Biotech with a Twist

The hoped-for surge in biotech drugs could be the prescription for fresh growth at Caremark Rx (CMX ). The $4 billion Birmingham (Ala.) outfit is already one of the largest pharmaceutical services companies in the U.S., distributing drugs and administering benefits for big corporations and insurance companies. It also operates a booming mail-order business.

Analysts have issued incremental upgrades throughout the past year as the company's earnings beat projections. Through the nine months ended Sept. 30, 2001, net revenues rose by almost a third, while profits jumped 72%, to 50 cents a share. That pushed the stock to 16, a 20% one-year gain. But there's more to Caremark than the HMO-style distribution model, which has low margins, says Rob Plaza, a Morningstar stock analyst: "If that's all they were, I wouldn't be as high on the stock." Plaza says Caremark is among the few drug distributors with the knowhow to deliver speciality therapies to at-home patients for such severe illnesses as hemophilia and multiple sclerosis. Although there's competition from Gentiva Health Services and Priority Healthcare in the new biotech arena, Plaza says Caremark is miles ahead. Analyst Anne Barlow of SWS Securities is also bullish: She expects the stock to double in 12 months.

By Mara der Hovanesian

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