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Ryan gives CVS shareholders plenty to be happy about; tips off new specialty pharmacy pilot

BY Drug Store News Team

WOONSOCKET, R.I.

Going great and getting better all the time. That was more or less the message CVS Caremark chairman, president and CEO Tom Ryan had for investors gathered here Wednesday morning for the company’s annual shareholders meeting — a company that has seen revenue growth of 2x to 2.5x and profit growth of 5x in each of the 45 years it has been in operation, Ryan noted.

Indeed, with net revenues of $1 billion in 1985, $5 billion by 1995, and more than $87 billion in 2008, the chain has experienced exponential growth during that period. Not the least of this has been its 2007 acquisition of Caremark, which helped the company achieve a most enviable position as the nation debates myriad healthcare reform possibilities.

With the No. 1 position in stores — some 7,000 —and total scripts filled — more than 729 million vs. No. 2 Walgreens’ 617 scripts, according to Ryan; the second biggest PBM in America with more than 3,300 clients, which added $9 billion in incremental new business last year; the No. 1 position in specialty pharmacy — CVS generated an industry-leading $10 billion-plus in specialty pharmacy sales last year — and more than 500 retail clinics, the company has “more touch points around pharmaceutical health care than any other company in the industry,” Ryan proudly noted.

In addition, Ryan noted that the company is conducting a pilot of a specialty pharmacy program in the state of Florida that would enable customers to pick up specialty pharmacy prescriptions in any CVS store in the state.

While the results thus far have been impressive, Ryan is confident that company’s current growth strategy is the right one going forward. Roughly 75% of the U.S. population lives within three miles of a CVS store, Ryan said; almost two-thirds of the country lives within two miles. And while it operates the most stores in the industry, the company “has no goal to be in every state,” Ryan said, noting that the ultimate objective is to operate in markets and states that have the population density to allow us to operate profitably”, versus filling in every state in the map, underscoring a key difference between itself and its No. 1 competitor, Walgreens. Several months ago, Walgreens announced that it will slow down store growth considerably, among other key initiatives.

Ryan also noted that he believes that the company’s current growth trajectory, which has averaged about 300 new and relocated stores a year in each of the past six years, remains the right pace for CVS. In addition, the size and layout of the stores, which continue to rank among the most productive in the industry — CVS is either No. 1 or 2 in eight of the nation’s top 10 metro markets, he said — has also proven to be a winning combination. 

CFO Dave Rickard provided a more in-depth look at the company’s financial performance, which continued to outpace both its peers in retail and health care, as well as the S&P, in 2008 and into the first quarter 2009.

CVS Caremark on Tuesday reported earnings for the most recent period, with net sales up almost 10% to $23.4 billion, including $13.5 billion on the retail side of its business, and almost $11.5 billion on the pharmacy services (PBM) side of the business. (See Tuesday’s report on Drug Store News site).

One other measure Rickard provided cut right to the heart of it all for CVS shareholders; according to Barron’s, CVS Caremark is ranked one of just 10 companies to own over the next 10 years.

While many intangibles still exist, Ryan spoke confidently about the company’s future, which stands to gain considerably, he believes, by any changes in country’s healthcare system. Whichever way the healthcare reform goes, Ryan explained, CVS is in position to influence the debate.

“It remains to be seen how it will all shake out,” he said, “it will be a positive for our business.”

In the meantime, business as usual remains pretty good for a company that in its 45-year-history has risen to No. 19 in the United States, No. 80 in the world and No. 1 in Woonsocket.

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Duane Reade forges ahead with store transformation

BY Antoinette Alexander

NEW YORK Duane Reade’s chairman and CEO John Lederer expressed cautious optimism during its first-quarter conference call with analysts on Tuesday as the company forges ahead with its transformation initiative amid a rough economy.

As previously reported by Drug Store News, the Manhattan-based pharmacy retailer is in the midst of transforming its store base using consumer research it compiled last year as the underpinnings for the go-forth strategy.

Duane Reade is rebranding its stores and has a new brand mantra, “Duane Reade equals New York living made easy,” to articulate its desire to become the destination of choice for beauty, wellness and convenience needs. These core offerings are supported by a new concept segmentation that is sub-branded: “How I look, how I feel and what I need now.” In addition, the company recently revamped its Web site to reflect the company’s new look and feel.

While Lederer acknowledges that the economic environment remains challenging, the results appear to be paying off as adjusted EBITDA rose 7.8% to $19.7 million, same-store sales rose 1.1%, and gross margins continued to expand.

“It was a period in which there were significant external challenges; however, in light of these challenges and weakened consumer demand we continued to perform well and continued the positive momentum of our business,“ Lederer told analysts.

Net retail store sales rose 2.8% to $426.7 million from $414.9 million in the year-ago period. Total net sales rose 4.1% to $444.5 million. Total same-store sales rose by 1.1% as front-end same-store sales, which were negatively impacted by a shift in the Easter holiday, decreased 0.8%.

Pharmacy-same-store sales rose 3.5%.

Net loss improved 18% to $17.2 million from $21 million.

Gross margin on net retail sales, which excludes pharmacy resale activity, increased 32.2% from 32% in the year-ago period, reflecting higher front-end selling margins resulting from an improved mix of higher margin categories includes of private label products and reduced inventory shrink losses.

In addition to addressing the quarter’s financials results and reaffirming its previously announced 2009 cost savings plan of $7 million to $10 million, Lederer also discussed plans to open a new 14,000-sq.-ft. store in Manhattan’s Herald Square during the summer.

“I bring that [store] to your attention because it is in the middle of Midtown and it has some incredible traffic counts. It is in a very hustle and bustle area and we are going to show some new innovation in that store in terms of categories and we are going to show the consumer where this brand is headed,” said Lederer.

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Investigational malaria treatment “likely” first novel drug from India, Ranbaxy CEO says

BY DSN STAFF

GURGAON, India A drug company based in India and mostly known for generic drugs hopes to transform the treatment of malaria in the developing world with an investigational drug that began phase 3 clinical trials Monday.

Ranbaxy Labs announced the beginning of the trial for an anti-malarial drug that combines arterolane maleate and piperaquine phosphate, conducted in India, Bangladesh and Thailand.

“I am delighted that our anti-malaria drug is entering phase 3 trials,” Ranbaxy chairman and CEO Malvinder Mohan Singh said in a statement. “Ranbaxy has always been at the forefront of research for drugs that are both relevant and affordable.”

Singh said that the drug is “likely” the first novel drug to emerge from India.

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