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Analysts say AT&T PBM contract award validates CVS Caremark model

BY DSN STAFF

WOONSOCKET, R.I. —CVS Caremark announced in early April that it has been awarded the consolidated AT&T pharmacy benefit management contract, a move that eased investors’ minds and speaks to the efficacy of its combined business model.

“This consolidation reflects Caremark’s longstanding close relationship with AT&T, the ability to secure better pricing by combining the business and the promise of the CVS Caremark model,” stated Goldman Sachs analyst John Heinbockel. CVS will retain the old AT&T part of the contract and now pick up the old BellSouth piece.

Effective Jan. 1, 2009, CVS Caremark will provide a suite of integrated pharmacy services, including claims processing, network management, rebate contracting, mail order pharmacy and specialty pharmacy services. According to Lehman Brothers analyst Meredith Adler, the contract totals about $1.25 billion, with mail accounting for two-thirds of revenue and retail accounting for the other one-third.

“We expected CVS to renew the mail portion of the contract—it has had this business for some time, there is stickiness with this type of account and CVS’ unique retail/PBM model has great promise,” stated Heinbockel. “We were unsure about the likelihood of the contract’s expansion into the retail side of the business.”

According to Adler, AT&T was interested in CVS Caremark’s ability to assist in driving improved drug therapy compliance and persistence through closer patient interaction, and CVS has been working with AT&T over the last few months to test several pilot programs.

Analysts estimate that the incremental revenue will be about $350 million. CVS has now won new business of roughly $1 billion this selling season.

Added Adler, “While we estimate the impact to earnings from the total contract to be only about 2 cents to 3 cents, we believe AT&T’s desire to work with CVS demonstrates that payers are beginning to appreciate the value of the company’s combined model.”

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JPMA refutes media reports about dangers of baby bottle materials

BY Jenna Duncan

MT. LAUREL, N.J. The media has been asked by the Juvenile Products Manufacturers Association to halt stories with claims of purported negative health effects from using baby products containing bisphenol A (BPA). JPMA claims that statements of ill health linked to items containing BPA are often misleading and frighten consumers.

According to JPMA, research has shown that when used properly, products made with BPA do not pose a health threat.

Robert Waller, Jr., the president of JPMA, said, “JPMA is extremely disappointed in the media for speculating that Health Canada’s assessment of BPA would recommend labeling the chemical a dangerous substance, when in fact the report has not even been issued yet.”

Claims in the media have stated that risk may come from the plastic shields on pacifiers, parts of baby bottles or sippy cups being broken down or chewed, and then ingested with food or saliva. Scientific findings indicate that BPA may cause estrogenic effects in laboratory animals, and so concerns about the safety of baby products, especially bottles, has been under scrutiny.

JPMA, whose mission is to educate consumers and industry professionals about juvenile products and safety, is referring consumers to its Web site, www.babybottles.org, for more information on BPA and related health findings.

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American Greetings reports fiscal 2008 profit

BY Doug Desjardins

CLEVELAND American Greetings generated $83.3 million in earnings for fiscal 2008, including $15.6 million in the fourth quarter ended Feb. 29, and more than $1.77 billion in total sales for year. Total sales were down about 1 percent from $1.79 billion the previous year, but earnings were up 96 percent from $42.4 million.

“I’m pleased we were able to achieve earnings within our forecasted range and exceed our cash flow guidance,” said American Greetings chief executive officer Zev Weiss. “Our strong cash flow allowed us to make two acquisitions in the digital photo space and repurchase shares.”

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