CVS unveils specialty pharmacy pilot on heels of strong Q1 results

WOONSOCKET, R.I. CVS Caremark is piloting a specialty pharmacy program in Florida that would enable customers to pick up specialty pharmacy prescriptions in any CVS store in the state — a move that not only speaks to the importance of the fast-growing segment in pharmacy, but also provides a glimpse into the future of how the traditional drug store can participate in specialty pharmacy. The news came as the company delivered solid first-quarter results fueled by the success of its Maintenance Choice program.

“It’s about access and it’s about ease and it’s about low cost, so you have a situation where typically you’d have to call to make sure someone was home as we’re delivering this medication because of the storage requirements, etc. Now they can pick it up in the store,” Tom Ryan, chairman, president and CEO, told analysts during the May 5 first-quarter conference call when asked about the growth of specialty pharmacy and the progress of the integrated specialty management program.

Specialty is the fastest growing piece of the pharmacy business, said Ryan, and he expects that, overall, specialty will grow in the 14% range. While overall pharmaceutical growth has slowed, the specialty pharmacy segment continues to explode. However, facilitating a specialty pharmacy business in a typical community pharmacy setting has been extremely tricky for several reasons, including the cost of inventories and the high-touch patient requirements.

The hub-and-spoke model that CVS is piloting is a glimpse into the future in terms of how the average corner drug store will be able to participate in specialty pharmacy. This participation could manifest as a central-fill type model — such as what CVS is employing, where it will leverage its CarePlus stores and its resources in Caremark to fill specialty prescriptions through its Florida stores — or through some outside network. CVS Caremark also is leveraging its MinuteClinic business and recently launched injection training around specialty pharmacy, Ryan noted.

The specialty pilot program model is similar to the company’s Maintenance Choice program launched in 2008. Maintenance Choice allows consumers to purchase chronic 90-day prescriptions at CVS stores for the same price as mail, and has proven to be quite successful and profitable to the overall enterprise. “Maintenance Choice offering is really taking off. The number of scripts being filled at retail for 90-day is well over our plan,” Ryan told analysts.

As of April 1, there were more than 200 clients taking advantage of Maintenance Choice, and the feedback has been “extremely positive.” Dave Rickard, EVP and CFO, added that, “Maintenance Choice had a positive effect on our retail comps, benefiting pharmacy comps by approximately 120 basis points and total comps by approximately 80 basis points.”

“CVS Caremark is getting good traction with its differentiated 90-day at retail offering; they are providing a new metric called Mail Choice, which looks at the growth of 90-day scripts whether they are filled at mail or retail. In 1Q09, this metric rose 6.6%, while mail-order scripts rose only 2.6%,” stated Barclays Capital analyst Meredith Adler in a recent research note. “The success of Maintenance Choice is not surprising, since it gives both payers and patients low mail-order pricing, along with the convenience of retail, at the patients’ choice.”

The initiative is one of several the company currently has underway. At the front of the store, the retailer is introducing a new store brand proprietary “try me” section in more than 4,500 stores, and is adding more private-label products to the mix in an effort to bolster private-label sales and attract new shoppers to the segment.

Revenues in the pharmacy services segment rose 7.2% to $11.5 billion for the first quarter ended March 31. Adjusting the growth rate for the impact of new generics, net revenues would have grown 11.4% in the pharmacy services segment. Revenues in the retail pharmacy segment increased 13.9% to $13.5 million. Same-store sales increased 3.3%, while pharmacy same-store sales rose 4.6%. Front-end same-store sales, which were negatively impacted by the shift of the Easter holiday, increased 0.7%. Net earnings were $738.4 million, or 50 cents per diluted share, compared with $748.5 million, or 51 cents per share, in the year-ago period. Expenses related to the Longs acquisition and the PBM business impacted results.