CVS Caremark's "Insignificant Impact"

Check out the following (genuine) article in yesterday's Wall Street Journal: CVS Caremark Merger Has Insignificant Impact.

Ouch - harsh title!

The article points out how the theoretical synergies from the CVS Caremark merger have yet to appear, noting: The nearly $27 billion merger, however, hasn't driven a major shift in market share, or stopped growth at rival pharmacy-benefit managers, which are known as PBMs, or prompted similar mergers in the sector.

The article goes on to quote me as follows:

"From what I can tell the jury is still out on whether the retail-PBM combination works strategically" for employers, health plans and consumers, said Pembroke Consulting President Adam Fein. "I think at one level it's been a big win at CVS Caremark behind the scenes." He said that CVS has great leverage in buying generic and branded drugs since it makes almost 20% of the generic purchases in the U.S.

I was especially intrigued by comments from CVS Caremark Chairman and Chief Executive Tom Ryan because he confirms some things that you've read on Drug Channels.

Cost Savings

Mr. Ryan confirmed that the company has overachieved on its planned costs synergies, which should be no surprise to long-time Drug Channels readers.

Check out CVS' Channel Power, a Drug Channels golden oldie from September 2007. I describe a lawsuit that disclosed some of the behind-the-scenes economics of the CVS -Caremark deal and highlighted the negotiating challenges for generic drug makers. Very eye-opening for those who are not familiar with the supply chain's Golden Rule:

"Whoever has the gold makes the rules."

Revenue Synergies TBD

In February's blog post CVS Caremark: No Visible Revenue Synergy, I showed you that CVS Caremark's financial statements did not document any revenue synergies from the PBM/Retail combination. If CVS pharmacies are taking retail pharmacy market share, then it's not yet as a result of corporate co-ownership with a PBM.

So I was particularly interested in these two quotes from Mr. Ryan in yesterday's WSJ article:

• "We're probably halfway through the revenue synergies."

• "But there is no evidence that the PBM business is driving more retail business."

Hmmm.

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Thanks for great feedback on yesterday's post! I either startled or amused enough people to generate a record day for blog traffic. Perhaps I should post more fake news.

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