CVS 2Q15 Earnings Call Notes

Acquiring omnicare

“In May, we announced we entered into an agreement to acquire Omnicare, a leading provider of pharmacy services to long-term care facilities. The Omnicare acquisition provides a new pharmacy dispensing channel for us, enhancing our ability to provide the continuity of care for patients as they transition through the healthcare system and we remain very excited to assume leadership in this adjacent space.”

PBM Marketplace has been active

“Now turning to the business update and I’ll start with the 2016 PBM selling season. The marketplace has been active. Overall, RFP volume is consistent with last year and I’m pleased to report that we are having a very successful selling season.’

Specialty pharma revenue strong growth but slowing as flattening utilization trend of new Hep C drugs

we continue to grow faster than the market with specialty revenues increasing a healthy 28.4%. Now, this growth is very robust and more than double the market growth rates, but less than recent quarters as we have cycled the addition of Coram and have seen a flattening in the utilization trend of the new Hep C drugs.”

Script volumes up 4.8%

“Now moving on to the Retail business, pharmacy same-store prescription volumes increased 4.8% and that’s on a 30-day equivalent basis and we continue to gain pharmacy share. Our Retail Pharmacy market share was 21.6% in the quarter and that’s up about 60 basis points versus the same quarter a year ago. Pharmacy same-store sales increased 4.1% and were negatively impacted by about 370 basis points due to recent generic introductions and another 80 basis points from the implementation of Specialty Connect”

Front store comps flat w/o tobacco. Decrease in traffic but larger basket

“In the front store, comps were down 7.8% and, on a comparable basis, front store sales would’ve been essentially flat after adjusting for the tobacco impact. And while we experienced a decrease in front store traffic, that was partially offset by an increase in the average customer basket. ”

Customers have redeemed $4B in extracare bucks in TTM

“On a rolling 12 month basis through Q2, customers redeemed savings and ExtraBucks totaling more than $4 billion.”

Returning $6B to shareholders this year

“For the full year, as we have noted, we expect to complete $5 billion of share repurchases. This reflects an increase of approximately 25% versus 2014 despite the $1 billion acquisition related reduction to our share repurchase plans for this year. So between dividends and share repurchases, we have returned more than $3.7 billion to our shareholders in the first half of 2015 alone and we currently expect to return more than $6 billion for the full year.”

Raised $15B at 3.75%

“we recently issued a series of senior notes totaling $15 billion. The tranches are well laddered, the terms range from three years to 30 years and there is no one year in which the maturities are especially large. And despite rising interest rates over the past couple of months, we were able to secure the debt at a favorable blended rate of approximately 3.75%”

3.2x Debt to EBITDA

“This new debt increases our leverage ratio to approximately 3.2 times adjusted debt-to-EBITDA and we are committed to getting back to our target of 2.7 times.”

80% of PBM wins are coming from the Health Plans segment

“about 80% of the gross wins coming out of the Health Plans segment. The vast majority of that is clients switching PBM. I think Jon touched on some of the key elements earlier that when you look at the makeup of the Health Plan business and you think about commercial, Medicare, Medicaid, exchange products, we can bring solutions in a very differentiated way for each of those segments within the Health Plan.”

Independent pharmacies continue to play a role in the industry

“here continues to be more than 60,000 pharmacies operating across the country and that number has not changed in a significant way over the last couple of years. To include the role that the independents play and the independents continue to grow.”

Generic drug inflation is modest

“As far as generic inflation, I think it’s – the overall marketplace continues from a generic perspective to be deflationary in totality. That has been true throughout the year. We expect that to be true as we forecast out the balance of this year. I think just, in general, generic inflation has been modest this year as compared to, I’ll say, last year at this point in time”