the right strategy for anthe right strategy for an evolving health care...
TRANSCRIPT
The Right Strategy for anThe Right Strategy for an Evolving Health Care Market
Larry MerloyPresident & Chief Executive Officer
34th Annual J.P. Morgan Healthcare ConferenceJanuary 12, 2016
Forward-looking Statements
During today’s presentation, we will make forward-looking statementswithin the meaning of the federal securities laws. By their nature, allforward looking statements involve risks and uncertainties Actualforward-looking statements involve risks and uncertainties. Actualresults may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our SECfilings including the risk factors section and cautionary statementfilings, including the risk factors section and cautionary statementdisclosure in those filings.
During this presentation, we will also use some non-GAAP financialh t lki b t ’ f i l dimeasures when talking about our company’s performance, including
free cash flow, cash available to enhance shareholder value andAdjusted EPS. In accordance with SEC regulations, you can find thedefinitions of these non-GAAP items as well as reconciliations todefinitions of these non-GAAP items, as well as reconciliations tocomparable GAAP measures, on the investor relations portion of ourwebsite.
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The Most Extensive Suite of Leading Assets …
Retail MailMailLong-term
CareRetailClinics
Specialty
Infusion
Clinics
Clinical Programs
Patients Medical Claims
Digital
g
Payors ProvidersClaims Editing
… enabling us to help deliver superior outcomes at a lower cost
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Continue to Build One-of-a-kind Health Care Company with Unmatched Integrated AssetsCompany with Unmatched Integrated Assets
: Our Competitive Edge
Only company with the ability to impact patients, payors and providers with innovative, channel-agnostic solutions
Broadest capabilities to holistically manage patients inBroadest capabilities to holistically manage patients infast-growing specialty market
Unparalleled scale in the U.S. makes us a low-cost provider
Largest retail clinic operator in U.S. with 28 million patient visits to date
D li i l ti d i i ht th t iDeep clinical expertise and insights across the enterpriseenable us to help deliver superior outcomes at a lower cost
Leading provider of pharmacy services in long-term care
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g p p y g
Pharmacy Is Our Focus and We’ve Captured 39% of Past 5-Year Prescription Growthof Past 5 Year Prescription Growth
Total U.S. Rx Industry(Rx dispensed, billions)
5.5~710Mnew Rx
4.8
2010 2015E
Note:1. All prescriptions dispensed on a 30-day equivalent basis. Does not include Omnicare.Source: IMS data, CVS Health Internal Analysis.
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Pharmacy Is Our Focus and We’ve Captured 39% of Past 5-Year Prescription Growthof Past 5 Year Prescription Growth
Total U.S. Rx Industry(Rx dispensed, billions)
5.5 CVS Healthshare of
market growth275M
~710Mnew Rx
4.8
market growth
39%
2010 2015E
Gaining share in a growing Rx industryNote:1. All prescriptions dispensed on a 30-day equivalent basis. Does not include Omnicare.Source: IMS data, CVS Health Internal Analysis.
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Prescription Growth Through Enterprise Channels Demonstrates Power of Unique, Integrated Model …Demonstrates Power of Unique, Integrated Model …
CVS/caremark Claims(Rx, millions)
9051,080 ~1,165
740905 Channel agnostic
offerings allow us to capture growth in
CVS/caremark claims
275 365 445 470
CVS/caremark claims while helping to drive
client savings
Notes:
2008 2011 2014 2015ECVS Health dispensed All other
Notes:1. CVS Health dispensed prescriptions include CVS/pharmacy, mail, CVS/specialty and Omnicare prescriptions across all years.2. CVS retail and mail prescriptions on a 30-day equivalent basis.3. 2015E is midpoint of guidance range.
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… and Has Allowed Us to Capture 700 bps of Revenue Share, Equating to $7 BillionRevenue Share, Equating to $7 Billion
CVS/caremark Revenue($, billions)
70088
~100
$7
700 bpsincrease
=4459
$7 Billion
2008 2011 2014 2015E
48% 50% 53% 55%
Notes:
CVS Health share All other
Our outperformance in specialty is a key driver of revenue share gainsNotes:1. CVS Health share of CVS/caremark revenue equals CVS/caremark revenue dispensed through Enterprise channels (CVS/pharmacy, mail, CVS/specialty,
Omnicare) ÷ total CVS/caremark revenue.2. 2015E is midpoint of guidance range.
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Another Successful Selling Season: Gross New Business Wins of $13.5 Billion for 2016Gross New Business Wins of $13.5 Billion for 2016
13 5B13.5BIN NEW
$11.2B$1.8B
BUSINESS WINS
St t f
State of Oklahoma
Government & Union
Employer
State of Illinois Health Plan
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EmployerNotes:1. As of 12/04/2015.2. Gross wins exclude Medicare Part D SilverScript individual products.
We Can Partner with Health Plans in a Multitudeof Ways to Drive Valueof Ways to Drive Value
Strong procurement Broad service Pharmacy is Unique ability procurement
capabilities and claims scale
makes
portfolio to support plan
needs whether or not we are
your focus and a
key lever for managing
overall health
q yto leverage consumer insights
to improveus a low-cost provider
or not we are the PBM
overall health costs
to improvecare
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CVS/specialty Has Grown Faster Than the Industry
CVS Health Specialty Revenue($, billions)
CVS/specialty Managed
40
49
30
222219
2012 2013 2014 2015E 2016E
.Source: CVS Health Internal Analysis, does not include specialty revenue from Target pharmacies.
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CVS/specialty Has Grown Faster Than the Industry
CVS/specialty Dispensed Revenue($, billions)
3532.3%
CVS/specialtyCAGR27
35
19.3%Industry
2014
11
2012 2013 2014 2015E 2016E
CAGR
.Source: CVS Health Internal Analysis, does not include specialty revenue from Target pharmacies.
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CVS Health’s Enterprise Assets ‘Raise the Bar’ in Specialty PharmacySpecialty Pharmacy
Novologix Medical Specialty M t
Coram Infusion Services
Cost M t
Accordant Care Management
Narrowest Exclusion Formulary Management
ONLY
Management
Quality
Best-in-class Mobile App
Specialty Connect
Accordant Care Management
Access
Q y
Clinical Quality Programs
Access to 99% of Specialty Drugs
pp
TRADITIONAL
Specialty Dispensing
Adherence Programs
Preferred Specialty Networks
OSPECIALTY PHARMACY
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Continued Strength in Core RetailPharmacy BusinessPharmacy Business
Growth in Prescriptions(2010 – 2015)
38%
~2X19%
~2X Faster
Nearly 44% of our growth
through non-CVS/caremarkCVS/caremark
payors
All Other MarketCVS/pharmacy
Notes:1 Compares total CVS/pharmacy prescriptions for 90 day adjusted scripts January through August for 2010 compared with January through August for 20151. Compares total CVS/pharmacy prescriptions for 90 day adjusted scripts January through August for 2010 compared with January through August for 2015 2. Compares total market (excluding CVS/pharmacy) for 90 day adjusted scripts January through August for 2010 compared with January through August for 20153. Reduction in labor cost to fill excludes wage inflation.Source: IMS
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Growing Our Business Through Acquisition of Target Pharmacies and ClinicsTarget Pharmacies and Clinics
TARGET PHARMACIES TARGET CLINICS
• ~80 clinics
380 li i l
• More than 1,660 pharmacies
• ~4 000 pharmacists • ~380 clinical providers and staff members
• ~4,000 pharmacists
• ~10,000 technicians
80 fi ld l d• 430,000 annual
visits
• ~80 field leaders
• ~100 million prescriptions filled annuallyfilled annually
Expands footprint of pharmacies by ~20% and clinics by ~8%
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Note:1. FY 2014 data, prescriptions on a 30-day equivalent basis.Source: Target.
Acquisition Will Benefit New and Existing Patients
Opportunity to Narrow the Prescription Volume Gap…
… and Help Patients on Their Path to Better Health
• Target guests gain access to best-in-class health care services
M i t Ch i
Average Prescriptions per Pharmacy
p p
– Maintenance Choice– Pharmacy Advisor– Specialty Connect
• Currently ~5% to 7% of Target
~2X
• Currently ~5% to 7% of Target guests use Target pharmacies; CVS Health can drive that percentage higher
Target CVS/pharmacy
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Note:1. FY 2014 data, prescriptions on a 30-day equivalent basis.Source: Target.
MinuteClinic: Largest Retail Clinic in U.S. with 1,135 Locations Across 32 States and Washington, D.C.Locations Across 32 States and Washington, D.C.
Full-time clinics
1,135
MinuteClinic Target ClinicClinic StateLegend:
Full-time clinicsin 2016
More than 50% of the U.S. population is within 10 miles of a MinuteClinic
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Increase in Older Population Driving the Need for Long-term Care Services and SupportLong term Care Services and Support
Population Requiring LTC Services
Trends in Need for LTC Services
27+80%
(lives, millions)• 70% of people over age 65 will
require some form of LTSS
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27 • Number of frail adults rising rapidly with expanding older population
• Between 2000 and 2040, number of older adults with disabilities is expected to i f 10 t 21 illi
2000 2050increase from 10 to 21 million
Note:1. Long-Term Services & Support (LTSS) based on limitations regardless of age, cause, etc.Source: Long Term Care Services in the U.S.: 2013 Overview: U.S. Department of HHS.
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CVS/omnicare Value Proposition Provides New Channels to More Effectively Serve Broader PopulationChannels to More Effectively Serve Broader Population
Skilled Nursing
Assisted Living Independent HomeNursing
Facilities
Transitions Segmented
Living Facilities
pLiving
Broader
Care
CareTransitionsof Care
Segmented Offering
Broader Services
Care Coordination
CVS/omnicare best positioned to serve senior care continuum
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Enhanced Offering for Skilled Nursing Driven by Improved Coordination During Care Transitions
Skilled Assisted Independent Home
Improved Coordination During Care Transitions
Completenessof Service Offerings
Nursing Facilities
Living Facilities
Independent Living
HomeCare
Omnicare CVS/omnicare
ISSUE RESULTSSOLUTIONS
Omnicare CVS/omnicare
• Medication availability challenges due to lack of care coordination at admission and discharge
• CVS/pharmacy retail footprint extends reach for first fillsE i f di t d
• Better outcomes for the patient, provider and payor
admission and discharge• Hospital discharge re-
admissions costing $4.3B to Medicare
• Expansion of coordinated care services with integrateddischarge solution
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solution
Source: Study by NIA (National Institute on Aging) and Robert Wood Johnson Foundation based on Medicare inpatient & SNF claims 2000 – 2006.
Segmented Assisted Living Offering in Development to Better Align with Varying Resident Needs
Skilled Assisted Independent Home
to Better Align with Varying Resident Needs
Completenessof Service Offerings
Nursing Facilities
Living Facilities
Independent Living
HomeCare
Omnicare CVS/omnicare
ISSUE RESULTSSOLUTIONS
Omnicare CVS/omnicare
• Acuity level differences in facilities due to state regulations and community type
• Segmented offering to align solutions to the residents’ specific needsG t CVS b d
• Increased resident choice• Improved community
satisfactioncommunity type
• 30% of beds but only 50% of those residents served
• Lack of brand
• Greater CVS brand awareness to improve patient conversion and retention
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awareness
Consumer-driven Effort to Better Target Rapidly Growing Independent Living Market
Skilled Assisted Independent Home
Growing Independent Living Market
Completenessof Service Offerings
Nursing Facilities
Living Facilities
Independent Living
HomeCare
Omnicare CVS/omnicare
ISSUE RESULTSSOLUTIONS
Omnicare CVS/omnicare
• Institutional pharmacy offering not aligned with resident demands of this rapidly-growing area
• Retail-led solution that utilizes existing CVS pharmacy capabilitiesO it d li f h lth
• Newly developed offering to solve unmet needs within senior care
rapidly growing area • On-site delivery of health care services (e.g., vaccines)
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Care Coordination Offering to Better Serve Seniors Requiring More Acute Services in Home Setting
Skilled Assisted Independent Home
Requiring More Acute Services in Home Setting
Completenessof Service Offerings
Nursing Facilities
Living Facilities
Independent Living
HomeCare
Omnicare CVS/omnicare
ISSUE RESULTSSOLUTIONS
Omnicare CVS/omnicare
• Home care represents the largest aspect of senior care marketO i i f ilit
• Replicate independent living to serve acute patients in home settingC t ti f 2M
• Better outcomes for high-risk patients requiring more acute services
• Omnicare is more facility-centric
• Capture portion of ~2M discharges from SNF setting through new offering
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We Are Continuing to Use Various Channels to Drive Growth in Pharmacy VolumeGrowth in Pharmacy Volume
Retail (CVS/pharmacy & CVS/minuteclinic)
CVS/caremark Target PartnershipCVS/caremark Target Partnership
Omnicare Acquisition
Leveraging our integrated model to drive pharmacy innovation
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Leveraging our integrated model to drive pharmacy innovation
Our Strategic Business Imperatives
AggregateLives
GrowShare
Execute with Excellence
DriveInnovation
Enterprise Focus
Grow the core, Broaden the base
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Our Strategy for Long-term Enterprise Growth
5Opportunistic bolt-on acquisitions4
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Continued innovation in drug procurement and supply chain efficiencies3
Enhance patient engagement
Deepen relationships with payors and providers
2Deepen relationships with payors and providers to help reduce cost and improve outcomes
Add capabilities to enhance core business
1
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p
Continuing Focus on Enhancing Shareholder Value
Productive Generating Si ifi t Optimizing
Long-term Growth
SignificantFree Cash
Flow
Op gCapital
Allocation
EnhancedEnhancedShareholder Value
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2016 Guidance: Healthy Enterprise Growth
Full-year 2016
Net Revenue Growth 17.0% to 18.5%
Adjusted EPSYear-over-year Growth
$5.73 to $5.8811.25% to 14.25%
GAAP Diluted EPS $5.28 to $5.43
Free Cash Flow (billions) $5.3 to $5.6( )Year-over-year Growth Down 7% to 12%
Notes:1. EPS growth estimates exclude acquisition-related transaction and integration costs.2. Year-over-year growth based on midpoint of 2015 guidance.3 Estimates were made assuming that the acquisition of Target’s pharmacies and clinics closed at the end 20153. Estimates were made assuming that the acquisition of Target s pharmacies and clinics closed at the end 2015.4. EPS estimates assume completion of approximately $4 billion in share repurchases in 2016.5. EPS estimates include dilution of $0.01 in 2016 related to the termination of pension plans. The impact on 2017 is expected to be between $0.10 and $0.15.6. Cash flow guidance includes approximately $500 million of cash outflows from acquisition-related transaction and integration expenses.
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2016 Capital Deployment to IncludeDividend Increase and Further Repurchases
• Increasing 21%
Dividend Increase and Further Repurchases
2016 Annual • Increasing 21%,from $1.40 to $1.70
Dividend
$1 70$1.702016 Share Repurchases
$4billion
• Currently $7.7 billion authorized and remaining from 2014 share repurchase program billionrepurchase program
More than $5 billion expected to be returned to shareholders in 2016$ p
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Today’s Key Takeaways
The Right Strategy for an Evolving Health Care MarketThe Right Strategy for an Evolving Health Care Market
Leadership in multiple competencies to drive superior l f h lth t
Demonstrating Valuevalue for health care partnersto People, Payors and Providers
Expanding core pharmacy business while broadening Growing the Core, p g p y greach into new health care channels
g ,Broadening the Base
I t d i i ti d t d ki l tAlways Looking Introducing innovative products and making long-term, value enhancing investments
Always Looking Ahead
Driving shareholder value with strong earnings and cash flow as well as disciplined capital allocation
Driving Sustainable Enterprise Growth
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