FRANKLIN LAKES, N.J., July 24 Driven by record2008 sales performance across the company, including Accredo Health Group, andstrong fundamentals, Medco Health Solutions, Inc. (NYSE: MHS) today reported a34.2 percent increase in second-quarter 2008 GAAP diluted earnings per shareto $0.51, compared to $0.38 for the second quarter of 2007. Excluding $0.05per share in amortization of intangible assets that existed when Medco becamea publicly traded company, second-quarter 2008 diluted earnings per shareincreased 30.2 percent to $0.56 from $0.43 in second-quarter 2007.
"This quarter, Medco demonstrated that strong execution around thefundamentals of our business on behalf of our customers continues to driveoutstanding earnings performance for our shareholders," said David B. SnowJr., Medco chairman and chief executive officer.
"Beyond the quarter, our business strategy fueled extremely strong salesresults and industry-leading customer retention rates. Our 2008 annualizednew-named sales rose to $6.5 billion, and we achieved a retention rate of 98percent, reflecting continued success in our 2008 sales season. Additionally,our 2009 annualized new-named sales to date are currently at $4.6 billion,with a retention rate of more than 97 percent. These strong 2009 salesresults are particularly impressive this early in the 2009 sales season, andare a testament to the strength of our integrated service and clinicalmodels," said Snow.
Richard J. Rubino, chief financial officer, added: "The second quarterresults exceeded our expectations with strong performance across-the-board. Weexperienced record revenue and operating income in our Accredo business, ahigh level of operational efficiencies with the absorption of our significant2008 new client wins, and continued contribution from generics at mail -- alladding up to record EBITDA per adjusted prescription of $3.05. We are veryconfident in our business model and pleased to both raise and narrow the rangeof our guidance, elevating our projected 2008 GAAP EPS growth to 29 to 31percent."
Second-Quarter Financial and Operational Results
Medco reported net revenues of nearly $12.8 billion, a 15.6 percentincrease from second-quarter 2007. Net revenues increased primarily as aresult of contributions from significant new client wins and price inflationon brand-name drugs, partially offset by higher volumes of lower-cost genericdrugs. Medco's generic dispensing rate increased 4.8 percentage points to arecord 63.7 percent from the second quarter of 2007. The mail-order genericdispensing rate increased 5.0 percentage points to 54.9 percent and the retailgeneric dispensing rate increased 4.8 percentage points to 65.6 percent.
While higher volumes of lower-cost generic drugs reduced net revenues byapproximately $710 million, these savings benefit clients and members, andcontribute to higher gross margins. Year-to-date, the higher volumes ofgeneric drugs reduced net revenues by approximately $1.5 billion.
Total prescription volume, adjusting for the difference in days supplybetween mail order and retail, increased 6.4 percent from the second quarterof 2007 to 198.1 million. Mail-order prescription volume increased 11.9percent to 26.3 million. Retail prescription volume increased 3.2 percent to119.6 million. Adjusted mail-order prescriptions as a percentage of totaladjusted prescriptions increased 2.0 percentage points, reaching 39.7 percent.Total gross margin increased 90 basis points to 7.3 percent from 6.4 percentin the second quarter of 2007, reflecting higher mail volumes and penetration,and higher generic dispensing rates. (Please see Table 5 for the calculationof adjusted prescription volume and generic dispensing rate information).
Total selling, general and administrative expense of $368.4 millionincreased 34.5 percent or $94.4 million over second-quarter 2007. Ove