Thursday, April 02, 2009

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."



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.


  1. While Wall Street may have not noticed, community pharmacy has. More and more of our commercial insurance (not medicaid/medicare)customers are being directed to CVS retail stores by mailings from CVS Caremark. If CVS cannot create "significant" impact from their shooting fish in a barrel strategy, shame on them and their corporate leaders. I wish I had such a built in advantage for our two pharmacies

  2. This is interesting and should be a wake up call to many. I've talked to a number of people that have raised concerns about the size of this giant. We've not seen the industry take advantage of these types of mergers in the past. That is not to say CVS Caremark can't/won't but the reality is that to make the biggest splash would mean big changes for both and that is tough on cultures of both companies.

    I'd be more concerned about other changes in the market, namely WalMart (even before the aquisition of Walgreens :)) and their pursuit of business that makes sense for their model. Not to mention the impact that mega-mergers have on wholesalers and the resulting ripples from those impacts.

    Al Godley