CVS 1Q17 Earnings Call Notes

Larry J. Merlo – CVS Health Corp.

Generics are 87% of scripts

“We effectively purchase generics through Red Oak Sourcing using our size, scale and expertise. And we encourage generic utilization to drive down costs, with generics now comprising about 87% of scripts filled across the enterprise. To more effectively manage the cost of the remaining scripts, we employ sophisticated formulary management tools to ensure that the right patient receives the right drug at the lowest possible cost.”

Jonathan C. Roberts – CVS Health Corp.

Using AI to crawl through claims

The other thing I would add is that there’s been a lot written about the disruption that happens when you move business, and the industry has evolved a lot over the last four or five years. We now have automation, so a lot of these new clients are implemented in an automated way. And then, our testing platform now employs artificial intelligence, where we crawl through the claims and look for anything that’s unusual. And so that has resulted in what I think have been very successful welcome seasons over the last several years. So we’re very confident in our ability to implement new business, large and small.

CVS 4Q16 Earnings Call Notes

Larry Merlo

Extremely difficult to comment on ACA scenarios

“So with that, let me move on to the topic of the potential repeal and replacement of the ACA. We believe it’s important to provide affordable coverage for all Americans, which both Democrats and Republicans have acknowledged. However, at this point, it’s extremely difficult for us to comment on the possible scenarios that may play out in the coming months.”

We are the solution not the problem to rising drug prices

“I also want to address the ongoing rhetoric around drug pricing. And whether it’s new launches at elevated price points or increasing prices of older drugs, those contributing to a sense that government interventions are necessary and any suggestion that PBMs are causing drug prices to rise is simply erroneous. We are the solution and not the problem. And that’s why both public and private payers continue to count on PBMs as indispensable partners that help to manage their drug trend.”

Managing specialty pharma is top of mind for clients

“, top of mind for our clients continues to be managing their rapidly growing specialty trend. And we offer a comprehensive set of solutions and continue to see solid growth in specialty. And specialty revenues increased 12% in the fourth quarter, continuing to outpace the market.”

Pharma copmanies have lost $100 B of branded drugs

“you look back and you think about just the sheer number of branded products that have come off patent over the last four, five years. We’ve got nearly $100 billion of branded drugs that have lost patent protection. Obviously, that’s created somewhat of a headwind for the pharmaceutical industry. You’ve got new products that have entered the market that to some degree I describe as me-too products that are entering the market at inflated price points with no incremental effectiveness over the existing therapies. So why should sponsors of care pay for a higher price of those drugs, especially when many of those drugs are the ones that we’re seeing advertised on TV, okay, countless times; and there’s a cost to that. So I think when you start connecting the dots in terms of why the rhetoric now, what has changed in the marketplace that is driving this, it starts to bring some of that dialogue to the discussion.”

Walgreens Boots Alliance 1Q17 Earnings Call Notes

Walgreens Boots Alliance’s (WBA) CEO Stefano Pessina on Q1 2017 Results

Appears to be a solid holiday period

“Holiday shopping started later than usual, with the bulk of the sale occurring in the last days before Christmas. That said, we have once again seen what appears to be a solid holiday period in our main retail market.”

Would like to do something in China but it’s difficult

“But you see countries like China, for instance are still enormously interested. I remember that in China we have a good presence in sales but not as a retailer and this is due to a historical reason that until three years ago the foreign people could have just 30 pharmacies. So, we had 30 pharmacies, we were 29 in Brazil. So, we were prevented by the pharmacies there.”…

“The problem is that you have to dedicate a lot of time to get a deal in China, and it’s true that we have a team in China, a permanent team in China of Chinese people, but it is also true that to do a big deal in China, you must have the agreement of the Chairman of the relevant company and the Chairman generally doesn’t want to talk to the Chairman.

China is really, it’s a very high hierarchical society. And so, it’s also true that in the last two years, I have not gone to China as frequently as I used to go. And so I was not able to keep the relationship as I should have done, but now I have gone to China, I have spent some time to China in the last months and now we are back and I believe, I strongly believe that sooner or later we will be able to do something. When? I don’t know, but it is possible.”

The changes to ACA are going to be rational no matter what

“We really believe that we could start to work on hypotheses with information that we have. We have a lot of affirmation that will appeal the ObamaCare okay, but after they say yes, but maybe we have to give something similar. We have to create a transition. It’s very difficult to understand what worked practically, the new administration will decide to do because for sure will try to do something sensible and rationale and they will start something, which will not be to the detriment of the citizens.

So, it will take some time to start, probably the outcome will be quiet rationale and at that time we will be able to organize ourselves and prepare our business to respond to the new environment. We don’t have to be taken by panic, just because the rules, mainly rules – the rules are changed. We have to wait for the changes and after rationally we will decide how to react without panicking.”

Too early to say on tax reform

“I can answer on the second part of the question whether we have some ideas on the coming tax reform, I can repeat the same thing I said before, now there is not a project of tax reform there are certain principle, people are discussing about certain principle, not everybody in the administration agrees on the same principle and even if they are on the same principle they don’t agree on the level on their quantity of the principles. So it’s a waste of time today to start to create a scenario, which very likely would be in reality substantially different. So, let’s see when we will have the frame of the tax and after we will start immediately to think how we can leave with these new environment.

In any case we will not have a new tax system tomorrow morning, it will take months and we will have time to see how this will shape over time and when we believe that we are close to a final shaper we will start to see how we can work, but even though having looked at the taxes – at the different principle that are now have been debated, yes, there are certain principle who could damage us, but there are other principle who could benefit us and it is clear that the principle who could damage us, who would damage all our peer and so the market will find another equilibrium and other assets.

So, at the end of today, the conclusion is that for the time being we have to continue to work with the rules that are in place today and probably one year or two year or three year, we will have to change if something, but now it’s too early to distract how people – to do things, which should probably will never happen before the end, the mixture will be completely different.”

CVS 2Q16 Earnings Call Notes

CVS Health’s (CVS) CEO Larry J. Merlo on Q2 2016

You see more care being chosen individually

“At the same time, back to your question, if you ask why we’ve been successful and why we expect to continue to be successful, we continue to see this retailization of healthcare. And you see more people in consumer-directed health plans. You see more care being chosen individually, when you think about some of the government-sponsored care with Medicare. And that points to the value associated with multiple consumer touch points.”

Renewal is 75% done, expecting ~97% retention

” the year ended up at 97.2%, okay, for last year’s selling season. And, as we mentioned, we have about 75% of the renewal is done, so we’re in the homestretch there. I don’t know what the retention rate was at this time last year. It probably wouldn’t be that far off with where we are.”

There is a lot of data out there. It’s one thing to collect it, another thing to use it

” I think you’re hearing a theme emerge. And it’s not a new theme, but whether we’re talking about your point on the front store or some of the things that have come up earlier with some of the questions about the pharmacy, there is a tremendous amount of data out there, okay? And it’s one thing to collect the data. It’s another thing in terms of how do you use the data to create an outcome or a behavioral change. And that’s where we’ve made significant investments in our business, whether it’s ExtraCare or whether it’s the capabilities back in the pharmacy, that is allowing us to do things in a very differentiated way that we think that is giving us an advantage in the marketplace.”

Biosimilars will behave more like brands than generics

” while biosimilars are just beginning to enter the market and their impact will be will be nominal or minimal, okay, in the near-term, we believe that they will grow in importance. And they will behave more like brands than generics, which create opportunities within the formulary management area. So that’s how we’ve thought about it at a very high level. “

Walgreens Boots 3Q16 Earnings Call Notes

Walgreens Boots Alliance’s (WBA) CEO Stefano Pessina on Q3 2016

Rite Aid acquisition progressing as planned

“Our proposed acquisition of Rite Aid is progressing as planned. As you know, we are in the process of seeking a regulatory approval in parallel our integration team is continuing its work on preliminary planning. In June, we completed a $6 billion public bond offering to support the funding of the acquisition.”

UK referendum has created volatility

“Since the quarter end as you are seeing the U.K. referendum on Europe has created some uncertainty and volatility in our market. Our businesses and management teams have operated through main business cycles in many markets. Perhaps changes normal and the sign of life. We work with and manage it every day. Less volatility and uncertainty create issues that would be overcome, but they also provide opportunity for our company. It is our job to ensure that we meet these opportunities positively and position and structure our company to its best advantage.”

We are expecting RAD deal to go through

“we would have a lot of ideas, but I can assure you that we are for the time being we are not taking into consideration because we are very confident that at the end of this deal we will go through. It takes some time, but we knew it. It is normal of this kind of deals which is a complex deal at the end of the day is normal for this kind of deals to take months and months. So I would say that we are on track.”

Adding labor

“we are also upscaling our people. For example, we’re through with a lot of differentiation. We are putting in place a number of beauty consultants in our top 2000 stores who have got deeper expertise and more knowledge and more ability to take care and drive up sales appropriately with customers. That’s another investment we’re making in labor cost in our stores but with a very clear return on our investment. So, we are feeling good about where we are on these two investments.”

Too early to say on the impact of Brexit

“Very, very difficult to say. The situation is very volatile at this time. For sure, the period of uncertainty will be quite long whatever happens because even if the U.K. will leave the Euro, it cannot happen overnight, it will take at least two years. And the consequence of it will be much longer than two years.

So, I believe that once the emotional impact is gone, things will settle down and we will have an idea of what is happening, but for now really — it’s really too early, too soon we have seen in the stores days — very good days, bad. So in a few months probably we will be able to say something.”

Alex Gourlay

Demographics driving Med D growth

No. I just think that the market is growing through the aging population. So that’s why med-D is the fastest growing channel as is all of that people are putting together more comparative offers both in terms of price, but also in terms of care and performance. And that comes as well. So I think that’s the driving, is really the market has been driven always by the customer and it’s a growth market.

CVS 4Q15 Earnings Call Notes

Larry J. Merlo – President, Chief Executive Officer & Director

Top of mind for our clients is specialty pharma cost

“Now as we’ve been discussing, top of mind for our clients is their rapidly growing specialty costs, and our specialty pharmacy business offers a comprehensive set of programs to help clients effectively manage specialty trend. As a result, we continue to outpace the market and gain share. In the fourth quarter, specialty revenues increased 32% and continued to outpace market growth rates.”

Front of store comps down 0.5%

“In the front store business, comps were down slightly, 0.5% in the quarter, and reflected softer customer traffic partially offset by an increase in basket size”

Med D cost is lower than was expected in 2006 when it was launched

“we’ve got to be careful that private-sector innovation I think has done a lot with which to satisfy the objective, right drug, right patient at the lowest possible cost. And if you look at Med D as an example, it was 2006. It’s almost a decade later now, and when you look at the estimates of what CBO had predicted the cost of that would be 10 years ago, and what it’s costing today, it’s a fraction of that, which I think is one of the key reasons for that is private-sector innovation and the fact that competition ultimately drives down costs.”

David M. Denton – Chief Financial Officer & Executive Vice President

Jonathan C. Roberts – Executive Vice President & President, CVS/caremark

Hep C volume has leveled off, down a bit from last year

“Hey, Dave. This is Jon. So Hep C volume I think has leveled off as we are into 2016, down a little bit from where we were last year. Merck launched their new product, had a list price $54,000, and that is less expensive than the other products on the market like Harvoni. So we’ll evaluate these new products and negotiate the best deal for our clients, and we continually evaluate our formulary selections. And we’ll do the same as these new products come to market.”

Helena B. Foulkes – Executive Vice President, President – CVS/pharmacy

Haven’t seen any change in the consumer from what we saw in 4Q

Yeah, I would just say overall I’d say things are holding fairly steady. We certainly have seen the consumer – I wouldn’t say any change, really, from what we were seeing in the fourth quarter. I think the big thing we’ve been focused on and continue to focus on is being smart about where we invest our margin dollars, so you can see us continue to downplay our circulars and really focus on ExtraCare, which is allowing us to find those high-value customers and make sure they’re coming into our stores.

Walgreens Boots Alliance 1Q16 Earnings Call Notes

Stefano Pessina

Rite aid acquisition progressing as planned

“As you have heard, we are not assuming our proposed acquisition of Rite Aid will provide any material accretion for the 2016. But I would reiterate that this transaction is progressing as we expected and planned. We continue to anticipate completing the acquisition in the second half of calendar year 2016. The transaction remains subject to approval by Rite Aid’s shareholders, regulatory clearances, and other customary closing conditions.”

I am convinced that vertical integration is necessary

“Yes, you know what I think. I couldn’t have been clearer since the very beginning. I have seen this market and I am really convinced that vertical integration is a necessity for the market, [by] market. It is part of what we have to do to reduce — to control the costs in the healthcare arena. Any kind of vertical integration is good. It depends on the opportunities that we will have. It depends on the availability of partners.”

We don’t do a deal just for control

“let me say that I have never, ever spoken about control. What we want is to do something which creates value — long-term, sustainable value. We have never spoken about control. We have done many, many deals where at the end we have lost the control, and it’s by chance that many of our mergers have come back. And this was not the design. It was just the force of things. When you merge a company, when you merge two companies, you have one company; and of course, all the people of the previous two companies are members of the new company. ‘

Alex Gourlay

Valeant is a great team to work with

“So we saw the opportunity to lift and shift our best practice in Europe into Valeant. And they liked the idea, and they walked through it pretty quickly and got to a good place in that pretty short period of time. They are a great team to work with, and we wish Mike a very speedy recovery. The team themselves are very engaged and working with us very well, and we will do all we can to make sure that any concerns are taken care of and are independently reviewed.”

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”

Walgreens Boots Alliance FY 3Q15 Earnings Call Notes

Interim CEO named permanent

“As you have seen today, I have been appointed by the Board as Chief Executive Officer, replacing the Interim appointment that I was previously fulfilling. The Board has decided that bearing in mind the pace of change and the amount that we have still to do there is a benefit to stability at the senior level in the organization”

The best way for us to thank you is to deliver on our plans

“I thank you for your continued support and but also acknowledge that the best way to thank you is to deliver on our plans. And I can assure you we fully intend to continue to do so.”

We are actively looking for acquisitions

“I have said many times, that I believe that the American markets will go through a substantial wave of consolidation horizontally and vertically. I have said very clearly that we want to be part of this, at the right time with the right partner. We are open to any kind of combination which could improve the value of our company and we are looking actively around us to understand which is the best option for us. But please don’t forget that we are looking actively not just in the U.S. but even in other countries because we consider ourselves a global company.”

We can clearly see the need for consolidation in our industry

“we can clearly see the need or the opportunity for horizontal and vertical consolidation in our industry and this is happening. In reality I believe that this is a good news for us because the consolidation, the horizontal consolidation will create a clear market and will give us more opportunities in future. What we will be able to do specifically is a little too early to say, but I repeat we want to be one of the players in this space and we see a lot of opportunities and the opportunities are really open along the chain, along the space of this healthcare industry.”

It’s true the market is quite bullish but it’s also true the cost of money is still quite low

“As you know we have been always [indiscernible] with potential acquisitions, so we will if we will have an opportunity we will analyze this opportunity very rationally and we will do it just if this will create additional value. It’s true the market is now quite bullish but it’s also true that the cost of the money is still quite low and there are other ways to create value, not just acquisitions, so we are analyzing all the opportunities. If we will see an opportunity which fit our strategy and which can create value we will take action.”

Rite Aid FY 1Q16 Earnings Call Notes

Beginning to cycle medicaid expansion growth

“We increased same-store sales by 2.9% over the prior year period, which was driven by 1.66% increase in same-store prescription count. But we — are beginning to cycle growth that occurred in states that expanded Medicaid coverage in 2014, we continue to benefit from this trend in the quarter.”

Improved loyalty program

“Perhaps, the biggest news of the quarter was our successful launch of wellness+ with Plenti, which is part of the first coalition loyalty program in United States. This enhancement to wellness+ allows our members to continue earning all of the terrific benefits that they’ve grown accustomed to over the past five years.

Script comp growth will become more difficult for next several months

We are now cycling last year’s strong Medicaid expansion benefit. So our expectation is that script comp growth comparison will become more difficult for the next several months.”

We’d like to have more counters

“In the long run, we’d certainly love to have more counters. So, I think that’s a strategic opportunity for us as we look forward. So, we are continuing to go through ways to work on that. We are excited about Envision but maybe, if there are some things that make sense over time to add to Envision to kind of round it out in terms of its capabilities. But I think those are kind of our primary focus areas. We’ve put a lot of capital back into our store base. We think that’s important.”

The experience in the store is key

“So the interaction in our stores is really critically to our strategy. The wellness ambassadors, pharmacist, even our front-end associates, coaches from Health Dialog, the things we’re really trying in clinics. So we are really trying to focus on things that make that experience in the store really what we want it to be. And I think those are the kind of things that we are going to focus on.”