CVS 2014 Annual Report Download - page 19

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increases. Hepatitis C drugs such as Sovaldi® and
Harvoni™ as well as PCSK9 inhibitors, an anticipated
new class of drugs for lowering cholesterol, are notable
examples of high-cost therapies expected to drive the
rapid growth in specialty pharmacy.
This trend imposes a substantial burden on both patients
and payors as they seek ways to control costs. Our
clients count on us to manage these expensive specialty
medications to ensure appropriate utilization through a
combination of prior authorization, formulary manage-
ment, and other innovative clinical programs. That’s why
we’ve been working hard to reinvent specialty pharmacy.
In specialty, we led the market in 2013 with formulary
strategies using clinically appropriate and cost-effective
solutions and we continued to lead in 2014. We also
have unparalleled capabilities to manage specialty
patients holistically, not just their drug costs, and our
clinical support and site-of-care management helps drive
superior outcomes. We’ve integrated our Accordant rare
disease care management services to enhance care
and reduce costs, rolled out Specialty Connect, and
made key acquisitions such as Coram and NovoLogix
to broaden our portfolio.
CVS/pharmacy posted solid results despite exit from
tobacco category and continued to gain share
CVS/pharmacy continued to gain market share in both
the pharmacy and the front of the store in 2014 even
as consumers remained cost conscious. Our core
pharmacy business has grown three times faster than
that of other drug chains over the same period, and we
hold a 21 percent share of the U.S. retail prescription
drug market.
For the year, same-store sales rose 2.1 percent, with
the pharmacy up 4.8 percent and the front of the store
down 4.0 percent. Our underlying front store growth
was obscured by the negative impact on revenue from
exiting the tobacco category. It has now been five
months since we became the first national pharmacy
chain to eliminate cigarettes and other tobacco products
from our shelves, a move that reflects our corporate
purpose and is expected to help drive long-term growth.
As expected, exiting the tobacco category will cost us
approximately $2 billion in revenues on an annualized
basis—$1.5 billion from tobacco sales specifically and
approximately another $500 million from the rest of those
shoppers’ baskets. That amounted to about 8 cents in
earnings per share in 2014, and it is expected to cost
an incremental 8 to 9 cents per share in 2015 for a total
annual impact of approximately 17 cents per share. Yet
our decision better aligns us with payors and providers
as they search for ways to improve health outcomes
and control costs. That should make us a more attractive
partner for dispensing and other services, ultimately
helping us recapture this lost revenue elsewhere across
the enterprise.
Health and beauty remained key drivers of front store
sales in 2014, with market shares rising to 36 and
40 percent, respectively. Our store brands continued
to generate profitable sales growth, accounting for
19 percent of front store sales. Given our success,
we’ve set a new goal of increasing store brand
penetration to 25 percent of front store sales. Like
generic drugs in the pharmacy, store brands provide
significantly higher margins than national brands while
also saving our customers money. The past year saw
our successful launch of the Makeup Academy™
and radiance® PLATINUM lines as well as more than
40 items under the new Gold Emblem Abound™
healthy snack brand.
As we look to the future, we will continue to provide our
customers with additional healthy options. Our goal is to
make CVS/pharmacy the convenience destination for
more, better, and healthier choices. In research we have
conducted since the tobacco announcement, custom-
ers have made healthy food their number one choice
among offerings they would like to see added. More-
over, these products are less sensitive to promotion,
which aligns with our strategy to drive profitable growth.
Our adherence programs and partnerships
are providing value to our PBM and non-PBM
patients alike
Our channel-agnostic pharmacy care model has played
a key role in enhancing member services and driving
share gains. Plan members are embracing our unique
offerings, and we’ve also endeavored to improve our
value to our retail customers who are covered by other
PBMs. They are benefiting from our best-in-class clinical
17
2014 Annual Report
FOCUS ON SHAREHOLDER VALUE
More than $7 billion is
expected to be returned to
our shareholders through
dividends and share
repurchases in 2015.