UPDATE 2-CVS picks industry veteran Lofberg for PBM unit

* Lofberg has past pharmacy benefit management experience

* CVS increases investment in Lofberg's Generation Health

* Move follows CVS losing $4.8 bln in PBM business

* Shares rise 3.2 percent to $32.18 (Adds executive and analyst comments, byline)

By Jessica Wohl

CHICAGO, Dec 21 (Reuters) - CVS Caremark Corp (CVS.N) named industry veteran Per Lofberg on Monday to run its pharmacy benefits management division and raised its stake in the company he co-founded, as it works on turning around the business.

Lofberg's appointment follows CVS's admission in November that its PBM business had lost billions of dollars in contracts heading into 2010, leading to the departure of the unit's president, Howard McLure. Shares in the company had plunged 21 percent at the time. [ID:nN05502370]

Investors applauded Lofberg's appointment, which met CVS's goal of picking a new PBM president by the end of the year, and sent shares up 3.2 percent to $32.18. Chairman and Chief Executive Tom Ryan had run the operation since early November. [ID:nN12417281]

"Having an industry veteran come in and try to calm everything down was a pretty shrewd move," said Jefferies & Co analyst Scott Mushkin.

CVS Caremark's PBM, which grew when CVS acquired Caremark Rx Inc in March 2007, administers prescription drug benefits for employers and health plans and operates a large mail-order pharmacy.

It also offers packages tied to its retail business, such as allowing patients to pick up prescriptions in CVS stores at the same prices they would pay through the mail.

Lofberg, 62, has experience running a PBM, but has been out of the specific business area since 2000. He worked with Medco before it was owned by Merck & Co Inc (MRK.N) and was then chairman of Merck-Medco Managed Care LLC. That company later became Medco Health Solutions Inc MHS.N, one of CVS's PBM rivals.

Lofberg will become president of the CVS PBM business on Jan. 4. He is the CEO and co-founder of Generation Health, a genetic benefit management company in which CVS took a minority stake last month. [ID:nN10308147]

On Monday, CVS said it would take an increased ownership interest in Generation Health, which will be run as a separate business.

PAST WORK FOR MERCK, MEDCO

After his years with Medco, Lofberg went on to co-found and was CEO of Merck Capital Ventures, a venture capital company primarily funded by Merck to invest in emerging health care technologies, before he started Generation Health.

"When I was invited to kind of take on this broader challenge, it's actually fascinating to me. So I thought it was a worthwhile thing to try to do," Lofberg told Reuters in an interview.

"I've seen it evolve radically over the past couple of decades from sort of its original roots as a mail-service pharmacy to the kind of sophisticated industry it has now become," Lofberg said of the PBM business.

He said the "highly competitive" business depends on innovation and offering customers new capabilities. One of those will be CVS's expanded pact with Generation Health.

Lofberg said he held discussions with CVS for about a year about a partnership with Generation Health. The deal announced last month expands pharmacogenomic clinical and testing services for CVS's PBM clients, and should be able to help determine whether medications will be effective for patients.

Services introduced to its PBM clients in the second quarter of 2010 will initially focus on areas such as oncology, cardiovascular medicine and HIV.

Generation Health Co-founder Rick Schatzberg will replace Lofberg as its president and CEO, CVS said. Lofberg will keep a spot on Generation Health's board, where CVS will continue to have representation, as it has since November's deal. (Editing by Michele Gershberg and Gerald E. McCormick)