Expect Something Extra From CVS Caremark?

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Thinking about investing and profiting from healthcare reform? CVS Caremark (NYSE: CVS), with its unique position and well defined growth strategies, is poised for more long-term growth. CVS Caremark is the largest integrated pharmacy company in the United States with offerings across the entire spectrum of pharmacy care, including retail and specialty pharmacy, pharmacy benefit management (PBM), and retail health clinics. With its unique market position as the only fully integrated pharmacy company, CVS Caremark is able to identify and exploit the emerging opportunities in this fast changing healthcare environment. CVS Caremark continues to focus on growth in its core business to enhance shareholder value.

Growth drivers

CVS Caremark has the largest and fastest-growing retail clinic business in the United States, Minute Clinic. Minute Clinic offers the value of convenience for patients. While around 30 million Americans are expected to gain certain healthcare coverage over the next few years, Minute Clinic will continue to be a key growth driver for CVS Caremark where the management is planning to add 150 new clinics in 2013 and reach over 1,500 clinics by 2017.

Being the market share leader for the managed Medicaid market (31%) and No. 3 for the Medicare Part D market (6.9%), CVS Caremark is well positioned to ride the healthcare reform changes. It is estimated that around 11 million people will gain healthcare coverage through Medicaid and 10,000 baby boomers will become Medicare-eligible each day.

While specialty medications dominates the current pipeline of new prescription drugs, the total specialty sales number is expected to double between 2010 and 2016, as expected by the management. CVS Caremark is now expanding its capabilities to manage specialty across both the pharmacy and the medical benefit to expand its share of the fast growing specialty marketplace.

Changing landscape and CVS Caremark’s strategy

With the implementation of the Affordable Care Act and shifts of demographics and consumer behavior, the healthcare industry is expected to change significantly in the next 10 years. CVS Caremark is prepared to fight these major changes. The company will focus on reducing cost and improving quality, as well as improving medication adherence to capture its share of 30 million newly insured Americans (due to the Affordable Care Act). On the other hand, the company will also continue to innovate in branded and biologic specialty drugs, which has the fastest growth in pharmacy. CVS Caremark will address convenience, cost, and quality to maintain its growth.

With its substantial purchasing scale, deep clinical expertise, strong relationships across the clients and consumer spectrums, as well as channel-agnostic approach to prescription delivery, CVS Caremark is expected to continue its growth in the changing environment with its three-pronged strategy, including quality and convenience enhancement, new customer serving channels identification and implementation, and enterprise assets optimization.

Walgreen and Express Scripts incident

CVS Caremark’s retail business has capitalized on the incident where the customers of Express Scripts (NASDAQ: ESRX) could not fill their prescription at Walgreen's (NYSE: WAG) drugstores. CVS Caremark gained over 24 million prescriptions. The management expects to retain at least 60% of the gained scripts throughout the year after Express Scripts and Walgreen resolved the dispute in September, 2012.

Walgreen, on the other hand, had just reported strong May sales, which grew 4.3% as compared to the same period in 2012. Walgreen also stated the percentage of former Express Scripts prescriptions returning to its pharmacies continued to increase in May. Strategically, Walgreen is creating a complete Well Experience for its customers and is expanding its supply agreement with AmerisourceBergen, which will allow Walgreen to negotiate better pricing for the bulk drugs and gain access to more specialized drugs.

By uniquely combining behavioral sciences, clinical specialization, and actionable data, Express Scripts leverages its innovate approach to achieve healthier outcomes with safer and more affordable prescription. Express Scripts projects that U.S. spending on specialty prescription drugs will increase 67% by the end of 2015, and Express Scripts is ready to help lower increase in specialty drug spending and increase medication adherence rates for better health outcomes for patients.

Bottom line

While CVS Caremark might be negatively impacted by the return of customers at Walgreen’s stores, CVS Caremark will continue to benefit from the developing healthcare trends with its unique integrated business model. Investors can continue to expect more long-term growth with solid cash flows and stable dividend from CVS Caremark.

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Nick Chiu has no position in any stocks mentioned. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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