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Ryan: CVS’ PBM business has to produce better results

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WOONSOCKET, R.I. — Despite record third quarter sales and profits, CVS Caremark Corp. forecast disappointing results for its pharmacy benefits management business next year, based on the loss of a net of $4.8 billion in contracts.

The 2010 operating profit of the Caremark PBM business will drop as much as 10% to 12%, chairman, president and chief executive Tom Ryan said in a conference call early this month. The news produced a one-day 21% drop in CVS Caremark’s stock price.

Ryan also announced that Caremark president Howard McLure would retire, effective November 27. Ryan said he would take the reins of Caremark until a successor was found.

“I am not Pollyanna here,” Ryan said. “We get it. We have to produce better results on the PBM side.”

At the same time, the company’s retail performance has been “fairly consistent … even in this climate,” he said, adding that Caremark “is helping the retail business,” which is “taking share from other players.”

CVS Caremark’s net revenue for the third quarter ended September 30 jumped 18.1% to $24.6 billion from a year earlier. Retail sales climbed 17.9% to $13.6 billion, with same-store sales advancing 5.7%. PBM revenue increased by nearly one-fourth to $13 billion.

Adjusted earnings per share from continuing operations were up a higher than expected 8.1%, and the company reported that its profit for the year should come in at the upper end of its forecast.

CVS Caremark continues to have confidence in the retail/PBM combination, Ryan said, because of the savings it is producing for health plans and their members. Contracts were lost because of price and service, not the business model, he noted.

Caremark’s showing is about “execution and performance,” he said. “It’s not the products. Believe me, the products that we are offering are accepted in the marketplace. Now we have to tweak the marketing message a little.”

Helping change Caremark’s messaging will be newly hired PBM senior vice president of marketing Len Greer. “It’s fairly common knowledge that our message early on was not clear,” Ryan said. “Len has deep PBM experience. He has disease management experience on the marketing side, so yes, he has been brought in to help change that message.”

CVS Caremark also announced the promotion of controller David Denton to chief financial officer, effective January 1. He will succeed Dave Rickard, who is retiring.

Denton, who currently serves as CVS Caremark’s senior vice president and chief accounting officer as well as controller, brings to his new position nearly 20 years of financial management experience with a focus on the health care and retail drug sectors.

Since joining the company in 1999, he has assumed positions of increasing responsibility, including senior finance posts within CVS/pharmacy and CVS Caremark and the CFO position for the Pharma­Care subsidiary. His selection as executive vice president and CFO for the corporation caps an eight-month search that considered internal as well as external candidates.

Previously, Denton was a consultant with Deloitte & Touche, where his clients included major health care organizations. He has also held management positions at Blue Cross/Blue Shield of Florida and Health Options Inc.

Replacing Denton as controller and chief accounting officer is Laird Daniels. Daniels, who joined CVS Caremark in 1997, was most recently vice president of finance and retail controller for CVS/pharmacy.

The company also reported that the Federal Trade Commission is investigating some of its business practices. Details of the investigation were not disclosed, but CVS Caremark said it had not violated any antitrust laws. Independent pharmacies and a labor coalition have accused the company of unfairly channeling PBM business to CVS stores.


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