CVS’ ‘Power of One’ offering makes for strong second quarter

WOONSOCKET, R.I. —CVS Caremark’s retail resilience, supported by the success of its loyalty card program, was notable during the second quarter, but its PBM business was top of mind for many as the PBM’s strong profitability further underscored the business model’s success and the strength of its “Power of One” offering.

“Overall, our new offerings are making steady headway in the marketplace and are clearly being recognized as a differentiator for CVS Caremark,” David Rickard, executive vice president, chief financial officer and chief administrative officer for CVS Caremark, told analysts during a July 31 conference call to discuss second quarter results. “Our momentum in this PBM selling season is excellent, so we are feeling very good about our competitive position.”

It comes as no surprise that the PBM business was what many analysts wanted to talk about, as the company has been working to promote the unique new product offerings that its retail/PBM business brings to market.

With the renewal of more than half of its business that is up for renewal in 2009 already complete, the company has also landed $1.3 billion in additional new business this year. This means that new contracts in total season, to date, are expected to have first 12-month revenues of $4.3 billion, represented by more than 50 accounts.

“CVS is on pace to realize solid net business wins in 2009, which we estimate year-to-date at $800 million, with perhaps more to come in third quarter 2008,” stated Lehman Brothers analyst Meredith Adler, who noted that while the revenue contribution from the mail portion of the PBM business was slightly below forecast, the profitability (defined as EBITDA per script) remained strong and was in line with the expectation of $3.97. In fact, Adler noted that CVS Caremark continues to have the highest profitability per script in the industry.

Rickard acknowledged that the company did lose the $2.5 billion Med D contract with Coventry Health Care, due in large part to price. And, as announced in 2006 before the merger, Caremark’s $1 billion contract with Empire expires at the end of 2008 and is part of Empire’s planned strategy to take this business in-house as part of its merger deal with Wellpoint.

However, Rickard stressed that these two health plan contracts had single-digit mail penetration, while much of the new business is more than 40 percent mail as the clients had mandatory mail or significant mail drivers with their former PBMs. This not only marks a profitability driver for CVS Caremark, but also is a strong sign of the traction the company is experiencing with such new offerings as Maintenance Choice.

Maintenance Choice allows consumers to purchase chronic 90-day prescriptions at CVS stores for the same price as through mail. Programs like Maintenance Choice are a major focus of what CVS Caremark is calling its new proactive pharmacy care model, which looks to leverage the company’s considerable resources and relationships to payers and patients through its various offerings, to drive improved health outcomes and cost savings.

“Our new proactive pharmacy care model is increasingly resonating in the marketplace, and we’re told by clients that it has been an important factor in their PBM selection process,” said Rickard. He said that, so far, more than half of its 50 new clients have signed up for new products.

New offerings also are playing an important role in MinuteClinic’s strategic future as the clinics now offer camp physicals, tuberculosis screening, and an integrated behavioral modification and pharmacy-based smoking cessation program.

CVS Caremark currently has 520 MinuteClinic locations and is expected to grow to between 550 and 600 this year.

“We believe MinuteClinic will play an increasingly important role in providing consumers easier access to high quality, lower cost health care,” Rickard said. “We are well-positioned for long-term growth, as our clients and consumers continue to realize the value of our MinuteClinic offering.”

For more details on CVS Caremark’s second-quarter results, visit www.drugstorenews.com.