CVS Caremark Corp. has promised an aggressive push to keep customers it acquired during competitor Walgreen Co.'s split with Express Scripts Holding Co., and analysts will want an update on that when the drugstore chain and drug plan manager reports Tuesday on its third quarter.
WHAT TO WATCH FOR: CVS Caremark, based in Woonsocket, R.I., said in August that it gained between 6.5 million and 7 million prescriptions due to the split during the second quarter. Company officials told analysts then that they would use advertising, promotions and "sophisticated analytics" to keep as many of those customers as possible.
Walgreen and St. Louis-based Express Scripts let a contract between them expire at the end of last year, but they resumed doing business Sept. 15. Walgreen fills prescriptions for Express Scripts, which runs drug plans for employers, insurers and other customers as a pharmacy benefits manager, or PBM.
Many of Walgreen's customers migrated to CVS stores during the split, and CVS officials have said pharmacy customers are a "sticky" bunch, meaning they often stick with a new store once they settle on one. CVS said the additional prescriptions from the split added more than 6 cents per share to earnings during the first two quarters.
It has forecast a gain of about 5 cents per share total over the last two quarters of 2012.
Generic drugs will be another variable affecting the company's third quarter numbers. Blockbuster medicines like the cholesterol fighter Lipitor and the blood thinner Plavix, once the two top-selling drugs in the United States, have lost U.S. patent protection from generic competition within the past year.
Generic drugs hurt pharmacy revenue because they cost less than brand-name products. But they help profitability because they provide a wider margin between the cost for the pharmacy to purchase the drugs and the reimbursement received.
WHY IT MATTERS: CVS Caremark ranks 18th on the 2012 Fortune 500 list of biggest U.S. companies based on annual revenue. The company runs the second-largest chain of drugstores in the U.S. after Walgreen, and its Caremark unit is one of the nation's largest PBMs. CVS Caremark operates more than 7,300 drugstores.
PBMs process mail-order prescriptions and handle bills for prescriptions filled at retail pharmacies. They use large purchasing power to negotiate lower drug prices and make money by reducing costs for health plan sponsors and members.
WHAT'S EXPECTED: Analysts who cover the company expect, on average, earnings of 83 cents per share on $30.09 billion in revenue, according to FactSet.
LAST YEAR'S QUARTER: CVS Caremark's 2011 third-quarter net income climbed 7 percent as a long-term contract and an acquisition gave it more pharmacy network claims to process. The company earned $868 million, or 65 cents per share, as revenue grew 12 percent to $26.67 billion.
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