Merlo: CVS Caremark firing on all cylinders

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WOONSOCKET, R.I. — CVS Caremark Corp. is right where it needs to be to thrive in today’s increasingly complex health care market, president and chief executive officer Larry Merlo said at the company’s annual shareholders meeting here.

By leveraging its unique business model — which integrates a drug store chain, a retail clinic operation and a pharmacy benefits manager — CVS Caremark can drive innovation in pharmacy care and spur company growth, Merlo told stockholders this month at CVS headquarters.

“Our purpose as a company is to help people on their path to better health,” Merlo said. “We have executed successfully on our core initiatives, and we are well positioned for growth in 2012 and beyond.”

He and chief financial officer David Denton cited CVS’ robust first quarter results as proof that the integrated model is clicking in the marketplace. Total revenue surged 19.9%, with sales up 9.9% for the retail pharmacy unit and 32.3% for the PBM.

One highlight, Merlo said, was CVS/pharmacy’s deft response to the contract dispute between rival Walgreen Co. and Express Scripts Inc., which has generated significant new prescription business and lifted earnings.

“Our retail team has done an outstanding job in capitalizing on this opportunity,” he said. More than 40% of CVS stores are within one mile of a Walgreens, and around 80% are within three miles of a Walgreens, he added.

Both Merlo and Denton noted that the quarterly results built on a strong 2011 performance.

“When you look at our three business units, they’re all performing very well,” Merlo said. “Our suite of assets is well aligned with the direction of health care.”

Going forward, a core focus will be to hit the “integration sweet spots,” where the company’s business units can work together to enhance pharmacy care and improve patient health outcomes, according to Merlo.

As examples he cited the Maintenance Choice, Pharmacy Advisor and Caremark Member Care at MinuteClinic programs. He said Pharmacy Advisor is being expanded to cover more disease states, the latest addition being cardiovascular care, and starting early next year, the program will be extended to Medicare and Medicaid beneficiaries. CVS Caremark, too, is developing an integrated specialty pharmacy care solution.

“We see pharmacy innovation as essential to meeting future health care challenges,” Merlo said, adding that payers and employers will find CVS Caremark’s innovative, integrated pharmacy and health care offerings especially compelling. CVS expects $12.6 billion in PBM cumulative net new business in 2012, up from $10.8 billion in 2011.

“We’re bullish about the receptivity to our model,” Merlo said.

Reflecting confidence in its performance and growth strategy, CVS Caremark has raised its 2012 adjusted earnings-per-share forecast to between $3.23 and $3.33, up from its previous guidance of $3.18 to $3.28. “We are on track to have an even better year for 2012,” Denton said.


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