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Longs deal done, CVS is king of California

BY Antoinette Alexander

WOONSOCKET, R.I. —It’s official. CVS Caremark finally closed last month its acquisition of Longs Drug Stores and, in true CVS fashion, the company plans to hit the ground running as it folds into its portfolio Longs’ 521 retail locations in California, Hawaii, Nevada and Arizona, as well as its PBM services.

The acquisition, at $71.50 per share in cash, closed Oct. 30.

The deal catapults CVS into a major player on the West Coast and transforms the self-proclaimed pharmacy health-care service company into one that will fill or manage more than 1.2 billion prescriptions per year and will operate approximately 6,800 drug stores in 41 states and the District of Columbia.

CVS now has a foothold in highly attractive regions with real estate markets that are difficult to enter, not to mention the addition of Longs’ Rx America PBM business.

“This was an opportunity to acquire hundreds of quality locations in real estate markets that are difficult to penetrate, and it would have taken us at least 10 years to replicate this. We saw the opportunity and we took advantage of it,” Tom Ryan, chairman, president and chief executive officer, told analysts during an Oct. 30 conference call to discuss third-quarter results. “The acquisition makes us the No. 1 drug store chain in California and Hawaii, and it strengthens our position in Arizona and Nevada. Longs’ distribution centers in California and Hawaii also will be valuable additions to our distribution network. Second, we expect to improve the profitability of Longs’ stores just as we have with Eckerd and Sav-on.”

More than 490 of the stores CVS acquired are located in the Central and Northern California and Hawaiian markets, where Longs has been a leading player. The stores in the Hawaiian market will continue to operate under the Longs name as Hawaiians view Longs as a homegrown chain.

While CVS’ entrance into Hawaii is significant, its expansion in California also is important. The company first re-entered California with a specialty pharmacy in 1999. CVS. which had operated stores in California in the past, shut those stores in 1991 to focus on its core markets in the Northeast. It then established a retail pharmacy presence in the state with 19 retail pharmacies in 2004. In 2006, it significantly expanded its footprint in California to 366 locations through the acquisition from Albertsons of the Osco/Sav-on pharmacies.

Much bigger than the typical CVS store, about 470 of the acquired stores average roughly 22,000 to 23,000 square feet in size. The remaining acquired stores are smaller in size, ranging between 4,000 and 7,000 square feet, and mainly located in or near medical centers, represent an opportunity for specialty pharmacy locations.

As far as the integration plans, Ryan said it is important not to disrupt the stores during the holiday season so integration really will begin in first quarter 2009. Store system conversions will begin March 1 and will be completed by about the end of May. The corporate office in Walnut Creek, Calif., will close by the end of the summer, with 80 percent of it being shut down by around June. Resets and remodels will start mid-March and will wrap up by mid-October. The name-change events should be completed by the end of the third quarter. So, by fourth quarter 2009 Longs will be fully integrated.

Aside from benefiting from Longs’ attractive real estate locations, CVS also will benefit from Rx America, which offers prescription benefits management services to more than 8 million members and prescription drug plan benefits to 450,000 Medicare beneficiaries. In an earlier conference call with analysts, Ryan stated that Rx America generates about $380 million in annual revenues, including the PDP lives.

“We will integrate Rx America’s PBM and PDP business into our own over time. We expect this business to be a nice complement to our PBM,” Ryan told analysts. “Also, by accelerating growth in these key geographies we help our PBM clients and facilitate the rollout of our new proactive pharmacy care offerings.… I remain confident that the deal will be 4 to 5 cents accretive to adjusted EPS in 2010 and accretive to adjusted EPS in the low double-digits in 2011.”

As previously reported by Drug Store News, CVS’ new proactive pharmacy care offerings include Maintenance Choice, which allows consumers to purchase chronic 90-day prescriptions at CVS stores for the same price as at mail. To date, this offering has attracted 137 clients for a January 2009 start, representing about 2 million people. There’s also the ExtraCare Health Card, which provides discounts on CVS private-label FSA-eligible OTC products to Caremark members who elect to participate. There are currently 4 million cards out this year, and CVS expects to add another 6 million cards next year.

In other news, the company also reported third-quarter results. “Despite the difficult macro economic environment we posted solid third quarter results right in line with our plan,” Ryan told analysts during an Oct. 30th conference call. Net revenues for the third quarter ended Sept. 27 increased $368.2 million to $20.9 billion, up from $20.5 billion a year ago. Retail sales increased 5.3 percent to $11.5 billion, on same-store sales of 3.7 percent. Comp sales increased 3.8 percent in pharmacy, 3.3 percent in the front-end.

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Alimentary Health signs licensing agreement with P&G Pet Care

BY DSN STAFF

CORK, Ireland Alimentary Health on Wednesday announced that it has signed a worldwide licensing agreement with P&G Pet Care, makers of two of the worlds leading companion animal pet care products, Iams and Eukanuba.

Under the licensing agreement, Alimentary Health’s and P&G’s proprietary pet care probiotics will be used in P&G Pet Care’s nutritional supplement products. The global market for companion animal pet care products was estimated to be over $40 billion in 2007. Alimentary Health will receive an undisclosed royalty on sales of all products containing the pet care probiotics.

In 2001, Alimentary Health partnered with P&G to develop safe and effective probiotic products for gastrointestinal indications. In 2007, P&G Health Care started using Alimentary Health’s natural probiotic strain Bifidobacterium Infantis 35624, in Align in the US. Align is a daily probiotic supplement that helps build and maintain a strong and healthy digestive system.

“Today’s announcement comes as a result of our continued successful collaboration with P&G,” Barry Kiely, chief executive officer of Alimentary Health, said. “We are please that our ongoing efforts have once again resulted in Alimentary Health’s technology making it to the marketplace. This agreement is a result of a successful research and development program between the two companies and it brings us closer to fulfilling our vision of becoming the worldwide leader in the research, discovery and clinical development of probiotics. We are proud of our long standing association with such a leading multi-national company.”

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Kmart holds GoldK Day health services, screening day for seniors

BY Antoinette Alexander

HOFFMAN ESTATES, Ill. Kmart, a wholly owned subsidiary of Sears Holding Corp., has announced that its pharmacy division will hold the annual GoldK Day on Nov. 18 for seniors.

“Kmart wants to remind seniors that we care about their health and GoldK Day is a way for our pharmacists to give back to these important customers by not only offering free screenings, but assistance with Medicare health plan selection and information about disease states, which can help seniors make better decisions about their healthcare,” Mark Doerr, vice president of Kmart pharmacy, said.

The activities planned for the event, to be held from 9 a.m. to 1 p.m. at all 1,100 Kmart pharmacy locations, include free blood pressure screenings, free memory screenings, Medicare health plan selection assistance and more.

No appointments are necessary. For more information, customers can all 800-866-0086 or visit www.kmart.com/pharmacy.

The initiatives are tied to the efforts of the Alzheimer’s Foundation of America’s National Alzheimer’s Disease Awareness Month, the annual initiative aimed at promoting early detection of memory problems and appropriate intervention.

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