CVS 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Raising and narrowing guidance range

“given our strong performance year-to-date, we are raising and narrowing our adjusted earnings per share guidance for the year to a range of $4.43 to $4.51 and that’s up from our previous range of $4.36 to $4.50”

Unclear how many exchange insurance buyers are newly insured

“The mix of individuals who were newly insured as opposed to those who previously had coverage, it still remains unclear with various sources quoting anywhere from a low of 27% of individuals newly insured up to a high of 85% with multiple data points suggesting it might be somewhere in between.”

Newly covered is a positive secular trend for the next several years

“we can be confident that several million Americans have gained coverage in recent months and this should provide a positive secular trend in pharmacy volume growth for the next several years.

Set up Red Oak Sourcing with Cardinal Health

“Now let me update you on our 10-year agreement with Cardinal Health that’s built upon our combined sourcing expertise. As you’re aware, last month we completed the formation of Red Oak Sourcing, the largest generic sourcing entity here in the U.S. and located in Foxborough, Massachusetts. And at that time, the employees and functional responsibilities were transitioned from CVS Caremark and Cardinal to Red Oak Sourcing.”

Clients concerned about managing specialty spend

“top of mind for clients this selling season is achieving better control of their specialty spend. Among our clients, specialty represents about 22.5% of total drug spend under the pharmacy benefit and projections have this continuing to grow at a mid-teens rate.”

“all specialty spend including that paid under the medical benefit will likely to grow to as much as 50% of total drug spend by 2018.”

“n addition to benefits from new business and the addition of Coram, another driver of specialty revenue growth was Sovaldi, the new hep C drug.”

Thoughts on Sovaldi

“There are estimated to be roughly 3 million people in the U.S. requiring treatment and as everyone knows, the potential costs of treatment is very high. As you might imagine, the growing costs in this category are of significant concern to our clients and we have a number of programs in place to ensure appropriate utilization and cost management. And as competing products become available late this year and next, we will look for opportunities to introduce formulary management to further drive down costs.”

Increased spending coming from medicaid expansion

“I think we’re seeing utilization pretty flat I think from the exchanges I think as had previously talked, I think we’re seeing more of a benefit coming out of the Medicaid expansion. I think there’s still some uncertainty as we mentioned in our prepared remarks in terms of when you look at the exchange population, just how many of those are incremental to health insurance coverage.”

Not seeing much change in the consumer, still cautious

“I don’t think we’re seeing any changes in the consumer. I think that the consumer continues to be a cautious purchaser of products. At the same time, I don’t think we’ve seen a change in the competitive environment. We still see an awful lot of promotion across competitors.”

M&A is part of our DNA

“M&A has been part of our DNA for a long time in our company. We’ve been very clear that as we think about capital deployment, one area to deploy capital is in kind of investing backward in organically in our business and we will continue to do that. I would say that at the same time, we’re going to be to your point very disciplined in how we approach the market. If you look at our asset base today, we don’t have any glaring gaps or holes in capabilities at this point in time. But as we said, to a degree that we can bolt-on assets that make sense that we have line of sight to both synergies and returns, we’ll do that.”