CVS Deal for Caremark Addresses Competitive Issues

Nov 02, 2006

By George Anderson

CVS’ deal to acquire pharmacy benefits manager Caremark Rx comes at a time when competition from retail pharmacies and mail order is at its most intense.

“The growth of the mail channel has been a concern to the retail pharmacies for several years,” SG Cowen analyst Kemp Dolliver told Reuters. “That’s the biggest thing: Mail not only takes business away from the back end of the retail pharmacy, but essentially reduces the traffic.”

With its acquisition of Caremark for $20.6 billion, CVS gets a company that has access to customers it doesn’t reach. Caremark administers drug benefits for employers and health plans buying prescription medicines in bulk to manage costs. Medicines are delivered to consumers via the mail.

Standard & Poor’s analyst Joe Agnese said the deal would help CVS “increase the size and offerings of its pharmacy benefits management business, eliminate a major competitor for its retail drug business and potentially result in scale and distribution efficiencies.”

Discussion Questions: What will the deal to acquire Caremark mean for CVS and its competitors? How does this deal combined with CVS’ acquisition of MinuteClinic
position the company for the future?

“This merger is a logical evolution for CVS, Caremark and the entire pharmacy industry,” said Tom Ryan, chairman, president and CEO of CVS in a press release.
“Over the past year, Mac (Mac Crawford, chairman, CEO and president of Caremark) and I have developed a shared view of where the healthcare market needs to go and how we can work
together to get there first. Employers and health plans want to control costs, but also want their plan members to have access to a full range of integrated pharmacy services.
Consumers of prescription drugs demand convenience and want to get more for their healthcare dollar. Together, CVS and Caremark will help manage the costs and complexities of
the U.S. healthcare system, offering unparalleled access and driving superior healthcare outcomes, enhancing value for employers, health plans and consumers.”

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2 Comments on "CVS Deal for Caremark Addresses Competitive Issues"

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Ryan Mathews
15 years 6 months ago

The potential payoff seems to be in the pharmacy benefits management business. I hate to spoil my almost perfect track record of disagreeing with analysts, but this time I agree. The drug store companies that somehow have the resources to be in position to address whatever ways healthcare in this country morphs stand to win, and win big. He with the broadest service portfolio seems to be ahead, at least for now.

Mark Lilien
15 years 6 months ago

CVS wants to own the prescription business, whatever the channel. To reduce their costs, insurance companies favor mail order prescriptions. Walgreens makes plenty of money without the mail order business. Nothing in the prescription drug business is likely to change that situation in the foreseeable future. If Walgreens can’t buy a mail order business at a reasonable price right now, there would seem to be no urgency.


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