CVS to stop selling tobacco products

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WOONSOCKET, R.I. — CVS Caremark Corp. will halt all sales of cigarettes and other tobacco products through its more than 7,600 CVS/pharmacy stores nationwide by Oct. 1. The action makes CVS/pharmacy the first national drug chain to take this step.

“Ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company to help people on their path to better health,” said president and chief executive officer Larry Merlo. “Put simply, the sale of tobacco products is inconsistent with our purpose.”

The decision, announced Wednesday, was applauded by President Barack Obama and drew praise in the pharmacy and medical communities.

Coinciding with the CVS announcement, an article in the Journal of the American Medical Association Viewpoint published online this morning stresses the importance of the CVS move in light of the expanding role of retail pharmacy in health care delivery.

The article, co-authored by Troyen Brennan, CVS’ chief medical officer, and Steven Schroeder, director of the Smoking Cessation Leadership Center at the University of California, San Francisco, points out that more than 480,000 death occur annually in the United States as a result of smoking, with direct medical costs of $132 billion by some recent estimates.

While cigarette smoking has been substantially reduced from about 42% of American adults in 1965 to 18% today, the article notes that the rate of reduction has stalled in the last decade, as 42 million people continue to smoke while 16 million current and former smokers have smoking-related illnesses.

“The paradox of cigarette sales in pharmacies has become even more relevant recently, in large part because of changes in the pharmacy industry,” wrote Brennan and Schroeder. “Most pharmacy chains are retooling themselves as an integral part of the health care system. They are offering more counseling by pharmacists, an array of wellness products, and outreach to clinicians and health care centers. Perhaps more important, pharmacies are moving into the treatment arena, with the advent of retail health clinics. These retail clinics, originally designed to address common acute infections, are gearing up to work with primary care clinicians to assist in treating hypertension, hyperlipidemia and diabetes, all conditions exacerbated by smoking.”

According to Merlo, CVS this spring will launch a “robust” national smoking cessation program that will include information and treatment on smoking cessation at all CVS/pharmacy and MinuteClinic locations. The program, which will include online resources, will be available to CVS Caremark pharmacy benefit management plan members as well.

Management pointed out that the decision to discontinue the sale of tobacco products does not affect its 2014 projections for operating profit or earnings per share, nor its five-year financial projections provided at CVS’ Analyst Day last December.

CVS estimates that it will lose about $2 billion annually in sales from tobacco shoppers, with an impact on 2014 earnings of 6 cents to 9 cents per share. However, executives have identified incremental opportunities that they expect to offset the negative impact on profitability.

“The company indicated it may sacrifice $2 billion in revenue on an annualized basis from the ‘tobacco shopper,’ which represents nearly 10% of front-end sales,” analyst Mark Miller of William Blair & Co. said in a research note Wednesday. “We doubt there will be a significant change in smoking cessation; rather, market share will likely shift to competitors, with Walgreens being a primary beneficiary. If we assume that Walgreens captures 25% share of this business, it could add 5 cents to [Walgreens’] fiscal 2015 EPS, assuming incremental margin is the same as that assumed by CVS in its guidance today.”

*Editor’s Note: Article updated with analyst comment.


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