CVS Warns of Prescriptions Shift, Shares Tumble on Profit Warning -- Update
November 08 2016 - 9:06AM
Dow Jones News
By Paul Ziobro and Austen Hufford
CVS Health Inc. warned that it stands to lose 40 million
prescriptions next year as deals signed by rival Walgreens Boots
Alliance Inc. with other participants in the drug supply chain shut
out CVS stores.
The restricted networks caused the country's largest drugstore
operator to temper its profit outlook for the rest of this year and
next year, sending shares down 15% in premarket trading.
CVS Health shares have already fallen nearly 15% this year, as
investors fretted over push back to rising drug prices. That trend
has the potential to harm the company's large business that manages
prescription drug plans, which negotiates prices paid by large
employers and captures some of the rebates built into drug prices.
CVS filled 1.03 billion prescriptions in 2015, the last full year
available.
But another challenge is coming from the drugstore space, where
competitors like Walgreens are joining to create networks that
exclude CVS stores.
Under Chief Executive Stefano Pessina, Walgreens has been
aggressively pursuing deals that makes its pharmacies part of
preferred networks where patients can fill their prescriptions at a
discount. It has had a number of wins too, including becoming the
preferred pharmacy for United Healthcare Inc.'s OptumRx and for
Prime Therapeutics, which manages drug benefits for 14 leading Blue
Cross and Blue Shield health plans.
Last month, Walgreens signed a deal to become the preferred
network for Tricare, the Defense Department's health care network,
supplanting CVS Health.
CVS Chief Executive Larry Merlo said Tuesday that recent
pharmacy network changes have caused some retail prescriptions to
move out of its network in the latest quarter. He also cited
slowing prescription growth in the market overall. The drug
industry has recently shown signs that it is slowing the pace of
price increases after years of hefty hikes, after pressure from
politicians, consumers and employers.
On Tuesday, CVS lowered its financial targets. It now expects
full-year adjusted earnings per share to be between $5.77 and
$5.83, down from $5.81 to $5.89 previously. Analysts polled by
Thomson Reuters had expected earnings per share of $5.85. For 2017
it expects adjusted earnings per share of $5.77 to $5.93. Analysts
had expected $6.52.
Pharmacy-benefits managers, which include companies like Express
Scripts Holding Co. and CVS Health's Caremark, operate as middlemen
between insurance companies, corporations that pay for health
coverage, drugmakers, and pharmacies. They help process claims for
prescriptions drugs while also negotiating with drugmakers and
insurance companies over the price of medications.
By owning Caremark as well as thousands of drugstores, CVS
Health has been able to closely align both businesses to encourage
patients to fill their prescriptions somewhere within the CVS
empire. For instance, under its Maintenance Choice program,
patients can get 90-day prescriptions filled either through the
pharmacy benefit program's mail order business or at CVS stores at
the same lower price.
The Woonsocket, R.I.-based drugstore giant has increasingly
relied on its pharmacy benefits management division for growth. In
the latest quarter, CVS reported a profit of $1.54 billion, or
$1.43 a share, up from $1.25 billion, or $1.11 a share, a year
earlier. Excluding certain items, per-share profit rose to $1.64
from $1.28.
Revenue increased 15% to $44.62 billion.
Analysts predicted $1.57 in adjusted earnings a share and $45.29
billion in revenue, according to Thomson Reuters.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Austen Hufford
at austen.hufford@wsj.com
(END) Dow Jones Newswires
November 08, 2016 08:51 ET (13:51 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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