CVS Health (US)

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Known as CVS\Caremark until 2014, CVS Health was formed in 2007 from the merger of drugstore chain CVS and pharmacy benefits manager Caremark. The resulting company is now America's biggest overall pharmacy healthcare provider, with sales of $184.8bn in 2017. Larry Merlo is group CEO. It operates through two main divisions. CVS is the country's #2 retail pharmacy chain by outlets behind Walgreens, selling pharmaceuticals, OTC healthcare and general beauty products, including many own-label items, through a network of around 9,800 stores as well as online. More than 1,130 outlets also have walk-in MinuteClinic health centres. The estate includes almost 1,700 in-store pharmacies and clinics in outlets of discount retailer Target. The group filled some 1.8bn retail prescriptions in 2017, equivalent to around a quarter of the total US market. In 2014, CVS scored a sizeable moral victory when it stopped selling tobacco products, at a cost of around $2bn in gross sales per year. It is currently the only major chain to have done so. Separate division Caremark is one of the biggest US pharmacy benefits managers, processing mail order and internet prescriptions and negotiating healthcare benefits processing on behalf of some 94m plan members and 68,000 pharmacies nationally. This is currently the fastest-growing part of the group, and overtook retail pharmacy as the biggest business in 2012. In 2015, the group acquired specialist rival OmniCare for $12.7bn including debt. In 2017, CVS announced an even more ambitious deal to acquire the country's #3 health insurer Aetna for $69bn, to combine pharmacies, benefits management and health insurance under a single umbrella. That deal was approved by regulators in 2018 with minor provisions and completed at the end of the year. CVS started in 1963 as Consumer Value Stores, before being bought by general retailer Melville Corp. Over the next 50 years, a succession of other national or regional drugstore businesses were acquired and absorbed, of which the two biggest deals were for Revco in 1997 and Eckerd in 2004. Caremark was originally a division of what is still the medical devices manufacturer Baxter International. Subscribers may access account assignments and contact information. The searchable account assignments database is available to full subscribers to Adbrands.net premium services. Click here to access Adbrands account assignments (subscribers only); or see here for information on how to subscribe.

Capsule checked 11th October 2018

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Adbrands Weekly Update 11th Oct 2018: US regulators provisionally cleared the proposed acquisition of health insurer Aetna by pharmacy and benefits manager CVS Health. However the group must sell Aetna's Medicare prescription drug plan business. A side-deal has already been agreed to transfer around 2m members to rival plan manager Wellcare. CVS is already the nation's biggest Medicare drug plan operator with 6.1m members.

Adbrands Weekly Update 7th Dec 2017: US pharmacy retailer and benefits manager CVS Health reached an agreement to acquire insurer Aetna for $69bn in cash and stock. Reports of negotiations first emerged at the beginning of last month. The leaders of both groups said the deal was necessary to curtail the soaring costs of healthcare, which are growing at "an unsustainable rate" according to CVS CEO Larry Merlo. CVS is the second-largest pharmacy retailer in the US (behind Walgreens) but also manages a large pharmacy benefits operation which negotiates with drug companies and other providers over costs. Aetna is one of the companies on whose behalf they negotiate, the #3 health insurer in the US, covering just over 22m members. The combined group aims to merge CVS's infrastructure with Aetna's patient data to offer a more all-encompassing service offering better care at lower cost. A key aim will be to convert more of CVS's existing outlets into nurse-staffed healthcare clinics that would help reduce bills raised to insurers from third-party providers such as hospitals. Aetna CEO Mark Bertolini (who could make as much as $500m in cash and stock if the deal goes through) suggested these could be the healthcare equivalent to the "Genius Bars" in Apple stores. Further expansion into patient care would also help insulate CVS from an expected move by Amazon into prescription sales. "Everything that we're talking about is a complement to the care that is provided by the physician," CVS CEO Merlo told investors. The missing link, though, is those actual qualified physicians, who of course play a dominant role in the healthcare process. Some of CVS's rivals, most notably UnitedHealth and Kaiser Permanente, already own doctors' practices or even hospitals. Those are likely to be the next items on CVS's shopping list, but they'd better be quick. Separately this week UnitedHealth's Optum health service division expanded its own portfolio with the purchase of DaVita Inc's doctors group, one of the biggest in the US, for $4.9bn. It operates around 320 primary care clinics and urgent care centres, and employs more that 2,200 staff - doctors as well as nurses and physician assistants.

Adbrands Weekly Update 2nd Nov 2017: US pharmacy and benefits giant CVS Health - already the dominant player in its sector - hopes to get bigger still with an offer to acquire health insurer Aetna for more than $66bn, slightly more than the latter's revenues last year. Negotiations are understood to be well under way, though neither company has so far been willing to comment. A combination - if the deal goes ahead - would created a health industry behemoth with sales of around $230bn. Though it also controls America's largest retail pharmacy network, CVS's biggest business by revenues is its benefits management division, formerly Caremark, which manages healthcare benefits on behalf of third-party insurers including Aetna, negotiating with drugmakers on pricing and other services. As with so many of the other seismic changes underway in traditional B2C relationships, this move by CVS is inspired at least in part by signs that Amazon is weighing up an expansion into drug distribution. Such a move has been rumoured for several months. This week news broke that Amazon has already quietly secured licenses in 12 US states to wholesale medical equipment to hospitals, diagnostic laboratories and other such organisations via its B2B platform. A move into consumer prescription retail is seen as almost inevitable by many analysts. At the same time, healthcare companies such as CVS and Aetna have met with a succession of regulatory roadblocks for more traditional deals merging with existing direct competitors. Walgreens was refused permission to acquire pharmacy rival Rite Aid earlier this year, while Aetna's own proposed merger with competitor Humana was also turned down.

Adbrands Weekly Update 6th Jul 2017: Walgreens cancelled plans for a full takeover of rival pharmacy Rite-Aid after a year and a half of protracted negotiations with competition regulators. The decision followed feedback from the FTC that clearance was not likely to be forthcoming. Instead, Walgreens now proposes an arm's length acquisition of just under half of Rite-Aid's outlets - or around 2,200 stores - for $5.2bn. The remaining stores will continue to operate under the Rite-Aid banner as an independent company, with a reduced footprint of just 2,340 outlets, compared to almost 9,700 for CVS and a total of 10,300 in the US for the enlarged Walgreens. However, there is no guarantee that the new offer will appease regulators either. Meanwhile, CVS Health stepped up its campaign to eliminate unhealthy products from its stores. In 2014, it was the first (and still the only) pharmacy chain to stop selling tobacco. It has now banned low-protection suncream as well as foods containing artificial trans-fats. In addition, most confectionery and other junk food is being moved away from front of store to the middle, though a small selection will remain at the checkout.

Adbrands Weekly Update 29th Oct 2015: Pharmacy giant Walgreens Boots Alliance is to acquire competitor Rite Aid for $9.4bn, or $17.2bn including the smaller company's debt. Walgreens is already the biggest pharmacy chain in the US, with 8,200 outlets. It also controls the Boots pharmacy business in the UK and other markets, as well as an extensive wholesale business. Main US rival CVS Health has 7,800 stores but is significantly bigger by revenues - almost $140bn last year - as a result of its substantial Caremark prescription management division. The acquisition of Rite Aid's 4,600 drugstores in 31 US states creates a group with around 13,000 outlets (though some overlapping stores may be closed) and combined sales of close to $130bn. Separately, Walgreens Boots reported results for the year to August. Revenues soared 35% to $103.4bn as a result of the consolidation of Alliance Boots, while net earnings more than doubled to $4.2bn.

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