Merlo to shareholders: CVS Caremark 'uniquely' positioned to drive results

WOONSOCKET, R.I. — The damp weather here in Woonsocket, R.I., failed to dampen spirits during CVS Caremark’s annual shareholder meeting Thursday morning, as the pharmacy retailer recently wrapped up an “outstanding” 2012 and looks to the future with continued optimism.



“By virtually any measure, 2012 was just an outstanding year for CVS Caremark. Once again, we set challenging yet achievable goals and we certainly delivered on our promises,” president and CEO Larry Merlo told attendees who gathered in the company’s corporate headquarter office.



It is also important to note that Thursday marked an especially important day in the company’s history. On May 9, 1963 — 50 years ago — the very first Consumer Value Store opened in Lowell, Mass. It was founded by brothers Stanley and Sidney Goldstein and partner Ralph Hoagland. Both Stanley Goldstein and Hoagland were in attendance on Thursday and received a standing ovation for their vision, hard work and dedication.

(Stanley Goldstein, Ralph Hoagland and Larry Merlo)



“I know they are very proud of what was once an idea and a vision growing to, what is today, a household brand,” Merlo said.



During the meeting, Merlo provided an overview of some of the key financial highlights of 2012 — such as adjusted EPS growth of nearly 23% and a 13% boost in free cash flow year over year — and also discussed how its retail, PBM and MinuteClinic businesses are “thriving.”



However, it’s the future and how the company is positioning itself for long-term success amid a challenging and changing healthcare environment that was perhaps most intriguing to some company shareholders.



“Healthcare is going through this period of intense change and that change is being accelerated by the implementation of the Affordable Care Act, as well as underlying demographic shifts, advances in technology and changes in both consumer and patient behavior,” Merlo said. “Given the confluence of all these events, the healthcare industry is expected to change more in the next 10 years than it has in the past 50.”



With some 30 million Americans gaining insurance come 2014, as a result of the Affordable Care Act, amid an ongoing shortage of primary care physicians, Merlo said he believes that the system will be forced to increasingly focus on high-quality, low-cost solutions and those who help to improve medication adherence will prevail. Merlo said he sees the greatest growth within pharmacy in the continued innovation in patented and biologic-specialty drugs. Furthermore, the transition to more tech-driven methods for informing and engaging patients will fundamentally reshape patient behavior and healthcare delivery.



“Given all the change that is underway, it’s critically important that we are able to pivot to address these challenges and to serve the changing needs of both clients and consumers,” Merlo said. “It has been six years since we’ve merged CVS and Caremark, and we’ve talked a lot about why we brought these assets together, and we always come back to three key goals: greater access and convenience to care, improving health outcomes for those we are serving and, at the same time, lowering the overall cost of care. We continue to believe that these goals align very well with where healthcare is headed and the fact that we will play an important role in solving what we refer to as this quality-cost-access-conundrum facing healthcare.”



With the company’s breadth of assets, CVS Caremark continues to find innovative ways to further differentiate its model, Merlo said. One such example, Merlo said, is the company’s patient care initiative that addresses the issue of medication non-adherence, which costs the healthcare system an estimated $300 billion a year in avoidable healthcare costs. The company has several programs in place to help improve adherence such as first-fill counseling, adherence outreach and refill reminders.



Additional drivers in the company’s consumer-engagement success include its ExtraCare loyalty card program, which currently accounts for more than 84% of total front-store sales.



Merlo also touched upon the MinuteClinic business, which he described as “a key enabler of our integrated pharmacy care offerings.” There are currently about 650 clinics in operation and about 25 affiliations with health systems in place, and, as previously reported by Drug Store News, the company has ramped up its expansion plans and now expects to have more than 1,500 clinics by 2017.



“You think about those 30 million Americans that I mentioned earlier that are expected to gain some form of healthcare coverage, we are expanding our clinics in order to meet the growing demand and alleviate what already exists today and that is a primary care physician shortage,” Merlo said.

As it relates to its PBM business, 2012 proved to be a year of “breakout” performance as it recorded operating profit growth of more than 20%. Merlo also noted that its PBM book of business has grown by more than 50% since 2010.



Looking ahead, building upon its leadership positions in both Medicare and Medicaid will be a critical component of its PBM growth strategy, Merlo told shareholders.



“In summary, we believe that we are well positioned for continued growth. We are growing and we continue to gain share across the enterprise. The rapidly changing environment certainly creates some challenges across the healthcare universe but these challenges also create significant opportunities for our company,” Merlo said. “With our integrated suite of assets, we are uniquely positioned to address these opportunities and drive results for our clients and for our customers, and, at the same time, we remain focused on enhancing shareholder value through healthy earnings growth, strong cash generation and disciplined capital allocation.”