CVS Caremark Corp. expects to retain a significant portion of the pharmacy business it gained from Walgreen Co.’s impasses with Express Scripts Inc., despite their recent settlement.

CVS Caremark Corp., Walgreen Co., Express Scripts Inc., President and chief executive officer Larry Merlo, Walgreens, CVS/pharmacy, ExtraCare program, MinuteClinic, Mark Miller, William Blair & Co.

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Inside This Issue - News

CVS to defend gains

August 20th, 2012

WOONSOCKET, R.I. – CVS Caremark Corp. expects to retain a significant portion of the pharmacy business it gained from Walgreen Co.’s impasses with Express Scripts Inc., despite their recent settlement.

President and chief executive officer Larry Merlo predicted that through the third quarter CVS Caremark will hold onto the vast majority of the gained business, and will keep at least half of it in the fourth quarter. Walgreens will again be part of the Express Scripts network on September 15, two weeks before the end of the third quarter.

"We have a highly detailed, multifaceted plan in place to achieve our goals," Merlo said in a conference call discussing the company’s second quarter earnings. "It includes customer outreach, in-store touch points, advertising and promotions. And our plan is based on sophisticated analytics, and it makes economic sense."

He emphasized that CVS Caremark has continually sought ways to improve and differentiate its pharmacy offering. "For example, our retail pharmacy adherence program is now in its fifth year, and we continue to be pleased with its strong performance. In the first half of this year alone, our pharmacy teams proactively delivered 40 million live customer interventions across all of our stores, helping to improve adherence and keep our customers healthier."

At the front end, both customer traffic and average ticket increased in the third quarter, Merlo said. He estimated that the Walgreens/Express Scripts standoff positively impacted CVS/pharmacy’s front-end same-store sales by more than 100 basis points. At the same time, the measure was negatively impacted by two fewer selling weeks in the Easter holiday period, as well as an early end to the allergy ­season.

CVS gained front-end market share compared to last year, he said, thanks in large part to its loyalty program. The ExtraCare program "continues to be a key differentiator and, now with more than 15 years of history, today we have roughly 70 million active cardholders," he said. "And our vast wealth of experience enables us to continue to develop both new and better ways to enhance the offering for our customers."

Revenues from the MinuteClinic walk-in clinic operation increased 17% in the second quarter, Merlo noted. CVS Caremark added a net of 14 clinics to end the quarter with 584 in 25 states and the District of Columbia. About 85% of clinic visits were paid through third-party insurance in the quarter. The company continued to enhance MinuteClinic’s role as a collaborator with integrated health networks, adding three new affiliations to the 15 already in place. Physicians from new affiliates will serve as medical directors for local MinuteClinics, and the organizations will collaborate on patient education and disease management. The partners will also work toward fully integrating electronic medical record systems to streamline communications around all aspects of patient care.

CVS Caremark continues to focus on new programs aimed at identifying and monitoring chronic conditions. One example is an effort to identify patients with elevated blood pressure and encourage them to follow up at a MinuteClinic or with their primary care physician. "As a result, we’ve seen a 50% increase in blood pressure evaluations compared to the same quarter last year," Merlo said. "And we believe our plans to enhance our services and to double our clinic count over the next several years should position us well to play an important role in helping solve the primary care physician shortage, especially with millions of newly insured individuals expected to enter the health care marketplace."

Mark Miller, an analyst at William Blair & Co., said the fundamental outlook for CVS Caremark “remains solid.” While the integrated PBM model continues to gain traction, the retail segment may be the “swing factor,” he said, considering that Walgreens will launch its much anticipated loyalty card on September 15” — the same date the Illinois-based chain rejoins the Express Scripts fold.