CVS Caremark sees Obamacare as expansion opportunity

Thu Dec 13, 2012 10:31am EST

A CVS pharmacy is seen in New York City July 28, 2010. REUTERS/Mike Segar

A CVS pharmacy is seen in New York City July 28, 2010.

Credit: Reuters/Mike Segar

(Reuters) - CVS Caremark Corp (CVS.N) is looking at changes in U.S. healthcare as an opportunity to serve more customers, whether they are picking up prescriptions, getting them through the mail or stopping by an in-house MinuteClinic for a checkup.

The company, formed when drugstore chain CVS bought pharmacy benefits manager Caremark in 2007 in a $27 billion all-stock deal, gave a 2013 forecast on Thursday that exceeded Wall Street estimates as it tries to use its combined businesses to its advantage.

Shares of CVS rose as much as 4.7 percent to an all-time high after the company laid out its goals during a meeting with analysts and investors in New York.

The coming year stands to be a busy one for the healthcare sector as the United States prepares for 30 million people to join the ranks of insured patients under the Affordable Care Act, or "Obamacare," starting in 2014. At the same time, the large population of aging baby boomers and rising demand for specialty drugs stand to be opportunities for companies such as CVS.

The industry is already seeing rapid growth in the number of people signing up for Medicare Part D prescription plans, which are part of the Medicare healthcare plan for older people.

"You've got 10,000 baby boomers becoming eligible for Medicare every day now," CVS Chief Executive Officer Larry Merlo said. "The change is upon us, and it will evolve over the next several years."

At the same time, the number of Americans with chronic diseases keeps rising, and those patients spend five times more than others on healthcare as they often need to visit doctors more frequently and take medications, Merlo said. If complications arise, additional treatment can be costly.

About half of Americans suffer from one or more chronic diseases. Among those who are newly diagnosed with a chronic disease, almost half fail to stick with their drug regimen in the first year, Merlo said.

Merlo said that CVS can play a bigger role in getting patients with chronic conditions such as diabetes to keep taking their drugs, which can save billions of dollars.

"The lack of medication adherence is costing our healthcare system some $300 billion a year in unnecessary costs," he said.

COMPETITION

For 2013, CVS expects to earn $3.84 to $3.98 per share, excluding special items. Analysts on average were expecting $3.82, according to Thomson Reuters I/B/E/S.

The company said its earnings forecast assumed that it would repurchase $4 billion of its shares during 2013. CVS has bought back $3.5 billion to $4 billion worth of its stock annually since 2010.

CVS also said its board had approved a 38 percent increase in the company's quarterly dividend, bringing the payout to 22.5 cents per share.

First-quarter revenue should fall 2.5 percent to 4 percent due to the rise in usage of generic drugs, which sell at lower prices than their branded counterparts but are more profitable for CVS, it said.

The company forecast first-quarter earnings of 77 cents to 80 cents per share before special items, while analysts expected 74 cents.

While CVS prepares for next year, its main competitors have come under pressure.

Drugstore leader Walgreen Co (WAG.N) is trying to lure patients back to its stores after reaching a new contract with Express Scripts Holding Co (ESRX.O), CVS Caremark's largest competitor in the pharmacy benefits management business.

CVS still expects to retain at least 60 percent of the Walgreen patrons that switched to its chain during the impasse, boosting 2012 earnings by at least 12.5 cents per share.

In November, Express Scripts said its business would come under pressure because of the weak economy, leaving analysts to question that company's strategy in the wake of its acquisition of another PBM, Medco Health Solutions.

Merlo declined to comment on whether CVS planned any acquisitions, adding that it was always reviewing "bolt-on" purchases to support its retail or PBM units.

More patients have been coming to CVS's 650 MinuteClinic healthcare clinics. The day after Thanksgiving was their busiest day to date, with 19,000 visits on November 23. CVS expects more than 3 million visits to MinuteClinic in 2012.

Eight of the more than 7,400 CVS stores remain closed after sustaining significant damage from superstorm Sandy. Six should reopen by the end of 2012, and the rest may reopen by the end of the first quarter, Merlo said.

CVS previously said costs from the massive storm would reduce its fourth-quarter earnings by as much as 1 cent per share.

The company's third-quarter profit came in a penny ahead of analysts' expectations, with growth in both the PBM business and the drugstore chain.

Shares of CVS were up 3.1 percent at $49.03 in morning trading after rising as high as $49.76 earlier in the session.

(Reporting by Jessica Wohl in Chicago; Editing by John Wallace and Lisa Von Ahn)

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