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 7,500 retail and specialty drugstores under the CVS and Longs Drug banners, it trails rival Walgreen by nearly 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 650 locations inside CVS stores in 25 states.
CVS drugstores are located in about 45 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.
With a network of more than 7,450 retail 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.
Sales and Marketing
CVS Caremark reported advertising costs of $221 million in 2012, up from $211 in 2011. In 2012 Express Scripts accounted for about 18% of the company's retail pharmacy segment's sales.
CVS Caremark saw its 2012 sales top $123 billion, an increase of 15% versus 2011. Net income rose 12% over the same period. Pharmacy Services sales grew nearly 25% compared with the prior year, while retail pharmacy sales increased 7% over the same period. (Same-store sales at the company's retail pharmacies jumped more than 5%, compared with just over 2% in the 2011 and 2010.) 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.) The jump in same-store sales and sales from new stores drove sales gains at the company's drugstores. Of the two, CVS's retail pharmacy operation is the more profitable, returning an operating profit of nearly 9% versus less than 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 was initially slow to materialize, CVS Caremark made strong progress in 2012 and 2011. Income from continuing operations in 2012 increased 11.3%, or $392 million, to $3.9 billion, compared to $3.5 billion in 2011. Earnings are forecast to rise again in 2013. 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 archrival 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. The chain occasionally turns to acquisitions for growth.
Mergers and Acquisitions
In late 2012 CVS acquired 19 Medicine Chest drugstores in Texas, expanding its already considerable retail reach in The Lone Star State.