NEW YORK — CVS Caremark Corp. is poised for a strong finish to 2012, and its pharmacy business is looking forward to generics growth in 2013 and 2014, president and chief executive officer Larry Merlo said at the Morgan Stanley Healthcare Conference this month.
When CVS reported its second quarter results in early August, the company estimated that it would retain at least 50% of the prescription volume it had added as a result of the dispute — now resolved — between Walgreen Co. and Express Scripts Inc. (ESI).
Merlo said that the pharmacy customer is the most difficult to lose, but once lost, the hardest to get back because of the inconvenience of the pharmacy transfer process.
“We believe there are a large number of people who simply don’t want to go through that process a second time,” he said.
Merlo stressed that CVS had put as much emphasis on its customer retention strategy as its acquisition approach. As a result the company has gained valuable knowledge of its new pharmacy customers.
“We know that 70% of those new customers live within two miles of a CVS, 55% of those high-value customers have enrolled in our automatic prescription refill program and more than 83% have enrolled in ExtraCare,” he said. “So that certainly gives us an opportunity to communicate and engage customers in a very personalized fashion.”
Merlo said he thinks customers who return to Walgreens will do so within a month or two of Walgreens’ mid-September return to the ESI network.
Consequently, by around the end of the year CVS’ customer retention level should be fairly permanent, he said.
In response to an analyst’s question about the possibility of intense price competition once Walgreens is back in the ESI network, Merlo stated that CVS has a highly targeted marketing strategy that will employ promotion advertising and leverage its ExtraCare loyalty program to communicate with high-value customers.
ExtraCare, he added, has always been a customer retention vehicle. “We will be very disciplined in terms of how we are using our resources and our spend, which is reflected in the guidance we have provided for the balance of the year,” he said. “We do not see a price war erupting.”
Another positive that CVS Caremark executives cited is the likelihood of continued profitability gains from generic drugs into 2013 and 2014.
“It is not just new generics entering the market; it is the increased use of generics across the marketplace,” said Merlo. “We have 10,000 baby boomers turning 65 every day, and that is expected to continue through the remainder of this decade.”
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