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Ryan says CVS is 'well positioned'
May 25th, 2009
by Paul Grimaldi
WOONSOCKET, R.I. – CVS Caremark Corp. is poised to take advantage of competition in the pharmaceutical marketplace, national health care reform and demographic changes, according to chairman and chief executive officer Tom Ryan.
“We think we’re well positioned … to benefit from the growth in health care,” Ryan told shareholders gathered at CVS Caremark headquarters here earlier this month for the company’s annual meeting.
He said the company is already benefiting from one big move: its $27 billion merger with pharmacy benefits manager Caremark Rx Inc. in 2007. The deal created the country’s largest prescription provider, filling or managing more than 1 billion prescriptions annually, including about 18% of retail scripts nationwide.
CVS Caremark’s revenue totaled $87 billion in 2008, and the company has more than 6,900 drug stores, a bit more than rival Walgreen Co. That makes CVS Caremark large enough to help shape national debate on health care reform.
The company’s MinuteClinic network of in-store health clinics fits into the Obama administration’s goal of reducing health care costs. Meanwhile, CVS Caremark’s PBM division offers clients such programs as Maintenance Choice, ExtraCare Health, Progressive Plan Design and Specialty Guideline Management.
Maintenance Choice, used by more than 200 PMB clients, lets health plan participants choose to receive 90-day prescriptions via mail or at a CVS store.
CVS expects its PBM revenue to grow 15% to 17% this year. However, the PBM business has not performed as well as financial analysts had expected at the time of the merger. Earlier this year CVS Caremark renewed about 50% of its PBM contracts, giving up some of its profit margin to lock in revenue over the next few years.
Responding to a shareholder question, Ryan rejected the notion that the PBM business has underperformed. “That’s actually not true. We increased revenue and new clients,” he said.
Yet competitors also are repositioning themselves, which could make it tougher for CVS Caremark to land large numbers of new PBM clients and keep down prices.
Ryan discounted the possibility that health care reform would hurt CVS. His view runs counter to that of some analysts, who say a government-run health care plan could lead to government-set drug prices, which would negatively impact PBMs.