Size matters to CVS Caremark (formerly CVS), the nation's #2 drugstore chain and a leading pharmacy benefits manager with more than 60 million plan members. With more than 7,300 retail and specialty drugstores under the CVS and Longs Drug banners, it trails archrival Walgreen by about 600 stores. CVS has grown rapidly through a string of acquisitions that included the Eckerd and Longs Drug Stores chains. Also, CVS now owns prescription benefits management (PBM) company Caremark Rx. Caremark Rx was combined with CVS's PBM and specialty pharmacy unit PharmaCare Management Services to form Caremark Pharmacy Services. Its MinuteClinic retail health network has more than 600 locations inside CVS drugstores.
With a network of more than 7,300 drugstores, hundreds of MinuteClinic (acquired in 2006) locations, retail specialty pharmacy stores, specialty mail order and mail order pharmacies, online operations (CVS.com and Caremark.com), and a prescription benefits management (PBM) division, CVS Caremark is the nation's largest integrated pharmacy operation. Caremark Pharmacy Services' clients include employers, insurance companies, unions, and other health care plan sponsors. The prescription benefits manager dispenses drugs through its mail order pharmacies and a national network of more than 65,000 retail pharmacies, including CVS drugstores. The company also provides health management programs for more than 25 conditions through its partnership with Alere, LLC.
CVS drugstores are located in about 40 US states, the District of Columbia, and Puerto Rico. The company also operates pharmacies under the Longs Drugs banner in California, Hawaii, Nevada, and Arizona.
CVS Caremark saw its 2011 net revenues top $107 billion, an increase of more than 11% vs. 2010. Pharmacy Services sales increased 25% vs. the prior year, while retail pharmacy sales grew by 4% over the same period. (Same-store sales at its retail pharmacies increased by about 2%.) The double-digit increase in net revenues at Pharmacy Services was primarily due to the addition of a long-term contract with Aetna, which took effect in 2011, and the acquisition of the UAM Medicare Part D Business. (The increase in the dispensing rates of generic drugs depressed revenues across the company in 2011.) Of the two, CVS's retail pharmacy operation is the more profitable, returning an operating profit of about 8% in 2011, compared with nearly 4% for Pharmacy Services.
The merger of the drugstore chain and PBM was intended to strengthen CVS's value to investors as well as health plan sponsors and consumers. While management's expectation that the merger would drive growth has been slow to materialize, CVS Caremark made progress in 2011. Adjusted earnings per share increased nearly 6% in 2011, after posting a decline in the previous annual comparison due to weak performance by Pharmacy Services. Earnings are expected to rise again in 2012. However, the Pharmacy Services business faces a major headwind created by the $29-billion acquisition of Medco Health Solutions by Express Scripts. The two prescription-drug-benefits management companies completed the deal in spring 2012 despite antitrust concerns. The merged company is about twice the size of CVS Caremark and is North America's largest PBM. Continued expansion of CVS's drugstore network is a key element of its growth strategy and essential if it's to keep up with Walgreen. (With CVS and Walgreen drugstores carpeting the nation's suburbs, Walgreen is now seeking to conquer urban America and Europe.) In addition to opening new stores, CVS is attempting to increase sales at existing ones. Prescription drugs account for more than two-thirds of its sales, and the retailer is attempting to grow revenues from over-the-counter medications and general merchandise through its growing private-label product offering.