4 Reasons to Be Optimistic About Healthcare: Express Scripts Holding Company (ESRX), WellPoint, Inc. (WLP), Eli Lilly & Co. (LLY)

Over the last decade, Express Scripts Holding Company (NASDAQ:ESRX) has expanded its specialty drug operations to include specialty pharmacies – to help with the often complex administration of specialty treatments. It also relies on its massive mail-order unit to distribute specialty drugs to areas of the country where it doesn’t operate pharmacies.

The Medco merger is a big play in the cancer treatment industry. Medco launched its Therapeutic Resource Center for oncology patients at the start of 2010, and is a leader in specialty cancer pharmacies. Additionally, the company’s advances in genomics, such as using gene tests to prescribe blood thinners, provide another avenue of specialty treatments.

Patent cliffs

A few big name drugs are going to go generic in the next 18 months. Eli Lilly & Co. (NYSE:LLY)’s Cymbalta is the biggest among them, losing its patent protection in December of this year. Novartis AG (ADR) (NYSE:NVS)’ big money-maker, Diovan, is available in generic form starting this month. Abilify (Bristol-Myers Squibb) and Nexium (AstraZeneca plc (ADR) (NYSE:AZN)) will lose protection next year.

While the patent cliff usually spells bad news for drug-makers without another blockbuster in the pipeline, the endless feed of big name drugs coming off patent is great news for PMBs. Express Scripts Holding Company (NASDAQ:ESRX) makes much higher margins on generic drugs compared to their name brand counterparts. In fact, Express Scripts Holding Company (NASDAQ:ESRX) will often take losses on name brand drugs, which are offset by the highly profitable generic brand later.

The Right Prescription

George Paz seems rightfully optimistic about the upcoming year in the healthcare industry. Its focus on specialty pharmacies and treatments is likely the biggest driver for growth over the next few years, and will be especially important as the generic drug pipeline dries up in 2015. Still, the aging population and healthcare reform laws ought to add plenty of new customers for Express Scripts Holding Company (NASDAQ:ESRX), albeit many will be less profitable than average. Overall, the outlook for Express Scripts is bright, and I have no reason to doubt its CEO.

The article 4 Reasons to Be Optimistic About Healthcare originally appeared on Fool.com and is written by Adam Levy.

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