Specialty pharmacy, generic utilization behind CVS Health Q3 9.7% increase

"I'm very pleased with our strong results in the third quarter, which reflect better-than-expected revenue growth across the enterprise and expanding retail gross margins," said Larry Merlo, CVS Health president and CEO. "The 2015 PBM selling season continued to be highly successful with a significant number of new business wins across all lines of business. We also continued to deliver substantial free cash flow, enabling us to return more than $3.7 billion to our shareholders year to date. We are well on track to return more than $5 billion to our shareholders through dividends and share repurchases for the full year 2014."

 

Revenues in the Retail Pharmacy Segment increased 3.1%, or $501 million, to $16.7 billion in the period. Same-store sales increased 2% versus the third quarter of last year, with pharmacy same store sales up 4.8% and front-end same-store sales down 4.5%. Front store same store sales would have been approximately 480 basis points higher if tobacco and the estimated associated basket sales were excluded from the period. Front store same store sales were negatively impacted by softer customer traffic, partially offset by an increase in basket size. Pharmacy same store prescription volumes rose 5.1% on a 30-day equivalent basis. Pharmacy same-store sales were negatively impacted by approximately 190 basis points from recent generic drug introductions and by approximately 190 basis points from the implementation of Specialty Connect. Specialty Connect transitioned all specialty prescriptions to the Pharmacy Services Segment, as they are being processed through the Company's specialty mail order pharmacies. The implementation of Specialty Connect had a greater effect on revenues than prescription volumes due to the higher dollar value of specialty products.

 

For the three months ended Sept. 30, the generic dispensing rate increased approximately 180 basis points in both the Pharmacy Services segment and Retail Pharmacy segment, to 82.5% and 83.3%, respectively, compared to the prior year.

 

Revenues in the Pharmacy Services segment increased 15.7% — or $3.1 billion — to $22.5 billion. The increase was driven by growth in specialty pharmacy including the acquisition of Coram and the impact of Specialty Connect, as well as increased volume in pharmacy network claims. Pharmacy network claims processed during the period increased 4.3% to 209.6 million compared to 200.9 million in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business and growth in Managed Medicaid, partially offset by a decrease in Medicare Part D claims. Mail choice claims processed during the period decreased 1.3% to 20.7 million, compared to 21 million in the prior year. The decrease in mail choice claims was driven by a decline in traditional mail volumes, which was partially offset by growth in CVS Health's Maintenance Choice program.

 

The company narrowed its earnings guidance range for the full year 2014. CVS Health now expects to deliver Adjusted EPS of$4.47 to $4.50, from $4.43 to $4.51, excluding the $0.27 per share loss on early extinguishment of debt. GAAP diluted EPS from continuing operations is expected to be $3.93 to $3.96, including the loss on the early extinguishment of debt. The company raised its 2014 free cash flow guidance range to $5.7 billion to $6 billion, from $5.5 billion to $5.8 billion, and raised the 2014 cash flow from operations range to $7.4 billion to $7.7 billion, from $7.2 billion to $7.5 billion. The company expects to deliver Adjusted EPS of$1.18 to $1.21 and GAAP diluted EPS from continuing operations of $1.12 to $1.15 in the fourth quarter of 2014.

 

During the three months ended Sept. 30, CVS Health opened 45 new and acquired 33 retail drugstores, and closed four retail drugstores. In addition, the company relocated 13 retail drugstores. As of Sept. 30, the company operated 7,935 locations in 47 states, the District of Columbia, Puerto Rico and Brazil. These locations included 7,779 retail drugstores, 936 health care clinics, 17 onsite pharmacies, 26 retail specialty pharmacy stores, 11 specialty mail order pharmacies, four mail service dispensing pharmacies, and 84 branches and six centers of excellence for infusion and enteral services.