Despite the potential threat of Amazon, analysts see the entrance by the e-commerce giant as having limited on the impact on CVS due to the types of customers each is targeting.
Fight or flight. One of the two is the typical reaction when humans encounter a threat or something that may pose danger. Corporate America is no different.
So when executives at CVS Health Corp got wind that Amazon.com Inc was making a play for the healthcare industry the pharmacy chain had two options. Retreat, and let Amazon potentially eat into its business, or fight back.
It seems CVS has taken the latter route.
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“While management did not specifically call out Amazon, it seems to us that CVS is pressing hard on a consumer-oriented approach and shift in strategy,” wrote Leerink Partners’ David Larsen in a note Monday following the Woonsocket, R.I.-based chain’ss release of third quarter earnings. “Since Amazon is all about the user experience and user convenience, we applaud CVS’ efforts in this regard.”
CVS announced Monday, Nov. 6, that it will kick off next-day delivery for all of its stores starting in 2018, while select cities will offer same-day delivery. The announcement came as the company reported a 3.4 percent decline in same-store sales in pharmacy and a 2.8 percent drop in front-store same-store sales. Customer traffic was softer, according to the company, but this was partially offset by bigger basket sizes. Operating profit was also down 13.1 percent.
Despite the potential threat of Amazon, Loop Capital Markets said it sees the entrance by the e-commerce giant as having limited on the impact on CVS due to the types of customers each is targeting.
“We believe that would most likely enter the PBM arena serving smaller clients due to its lack of scale. We believe Caremark’s book of business is driven more by large clients, which would mitigate any impact,” wrote Loop’s Andrew Wolf in a note on Tuesday, Nov. 7. “We also note that the downstream pharmaceutical supply chain in the U.S. is dominated by large scale players from governments, to PBMs, to distributors, to retailers.”
Specifically, in retail, he added, about 97 percent of prescription drug transactions are “contractually negotiated with pricing set by the industry’s largest players.”
Amazon’s ability to gain significant market share at a rapid pace would “not be possible under the current pricing schemes for Amazon to rapidly gain retail prescription market share on lower pricing as has been its primary business model in other retail categories.”
In addition to retail efforts, CVS also has taken other steps to shore up parts of its business and is seen investing in others that could be growth drivers, such as Minute Clinics.
Anthem Inc announced Oct. 18, that it will sign onto a deal with CVS to contract the drugstore chain’s services for a new pharmacy benefits manager called IngenioRx.
Anthem Inks Deal With CVS for New Pharmacy Benefits Manager
CVS did not mention the IngenioRx platform on its earnings call, though analysts are encouraged by the partnership.
“We are very much encouraged by the ANTM deal, and we believe that long term ANTM will contribute to significant improvements in retail volumes. On Aetna Inc.’s earnings call it sounded as if AET was pleased that ANTM has become a client of CVS because it will improve CVS’ overall purchasing scale which should also benefit AET.”
CVS has recently signed deals with Anthem, UnitedHealth Group Inc.’s Optum platform, Cigna Corp., and Aetna to capture Medicare preferred network patients. At the same time, CVS also recently inked a new PBM performance-based pharmacy network focused on reducing costs and improving outcomes with Walgreens Boots Alliance Inc.
Anthem Inc announced Oct. 18, that it will sign onto a deal with CVS to contract the drugstore chain’s services for a new pharmacy benefits manager called IngenioRx.
Anthem Inks Deal With CVS for New Pharmacy Benefits Manager
CVS did not mention the IngenioRx platform on its earnings call, though analysts are encouraged by the partnership.
“We are very much encouraged by the ANTM deal, and we believe that long term ANTM will contribute to significant improvements in retail volumes. On Aetna Inc.’s earnings call it sounded as if AET was pleased that ANTM has become a client of CVS because it will improve CVS’ overall purchasing scale which should also benefit AET.”
CVS has recently signed deals with Anthem, UnitedHealth Group Inc.’s Optum platform, Cigna Corp., and Aetna to capture Medicare preferred network patients. At the same time, CVS also recently inked a new PBM performance-based pharmacy network focused on reducing costs and improving outcomes with Walgreens Boots Alliance Inc.
Date: Nov 07, 2017