance for FY05 remains unchanged at $1.85-1.9b, but EPS guidance is reduced to $1.45-1.53. On July 21, ACDO closed its acquisition of Hemophilia Resources of America, Inc. Q&A Focus: Medicare reimbursement, IVIG, hemophilia reimbursement, acquisitions.
A. Key Data From Call 1. Additional 4Q04 Medco revenue = $4.8m. 2. 4Q04 revenue increase over 4Q03 = 16%. 3. FY04 revenue increase over FY03 = 16%. 4. 4Q04 G&A expenses as percent of revenue = 9.2%.
5. FY04 G&A expenses as percent of revenue = 9.1%. 6. 4Q04 diluted EPS = $0.40. 7. FY04 diluted EPS = $1.60. 8. FY05 revenue = $1.85-1.9b.
9. FY05 EPS = $1.45-1.53.
S1. Overview (D.S.) 1. Pricing Challenges: 1. Most reductions in reimbursements have been in the discussion stage for several years. 1. Out of 21 product lines, only three products are reimbursed
by Medicare. 2. All products are reimbursed by state Medicaid programs. 2. Expects smaller competitors will not survive due to reductions in reimbursements. 3. ACDO is largest provider in each affected product line. 1. Will continue strategy of focusing on premier products, creating preferred relationships and providing services. 2. Positive Developments: 1. Medco Health Solutions began transferring specialty pharmacy patients to ACDO during May. 1. Planned transition of approx. 10,000 Medco patients is
proceeding smoothly. 2. Transition should be finished prior to end of calendar year. 2. Recorded approx. $4.8m in additional Medco revenue in 4Q04, and this will increase in future qtrs.
1. ACDO estimated $100m in increased revenue during FY05 due to expanded relationship with Medco. 3. Additional Opportunities for Transfer of Other Specialty Pharmacy Patients: 1. One is to serve patients whose claims are adjudicated by Medco but whose drug is not dispensed by Medco. 2. Second opportunity involves converting major medical patients through a Medco prescription card benefit. 3. ACDO believes these opportunities involve a larger number of patients than patient base currently being transferred.
1. Revenues from these prospective patients are not included in revenue estimates. 4. Acquisition: 1. On June 4, ACDO announced definitive agreement to purchase Hemophilia Resources of America, Inc. (HRA). 1. Acquisition was closed on 7/21/04. 2. HRA had revenues of approx. $84m in calendar year 2003. 3. ACDO expects transition to be immediately accretive. 1. Should increase EPS by $0.11 in FY05. 4. HRA has no exposure to MediCal. 5. 13% of HRA 2003 revenues were derived from Medicare. 5. Apokyn: 1. ACDO was selected as one of three preferred specialty pharmacy
providers for Apokyn, a newly approved product for Parkinson's.
1. Began shipping Apokyn on Aug. 18. 2. Bertek also selected ACDO to exclusively manage patient assistance program for all Apokyn patients. 6. Aetna Joint Venture: 1. ACDO will lose ability to continue to serve Aetna patients for some therapies. 2. Will continue to contract with Aetna for some products. 3. Negotiations are ongoing.
S2. Financial Results (J.K.) 1. Revenues: 1. 4Q04 revenues were up approx. 16% vs. 4Q03. 2. FY04 revenues were up approx. 16% vs. FY03. 1. Comparisons are after elimination of $65.9m of revenue from discontinued products. 2. Expenses: 1. FY04 GM was up 21% vs. 20.9% in FY03. 2. 4Q04 G&A expenses were 9.2% of revenue vs. 9.9% for 4Q03. 3. FY04 G&A expenses were 9.1% of revenue vs. 9.4% for FY03. 3. EPS: 1. 4Q04 diluted EPS was $0.40 vs. $0.36 in 4Q03. 2. FY04 diluted EPS was $1.60 vs. $0.61 FY03. 1. ACDO increased bad debt expense in 3Q03 by approx. $58.5m. 1. Increase was due to increase of bad debt reserves related to accounts receivable acquired during purchase of SPS division of Gentiva Health Services.
2. Without this additional expense, diluted EPS would have been
$1.35 in FY03. 3. Excluding this expense, FY04 diluted EPS was up approx. 19% vs. FY03. 4. Factors Affecting FY05 Guidance:
1. Press release has details. 2. Final MediCal hemophilia reimbursement rates and Medicare reimbursement levels for hemophilia Remodulin and Flolan are not finalized. 1. ACDO has yet to be paid for MediCal hemophilia claims since implementation date of 6/1/04 of new ASP plus 20% methodology. 1. Information received recently from manufacturers indicates final hemophilia ASP amount may be lower than previously anticipated. 2. Discussions are ongoing regarding reimbursement levels with Medicare fiscal intermediaries and CMS. 1. Also discussed the proposed fee schedule of $0.05 per unit effective 1/1/05. 2. ACDO is in process of formally responding to CMS regarding inadequacy of proposed rate. 3. ACDO expects meaningful margin contraction in FY05 for IVIG. 4. Have estimated effect of some of Aetna specialty pharmacy business move in 2H05. 5. Closing of HRA acquisition. 6. Completion of expansion of credit facility to $550m. 1. ACDO will incur a non-cash charge of approx. $4.4m in 1Q05 to expense unamortized debt issuance costs associated with previous $325m credit facility. 7. ACDO will realize increased revenue from the HRA acquisition during FY05.
8. Impact of all items above will be reduction in net revenue of
approx. the incremental net increase associated with the
addition of HRA during FY05. 5. FY05 Guidance: 1. Revenue:
1. Have not changed revenue estimates for FY05. 2. Revenue of $1.85-1.9b. 2. EPS: 1. EPS revised to $1.45-1.53 from previous guidance of $1.88-1.93. 3. FY05 guidance based on no potential new product lines or potential acquisitions and are based on the current Medicare and MediCal reimbursement rates.
QUESTION AND ANSWER SUMMARY
Q1. (Glen Santangelo, Charles Schwab) Earlier in the call, you talked about how limited your exposure is to Medicare. Isn't it safe to assume that the private reimbursement is moving in a correlated fashion? Could you this news from Medicare maybe accelerate some further reimbursement cuts coming from these private insurance companies? As it relates to hypertension, you talked about the acquisition costs for some of these products are currently greater than the current reimbursement. Does it make sense to be in all these disease categories? Could you potentially see the company maybe exiting some products if they're not profitable?
A. (David Stevens) Quite frankly, most of our products are not paid by Medicare regardless. So, therefore we do see a lot of the impact on many of our products because neither ourselves or others in the marketplace are providing Medicare reimbursement. In the case of IVIG to your point, in January 1 of this year, Medicare did change the reimbursement levels for physicians, and that certainly had some impact on the changes in IVIG, although there were a number of …