MGLN

Magellan Health, Inc. (MGLN)

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Magellan Health Services, Inc. (MGLN)

2009 Financial Guidance Call

December 17, 2008 9:00 am ET

Executives

Rene Lerer – President & CEO

Jonathan Rubin – CFO

Renie Shapiro – SVP Corporate Finance

Analysts

Josh Raskin – Barclays Capital

Daryn Miller - Goldman Sachs

Carl McDonald - Oppenheimer

Scott Fidel - Deutsche Bank

Michael Baker - Raymond James

Greg Nersessian - Credit Suisse

Presentation

Operator

Welcome. (Operator Instructions) I would like to turn the call over to Renie Shapiro, Senior Vice President of Corporate Finance and Investor Relations; you may begin.

Renie Shapiro

Good morning. Thank you for joining us today. This is Rene Shapiro, Senior Vice President of Corporate Finance and Investor Relations for Magellan Health Services. Here with me today are Magellan’s President and CEO, Rene Lerer and our Chief Financial Officer, Jonathan Rubin.

This morning we will be discussing our 2009 financial guidance. Before we proceed with this call, let me read our disclosure statement.

Certain of the statements that will made during this conference call are forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown uncertainties and risks which could cause actual results to differ materially from those discussed.

Forward-looking statements are qualified in their entirety by the complete discussion of risks set forth under the caption Risk Factors in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2007 and in the Form 10-Q for the period ended September 30, 2008 which are both posted on our website.

In addition, please note that in this call we refer to segment profits. Segment profits is disclosed and defined in our Quarterly Report on Form 10-Q and on our Annual Report on Form 10-K and is equal to net revenues plus the sum of cost of care, cost of goods sold, direct service cost and other operating expenses and excludes stock compensation expense.

Segment profit information referred to in this call may be considered a non-GAAP financial measure.

Included in the tables issued with this morning’s press release is the reconciliation from segment profit to the line item income from continuing operations before income taxes.

We encourage you to review such reconciliations for an understanding of how segment profit compares to that GAAP measure. For additional information regarding this measure including the reasons management considers this information to be useful to investors, please see Magellan’s Annual Report on Form 10-K for the year ended December 31, 2007 which was filed with the Securities & Exchange Commission on February 29, 2008, and is, as I mentioned before, posted on our website.

I will now turn the call over to our President and CEO, Rene Lerer.

Rene Lerer

Good morning everyone and thanks for joining us and let me wish each of you a Happy Holiday season. As you saw in the press release issued this morning inclusive of share repurchases to date our projected net income for 2009 is expected to be in the range of $73.4 million to $93.7 million which translates to diluted earnings per share in the range of $1.96 to $2.51.

Our segment profit for 2009 is expected to be in the range of $190 million to $210 million. In July we announced the approval of a $200 million share repurchase program to be implemented over an 18-month period.

We previously disclosed that through September 30, 2008 we had repurchased approximately 395,000 shares at a total cost of $16.7 million. Through the close of business yesterday, December 16, we have repurchased approximately 3.7 million in total for a total cost of approximately $132 million.

Our 2009 guidance and EPS projections include these repurchases to date but exclude the impact of any potential future repurchases.

Jonathan will give more details on the financial outlook but I’ll first provide a few perspectives in our business outlook including our growth opportunities and potential impacts of the economic environment.

Starting with growth, there continues to be a strong market opportunity for radiology benefit management services and our pipeline continues to grow. The revenue opportunities and covered lives in our pipeline have increased significantly from this time last year.

Risk based products represent the majority of our radiology pipeline with 60% of the pipeline lives and 98% of the pipeline revenue in risk contracts. We have made significant product enhancements over the past year which are designed to promote the risk product demand and serve as an effective differentiation strategy.

Our full consumers and model has been well received by both customers and prospects. As I have spoken about previously the decision to outsource radiology benefits management involves multiple stakeholders and is both complex and time consuming particularly as it relates to information needed from IT departments for historical data to underwrite risk contracts.

We are disappointed about our inability to identify any closed deals this year. However we remain optimistic about our potential for signing new risk [RBM] business in 2009 and have built in new business radiology revenue into our guidance.

Jonathan will expand on the assumptions for the new business during his discussion. With respect to specialty pharma we have seen growth in 2008 and we expect to continue to focus on our rebate management and associated distribution businesses in 2009.

In addition we have been developing a market leading oncology management product which addresses the choice and cost of pharmaceutical agents, supports effective clinical care management, and impacts administrative issues such as the accuracy of claims processing.

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