CVS CAREMARK Company Analysis - Essay Example

 CVS CAREMARK Company Analysis Report Retail Pharmacy PBM Services Minute Clinic CVS CAREMARK: Company Analysis Table of Contents Executive Summary 1 1.Introduction 3 2.Business Overview 3 3.Industry External Analysis 9 4.Value Chain Analysis 13 5.Porter’s Five Forces Analysis 16 6.Competitive Strengths and Weaknesses of CVS 20 7.Balanced Scorecard 22 Bibliography 25 Appendices Q Exhibit-1: CVS Caremark History of Events R Exhibit-2: Financial Performance X Exhibit-3: Five Year Financial Summary Y Exhibit-4: Segment Analysis Z Exhibit-5: Pharmacy Services Segment Analysis AA Exhibit-6: Retail Pharmacy Segment Analysis BB Executive Summary This report presents an analysis of CVS Caremark Corporation (CVS), essentially looking at the present position of the merged corporation in the market, after the acquisition of Caremark Rx by CVS Corporation in 2007. In the backdrop of the sudden fall in the stock market price after the announcement in early November 2009 of $4.8 billion losses in 2010 contracts, the report looks at the environmental factors and the industry forces affecting the strategies of companies in this industry, and finally proposes a set of metrics that can be used to monitor future performance with an appropriate strategy map using the Balanced Scorecard perspectives. With the two segments, Retail pharmacy and Pharmacy Benefit Management (PBM) accounting for nearly 50% each in the 2008 revenues of $87 billion, the substantially lower operating margin of the PBM segment is identified the chief issue to be addressed, besides other parameters relating to Retail segment. The external analysis looks at the impact of Technological, Governmental, Economic, Social-Cultural and Demographic factors on the strategic uncertainly for the industry, particularly the effects of the Health Reform Bill, and how the insurance sponsorship will pan out. The report then goes into a value chain analysis, elaborating on how CVS Caremark has ingeniously managed to add value to the customers and the plan sponsors, because of the integration of the PBM business with the Retail pharmacy business, along with in-store MinuteClinics offering testing and advisory facilities. An industry analysis, using Porter’s Five forces model concludes with the finding that, the threats from Supplier bargaining power, Buyer bargaining power, and Internal rivalry are limited to low for a company like CVS, which is already a leader in the industry, and there are not many large competitors, except Walgreen and Rite-Aid, and probably Wal-Mart to some extent. The threats from substitutes and new entrants merit attention because of the proliferation of cost-effective solutions sought by clients through generic drugs. However, CVS has built necessary defenses against these threats through aggressive promotion of cost-effective alternate treatments with generic drugs as well as private label options, adding value to the end-consumer. The sustainable competitive advantages developed by CVS include its integrated end-to-end solutions with PBM, retail front store offerings and in-store MinuteClinic facilities, besides, excellent promotional programs like ExtraCare, Health Savings Pass etc…, which have enhanced customer loyalty substantially. The challenges however lie in improving the operating margin for PBM business, curtailing further contract losses from PBM clients, and better training to ensure uniform store experience, affected primarily because CVS’s growth is leveraged on acquisitions. Based on all these considerations, the report concludes by drawing up a set of objectives, and building the strategy map laying down the activities that need to be monitored under each of the four Balanced Scorecard perspectives, with measurable performance parameters. 1. Introduction This report presents an analysis of CVS Pharmacy (CVS), a 47-year-old company with a history of innovation and leadership in the Pharmacy Benefits Management (PMB) and Health clinic industries. After a quick overview of the business, we will try and understand the external forces that have shaped these industries and CVS; we will then go into value chain analysis using Michael Porter’s framework, and an understanding of the competitive forces using Porter’s Five forces model; and finally a comparative analysis of CVS vis-à-vis competitors so as to understand the overall strategy adopted by CVS management during the various phases of growth. The report will conclude with a proposed set of metrics to be used in measuring future performance of a company like CVS, using the Balanced Scorecard approach. 2. Business Overview Company History It was back in 1963 that brothers Stanley and Sidney Goldstein, together with a partner Ralph Hoagland founded CVS Store selling health and beauty products in Lowell, Mass. CVS originally stood for Consumer Value Stores. CVS began operations of its first store with pharmacy department in 1967 at Warwick and Cumberland in Rhode Island. The chain grew quite rapidly crossing milestones of 100 stores by 1970, achieving $100 million in annual sales by 1974, and $1 billion in sales by 1985, through a combination of organic growth and a series of acquisitions. Exhibit-1 in the Appendices gives a detailed chronological account of the events and milestones. CVS continued the strategy of mergers and acquisitions, culminating in the merger of CVS Corporation with Caremark Rx in 2007, leading to the creation of CVS Caremark as the leading integrated pharmacy services provider. (History, CVS Caremark website) While CVS set up its own PBM Company, PharmaCare only in 1994, providing a range of PBM services to employers and insurers, the history of Pharmacy Benefits Management for the merged Group dates back to 1978 when Baxter Healthcare Corporation launched the First National Hemophilia Home Service in Deerfield, IL; and its Division Caremark launched Mail Service Pharmacy, IGIV Home Care Services, and Growth Hormone Distribution and Services in 1985. In 1992 Caremark spun off from Baxter, and developed The Caremark Formulary and introduced Clinical Intervention Programs. The history of MinuteClinic is more of a rapid fire than the other two businesses. In 2000 Rick Krieger along with three other partners had founded QuickMedx, which later came to be called MinuteClinic. With the demand for walk-in convenience increasing, CVS saw a great opportunity in in-store clinics, and hence partnered with MinuteClinic in 2005 and acquired it in 2006. Very quickly, in 2007 MinuteClinic reached the 200-clinic mark, and reached the 500th health-clinic landmark in 2008. Products and Services The Retail Pharmacy segment of CVS sells prescription drugs, over-the-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting cards, and convenience foods through its pharmacy retail stores and through its e-commerce solutions. It also provides health care services through its in-store clinics under the banner of MinuteClinic. This segment operates 7,025 retail drugstores located in 41 states and the District of Columbia; and 569 MinuteClinics in 25 states. The company has a strategic alliance with Alere, L.L.C. for the management of disease management program offerings that cover chronic diseases, such as asthma, diabetes, congestive heart failure, and coronary artery disease. (Profile, CVS Caremark Corporation, 2010) The Pharmacy services segment provides a range of benefit management services, plan design and administration, formulary management, mail order pharmacy services, specialty pharmacy services and claims processing. The client base of this segment includes private business enterprises, insurance companies, unions, government employee groups, other sponsors of health benefit plans, and individuals. This segment operates 49 retail specialty pharmacy stores, 18 specialty mail order pharmacies, and 6 mail service pharmacies. CVS Today CVS Caremark, today boasts of being the “the only fully integrated pharmacy health care company in the United States” with its three businesses of Retail pharmacy, Pharmacy Benefit Management (PBM) and In-store clinics under the banner of MinuteClinic. With offerings across the entire spectrum of pharmacy care, providing end-to-end solutions from pharmacy plan design to the ultimate delivery of products and services to customers, their capabilities include industry-leading clinical and health management programs, specialty pharmacy expertise, leadership in retail clinics, customer service excellence, and a deep knowledge of the consumer gained through the more than four million customers who visit CVS/pharmacy stores every day. Thus their key performance planks have been: Provision of greater convenience and choice for patients Improved health outcomes, and Lower overall healthcare costs for plan sponsors and participants Some of the lead facts mentioned in the list of achievements include: More than 211,000 ‘colleagues’ (employees) in 43 States, District of Columbia and Puerto Rico 7,025 retail stores 569 MinuteClinic locations 49 retail specialty pharmacy stores 18 specialty mail order pharmacies 6 mail service pharmacies CVS.com and Caremark.com websites Ranked 19th in Fortune 500 for 2009 with annual sales in excess of $87 billion No 1 provider of prescriptions in the US with more than 1 billion prescriptions filled or managed; No 1 specialty pharmacy; No 1 in Store count; No 1 in Retail pharmacy sales per square foot; No 1 Retail clinic operator; and No 1 in Retail Loyalty Program with over 50 million active ExtraCare customers (CVS Caremark Facts) Financial Performance Exhibit-2 presents the financial highlights of CVS Caremark as per the 2008 Annual Report. It can be seen that CVS recorded excellent performance during the fiscal year 2008 in spite of the global recession. Except the Stock price, all parameters have shown significant growth over the previous year with revenues increasing by 14.6%, operating profit increasing by 26%, net earnings increasing by 22% and EPS growing by 18.5% from 1.92 in 2007 to 2.27 in 2008. (CVS Caremark Annual Report, 2008, pp 22-41) Exhibit-3 shows the five-year summaries, and it is clear that the company has recorded excellent growth during the entire period, with steep growth in 2007 largely because of the Caremark Rx merger. Exhibit-4 shows the segment analysis for the two segments – Pharmacy services segment and the Retail pharmacy segment. As can be seen, while both segments account for nearly 50% of the total revenues, the profitability of the Retail segment is much higher than the profitability of the Pharmacy services segment. We will discuss the reasons for this skewed relationship, and understand the value additions in a later section. Exhibits-5 and 6 present the detailed segment analysis for the Pharmacy services and Retail pharmacy segments separately. Market Developments in late 2009 In early November 2009, when CVS announced that it had lost $4.8 billion in 2010 contracts, the stock fell 20% in a day, after having climbed over 23% since the beginning of 2009 (Analysts’ Choice, 2010). The loss in contracts was suspected to be an aftermath of the merger strategy adopted by CVS in acquiring Caremark Rx in 2007, which was seen as being anticompetitive by most analysts. Though some revival of these lost contracts was seen in the form of a 2-year $998 million contract for PBM, and a one-year extension from Blue Cross and Blue Shield, accounting for $4 billion annual sales for the retail pharmacy business, the big challenge to be addressed by the PBM business was to rebuild the marketing program with differentiated offerings so as to put an end to further losses in contracts. However, with the healthy performance of the retail pharmacy business, CVS was expected to post 8% growth in EPS in 2009, and an additional 6% in 2010, with operating profits of the retail pharmacy growing up to 13%-16% in 2010, thus wiping out the projected decline in operating profits of the PBM business by 10%-12%. 3. Industry External Analysis This section looks at the industry from various perspectives to understand the past characteristics and the future course the industry is likely to take. This external analysis is detailed under five headings: Technological, Governmental (Political), Economic, Social-Cultural, and Demographic, and carried out using the framework shown below (Aaker, 2009): Source: Environmental Analysis and Strategic Uncertainty, Chapter Six, Fig 6.1, Pg 98 Technological The main technology trend having an impact on the pharmacy and healthcare industries relate to the developments in internet technologies, and the proliferation of telemedicine and remote medical advice. With multitude of medical forums and medical information websites, the customer is well-informed about the ailments and the treatment options available. The immediate implication of these advancements to the players in this industry is the need to upgrade their technologies for information access and patient care in line with the available technologies. Thus, the differentiation offered by some players through in-store clinics, and through online dispensing facilities has immense strategic value. Further, easy access to generic medicines also has its value to the retail pharmacists. Governmental (Political) Managed care has historically been a subject of debate on the extent of regulations and control to be exercised by Governmental agencies. The birth of the American Managed Care Pharmacy (AMCP) in 1988 witnessed the beginning of the era of regulations in managed care gradually but definitely. With increased pressure on medical costs, many states have chosen to rely on PBM’s to help administer prescription drug benefits for state’s Medicaid and Medicare programs. A controversial issue is that cost goes down, but access and product choice are also severely limited. If cost is the only concern, then well regulated PBM’s can be useful. Again, PBM’s  often drive down cost not only by using economies of scale to guarantee more competitive pricing, but by curtailing the ability of patients and doctors to select the most medically appropriate intervention as opposed to the least expensive one. The Healthcare Reform Bill proposed by President Obama and now finally passed after extensive debate is expected to extend health insurance to millions of unisured Americans. These reform intitiatives, as is well known, present both an opportunity as well as a threat to retail pharmacy players. Any plan that proposes to increase insurance coverage should be seen as an opportunity by the retail pharmacy industry, inasmuch as it would drive demand for prescription drugs. Further, the in-store clinics provide an excellent strategic advantage because of their convenient locations, accessible pharmacists and more cost-effective alternative as compared to physicisians’ office services. (Current Environment, 2010) Economic The biggest external factor affecting the strategic uncertainty in this industry has been the economic developments since mid-2008. There has been definite decline in consumer spending and a rise in unemployment rates in 2009, and are expected to continue till mid-2010 (Supermarkets and Drugstores: Industry Survey, 2010). With recession affecting consumer disposable income, the strategic impact for retail pharmacists has been to need to increase promotional spends, and take aggressive pricing decisions so as to drive traffic to the stores and keep up the shopping basket size.. Social – Cultural But for the H1N1 pandemic threat that resulted in increased sale of preventive drugs, there has not been too many social-cultural factors that have played significant roles in affecting strategies of the retail and PBM industries. Perhaps the liberal lifestyle of a certain section of the population has resulted in increased demand for herbal health drugs and other drugs recommended in alternate therapies. Demographic Two specific trends in demographics have had their impact on this industry. The large Gen-X and Gen-Y population has contributed in significant measure to the increased demand for fitness drugs and herbal remedies for problems not easily treated with conventional medicines. The increasing longevity of Americans has resulted in a demographic effect of a larger population of senior citizens. This demographic group has been a great boon for the pharmacy benefit managers as well as retail pharmacies. 4. Value Chain Analysis Having seen an overview of CVS’s business, and having understood the external factors that impact the strategies of firms in this industry, let us now go into some deeper analysis of strategies adopted by CVS in building value to the stakeholders. We will use Michael Porter’s Value Chain analysis framework for this exercise. Michael Porter’s Value Chain Analysis Framework As shown in the framework above, a firm builds value in its products and services through a set of Primary activities and Support activities. The Primary activities cover Inbound logistics, Operations, Outbound logistics, Marketing and Sales, and Service. The Support activities include Infrastructure, Human Resource management, Technology development and Procurement. (Porter, 1996) CVS Caremark has adopted some excellent strategies in each of the above areas adding value to its customers and other stakeholders. Some of these activities include the following: ( Improved Health and Wellness CVS Caremark has managed to deliver healthcare in the most efficient and cost-effective way to the customers through a combination of primary and support activities. As pioneers of generic substitution, CVS has ensured the best value for money to the patients serviced by its retail stores through appropriate procurement and inbound logistics strategies. Its mail services, network management, and online shopping experiences through cvs.com and caremark.com services have enhanced reach and accessibility with the use of infrastructure, technology development and Operations management strategies. Integration of retail pharmacy with PBM offerings is another example of operations strategy to add value to its clients. Excellent Human Resource management with appropriate Training has resulted in over 25,000 in-store pharmacists, nurse practitioners, and physician assistants through MinuteClinic providing information and treatment to patients through face-to-face interaction at the pharmacy. (CVS Caremark Annual Report, 2008, pp 5-9) Better Value for Consumers Best-in-class generic drug distribution through the retail stores and mail services has helped consumers achieve true value. More than 6 million plan participants have gained value through CVS ExtraCare Health Cards offering substantial discounts on CVS brand products eligible for reimbursement from Flexible Spending Accounts. The scheme of CVS/Pharmacy Health Savings Pass has benefited consumers by offering to fill a 90-day prescription for more than 400 generic maintenance medications for just $9.99. The ExtraCare Loyalty program has helped cardholders save over $2 billion in 2008. These are all value chain strategies in Sales and Marketing activities. Adherence Enhancement through Flexible, Integrated Approach Some of the consumer value measures adopted by CVS through a combination of primary and support activities drive adherence and ensure better health: Counseling by a CVS pharmacist on the importance of staying on medication during First Fill Automatic reminders for refills for consumers enrolled in CVS Ready Fill programs Provision of information on lower-cost therapy options during pickups Information on eligibility for Maintenance choice through plan sponsors, which allow 90-day supply at a lower co-pay Recommendations for clinical testing by the pharmacists Availability of MinuteClinics where testing cn be performed immediately Counseling on detection of non-adherence based on patient data on the computerized records system 5. Porter’s Five Forces Analysis Industry Overview The Retail Pharmacy and PBM industries have been characterized by a few major players and a plethora of smaller players in the market for a long time. In recent times, the industry has witnessed some consolidation. The industry still has around 6-8 major payers besides several smaller players. 2009 revenues of some of the lead companies in this industry are as follows: (Competitors: CVS Caremark Corporation, 2010) Company Revenue (2009) Market Cap $ Billion $ Billion CVS Caremark 98.73 51.16 Walgreen 64.75 36.24 Rite Aid Corp. 25.91 1.49 China Nepstar -- 0.76 Pharmerica Corp. 1.84 0.57 HealthWarehouse.com Inc. 0.003 0.023 Thus CVS is a clear leader in terms of revenues and market capitalization. Another chain that poses close competition to CVS is the Wal-Mart Stores Inc (Revenue $408.21 billion), but its revenue figures for the pharmacy division is not available separately for comparison purposes. Porter Five Forces Framework For carrying out the competitive analysis using Michael Porter’s Five Forces model, we will use the following framework: Let us look at each of the forces (Cole Ehmke, et al, 2010): Rivalry among existing firms: Factor Remark Number of Competitors Few big players; plethora of small players Relative size of competitors (balance) CVS and Walgreen account for a large market share; Rest are small Industry Growth rate CAGR of 22%; Expected to grow to $4 trillion over the next decade Fixed Costs vs. Variable costs Very high fixed costs; Low variable costs Product differentiation Low Buyers’ switching costs Low Exit barriers Low; Acquisitions are very rampant Thus, overall, the industry witnesses a very high rivalry at the lower end of the market, but the rivalry at the higher end, as valid for CVS, is limited Determinants of Buyer power Factor Remark No of Buyers relative to Sellers Huge difference. Very few large sellers Product differentiation Low; Physicians influence prescription drugs Switching costs to use other product Low Buyers’ use of multiple sources Limited, especially with plan schemes Buyers’ threat of backward integration Low Sellers’ threat of forward integration Low Importance of product to the buyer Extremely high Buyers’ volume Very high On the whole buyers exercise substantial power with the smaller players, particularly those who are only in retail business. But for integrated players like CVS, buyer power is quite limited Determinants of Supplier power Factor Remark Supplier Concentration Large no of branded pharma manufacturers, private labels and generic drug suppliers Availability of substitute inputs Very high, since patients do not insist on a specific brand Suppliers’ product differentiation Only on brand image; Low differentiation Buyers’ switching cost to other input Low Again, the supplier power is quite limited with the cost-effectiveness provided by generic drugs. Threat of Substitute products Factor Remark Relative price of substitutes Generic drugs are usually 40-50% cheaper Relative quality of substitutes No significant difference Switching cost to buyers Very low. In fact sometimes advantageous The biggest threat is from substitutes in this industry, and this is one area where CVS has protected itself strategically with choices of its own private label drugs as well as generic drugs. Threat of New Entrants Factor Remark Entry Barriers: Economies of scale Very high Product differentiation Low Capital requirements High investment in real estate Switching cost to buyers Low Access to distribution channels Difficult because of strong nexus Incumbents’ defense of market share Very strong. All three big players – CVS, Walgreen and Wal-Mart command good loyalty Industry Growth Rate High to very high Threat of new entrants is medium because of a combination of favorable and unfavorable factors as listed above. Players with financial muscle can enter and change the game. To summarize, therefore, the keys to winning strategies in this industry are geographical expansion to increase demand, introduction of innovative features with newer technologies, excellent supply chain integration with quality after sale service, and innovative cross sell integration with services like PMB and in-store clinics, which increase customer loyalty. CVS has managed all these fronts very well and hence has recorded aggressive growth through acquisitions and expansion into newer segments and regimes 6. Competitive Strengths and Weaknesses of CVS Comparative Financial performance As brought out in the previous sections, CVS has been a clear market leader in terms of 2009 revenue and market capitalization. We summarize some of the key comparative financial figures for the key competitors in this industry (Though Wal-Mart Stores figures are for the entire company, it can be assumed that the ratios of the pharmacy division is nearly the same as for the company): DIRECT COMPETITOR COMPARISON   CVS RAD WAG WMT Industry Market Cap: 51.16B 1.49B 36.24B 211.22B 1.46B Employ­ees: 211,000 57,680 166,000 2,000,000 166.00K Rev. Growth 7.00% -1.80% 9.50% 4.20% 38.90% Revenue: 98.73B 25.91B 64.75B 408.21B 25.91B Gross Margin : 20.64% 26.52% 27.97% 25.37% 27.97% EBITDA : 7.83B 674.55M 4.62B 31.11B 4.62B Operating. Margins : 6.52% 0.48% 5.65% 5.87% 3.92% Net Income : 3.71B -2.60B 2.09B 14.41B N/A EPS : 2.549 -2.972 2.104 3.697 1.39 PE : 14.43 N/A 17.49 15.01 13.57 PEG : 0.99 N/A 1.1 1.29 0.97 RAD = Rite Aid Corp. WAG = Walgreen Co. WMT = Wal-Mart Stores Inc. Industry = Drug Stores It can be seen that with revenues of $98.73 billion and market cap of $51.16 billion, CVS is the leader in the industry, and is nearly four times the industry average in revenues and 35 times the industry average in market cap. This is despite the sudden drop in stock prices of CVS after the announcement about the loss of contracts for 2010 in early November 2009, when the stock prices dropped by nearly 23% in a day, and has not recovered fully. Thus, the PE for CVS is only 14.43 as against 17.49 for Walgreen and 15 for Wal-Mart, and the industry average being 13.57 What merits notice is that although CVS has clocked 7% revenue growth in 2009, the gross margin has been only 20.64% against the figures of over 25% for all competitors as well as the industry average. This is attributable primarily to the lower gross margins and operating margins for the PMB business. Some of the key competitive advantages and challenges of CVS have been: Competitive Advantages: Innovative stores with high sales/square foot, and a strong and loyal client base MinuteClinic providing immediate in-store healthcare benefits ExtraCare Loyalty card program resulting in savings of $2 billion in 2008 to cardholders CVS/Pharmacy Health Savings Pass inducing higher traffic to CVS stores Integrated retail stores, MinuteClinic and PMB offering complete end-to-end solutions to consumers and payors alike Convenient and easily accessible store locations with 7,026 stores across 43 States Challenges: Lower operating margin for PMB business Threat of loss of contracts because of the perception of anti-competitiveness in the CVS Caremark merger Largely leveraged from acquisitions, resulting in inconsistent store experience Standard of Real estate, especially as compared to Walgreens 7. Balanced Scorecard With this, we come to the final question on what should be the future strategy map for CVS and what kind of performance metrics should CVS focus on. Based on the sections and issues we have discussed, the key top-level objectives will be: Operating Margin growth for PBM and Retail Pharmacy Sales Growth Growth in Shareholder Value through sustained EPS growth These measurable objectives at the corporate level need to be percolated down to the operating units and levels in the organization through proper stories related through the means of strategy maps (Norton, 1999). We will use the basic architecture of strategy maps, as shown alongside in deriving the measurable parameters at each level in the Balanced Score card. Using this architecture, the themes, value propositions and the metrics for the four perspectives for CVS Caremark are given in the chart below: Growth and productivity are the basic strategy themes for CVS, with measures in the form of Revenue growth, Operating margin for PBM and Retail, and a measure of shareholder value in the form of market cap and EPS growth. The chart below shows the relationships between performance parameters under each of the Balanced Scorecard perspectives – Financial perspective, Customer perspective, Internal process perspective, and Learning and Growth perspective. Growth Sales Growth * Productivity Operating Margin % for PBM and Retail * EPS Growth $ * Financial Perspective Shareholder Value Market Cap $ * ROI ROCE* EBITDA Operating Profit %* New Stores No of Stores-added * New PBM Plan Sponsors No of Accounts* Contract Value per Account * Contract Loss * Store Productivity Sales / sq ft * Same-store revenue increase* Inventory Turns* Promotion Scheme Performance growth* Stock Price Stock price growth * Customer Value Proposition Cost-Effective Solutions Counseling and Adherence to Friendly Historical details of patients (MinuteClinic) Promotional Schemes Internal Process Franchise Enhancement New Stores added State-wise* New Plan Sponsors added State-wise* Customer Value Enhancement Retail prescriptions filled* Generic % of prescriptions filled* MinuteClinic tests performed* MinuteClinic No of patients serviced* Operational Excellence State-wise Same store sales growth* State-wise Sales/sq ft growth* Pharmacy Claims processed growth* Generic dispensing rate %* Mail Order penetration rate %* Learning and Growth Perspective Competencies No of persons attended Training programs* Average Median Tenure – Managers, Crew* Technology Call Center queries resolved* Call Center first-call resolutions* Online orders filled* Motivation Levels Employee Feedback* Customer feedback / satisfaction levels* Incentives Earned * * Metrics Bibliography Aaker David A. (2009) Strategic Market Management. pp 97-105. John Wiley & Sons Inc. December 2009. “Analysts’ Choice. CVS Caremark: A Tale of Two businesses”. Dow Theory Forecasts. 8 Jan 2010 Cole Ehmke et al..”Industry Analysis: The Five Forces”. Knowledge to go. Purdue Extension. 27 March 2010 “Competitors”. CVS Caremark Corporation. 27 March 2010 Current Environment: Supermarkets & Drugstores. Industry Surveys. 21 Jan 2010. “Profile”. CVS Caremark Corporation. 27 March 2010 “History”. CVS Caremark. . 26 March 2010. “CVS Caremark Facts”. 27 March 2010 CVS Caremark Corporation 2008 Annual Report. “Management Discussion and Analysis of Financial Condition and Results of Operations”. pp 22-41. 26 March 2010 CVS Caremark Corporation 2008 Annual Report. “Healthy Outcomes”. pp 5-9. 26 March 2010 Norton David P. (1999). “Use Strategy Maps to Communicate Your Strategy”. The Balance Scorecard Report Harvard Business School Publishing & The Balanced Scorecard Collaborative. Porter Michael E. (1996). “What is Strategy”. Harvard Business Review. Nov-Dec 1996. Appendices Exhibit-1: CVS Caremark History of Events CVS Caremark History 2008: CVS Caremark marks the first anniversary of its successful, transformational merger as the largest integrated provider of prescriptions and health-related services in the nation on March 24. 2007: CVS Corporation and Caremark Rx, Inc. complete their transformative merger, creating CVS Caremark, the nation's premier integrated pharmacy services provider. Retail Pharmacy 2009:The company celebrates the opening of its 7,000th CVS/pharmacy, located in Little Canada, Minn. 2008: CVS Caremark acquires Longs Drugs’ 541 stores in California, Hawaii, Nevada and Arizona, giving CVS/pharmacy immediate market leadership in Northern and Central CA: as well as 3 distribution centers and PBM subsidiary, RxAmerica. 2006: CVS acquires 700 stand-alone Sav-On and Osco drugstores from Albertsons, making CVS/pharmacy #1 in fast-growing Southern California and enhancing its presence in key Midwest markets. 2005: CVS/pharmacy ends the year as the largest pharmacy retailer in America, with more than 5,400 locations in 34 states and Washington, D.C. CVS/pharmacy serves more than 400 million customers. 2004: CVS completes its acquisition of 1,268 Eckerd Stores and Eckerd Health Services, Eckerd’s PBM/Mail-order pharmacy business, increasing its store count to more than 5,000 locations and becoming America’s leading pharmacy retailer. CVS/pharmacy announces entry into California. CVS ProCare becomes part of PharmaCare. 2003: CVS celebrates its 40th anniversary, and announces its planned entry into the Minneapolis/St. Paul, Minn. market. The company’s Extra Care loyalty card program ends the year with more than 44 million cardholders. 2002: CVS/pharmacy continues to grow, announcing its plans to enter the Texas market with stores targeted for high-population-growth markets such as Dallas and Houston. Also in the plans — the company’s first locations in Phoenix and Las Vegas. 2001: CVS/pharmacy introduces the ExtraCare Card, becoming the first national pharmacy retailer to launch a loyalty card program. CVS/pharmacy records annual sales exceeding $22 billion, and continues to expand into diverse, high-growth markets in Central and South Florida. 2000: CVS/pharmacy announces plans to enter the Chicago market and continue expansion in Florida with stores slated for Fort Lauderdale and Orlando. The company acquires Stadtlander pharmacy, making CVS ProCare the largest specialty pharmacy in the U.S. at the time. 1999: Tom Ryan is named chairman of CVS Corporation, succeeding company co-founder Stanley Goldstein. The company announces its intentions to enter Florida, with stores initially planned for the Tampa market. CVS/pharmacy launches CVS.com, the first fully integrated online pharmacy in the U.S. 1998: CVS acquires 200 stores from Arbor Drugs of Michigan to bring its store total to 4,100 across 24 states. The transaction gives our company its first stores in Michigan and the instant lead in the highly competitive Detroit market. In addition, the deal gives CVS/pharmacy a 450,000-square-foot distribution center in Novi, Michigan. 1997: CVS completes its acquisition of more than 2,500 stores from Revco — the largest acquisition in the history of the U.S. retail pharmacy industry. The acquisition of Revco gives CVS key drugstore locations primarily in the Midwest and Southeast. CVS ProCare is established as a specialty pharmacy subsidiary of CVS. 1996: Following the restructuring of Melville Corporation, CVS Corporation becomes a standalone company trading on the New York Stock Exchange under the CVS ticker. Stanley Goldstein is the company's first chairman. 1994: In January, Tom Ryan is named President and CEO of CVS/pharmacy. Ryan began his career with CVS/pharmacy in 1974 as a pharmacy intern. 1994: CVS launches PharmaCare, a pharmacy benefit management company providing a wide range of services to employers and insurers. 1993: CVS/pharmacy completes the chain-wide transition to point-of-sale scanning. 1990: CVS acquires 500-store Peoples Drug, which establishes the company in new mid-Atlantic markets including Washington, D.C., Pennsylvania, Maryland and Virginia. 1988: CVS/pharmacy celebrates its 25th anniversary, finishing the year with nearly 750 stores and sales of about $1.6 billion. 1987: Stanley Goldstein takes over as chairman and CEO of Melville Corporation. 1986: CVS co-founder Stanley Goldstein is named president and COO of Melville Corporation. 1985: CVS reaches $1 billion in annual sales. 1984: Senior Vice President of Marketing Harvey Rosenthal is named President and CEO of CVS. He succeeds Stan Goldstein, who is named Executive Vice president of Melville Corporation. CVS serves more than 178 million customers. 1981: CVS breaks ground on the Store Support Center in Woonsocket, RI. 1980: CVS/pharmacy becomes the 15th largest pharmacy chain in the U.S. with 408 stores and $414 million in sales. 1978: CVS/pharmacy finds success and differentiates itself from the competition by opening small health and beauty aids stores in enclosed shopping malls. 1977: CVS acquires the 36-store New Jersey-based Mack Drug chain. 1974: CVS achieves $100 million in annual sales. 1972: CVS nearly doubles in size with its acquisition of 84 Clinton Drug and Discount Stores. 1970: CVS operates 100 stores in New England and the Northeast. 1969: CVS is sold to Melville Corporation. 1967: CVS begins operation of its first stores with pharmacy departments, opening locations in Warwick and Cumberland, Rhode Island. 1964: The chain grows to 17 stores. The original CVS logo is developed (CVS banner inside a shield, with the words “Consumer Value Stores” below) and displayed on store exteriors for the first time. 1963: The first CVS store, selling health and beauty products, is founded in Lowell, Mass. by brothers Stanley and Sidney Goldstein and partner Ralph Hoagland. CVS stands for Consumer Value Stores. Pharmacy Benefit Management 2008: Caremark Customer Care Centers recognized for the second consecutive year by J.D. Power and Associates Certified Call Center Program(SM). 2006: Caremark Customer Care Centers recognized for customer satisfaction excellence by J.D. Power and Associates Certified Call Center Program(SM). 2005: Caremark Rx, Inc. opens a Customer Care Center in Nashville to serve rapid growth in the use of its mail service offerings. 2004: CVS ProCare becomes part of PharmaCare. 2003: Caremark Rx and AdvancePCS announce strategic combination creating a $23- billion revenue company. 2000: CVS Corporation acquires Stadtlander pharmacy, making CVS ProCare the largest specialty pharmacy in the U.S. at the time. 1999: Caremark launches online prescription refills. 1998: Caremark defines pharmaceutical services as its core operating unit and establishes a National Pharmacy & Therapeutics Committee. 1997: Caremark merges the prescription benefit management business and the biotech business. 1996: Caremark enters the multiple sclerosis marketplace. 1995: Caremark launches CarePatterns® Disease Management Programs. 1994: CVS launches PharmaCare, a pharmacy benefit management company providing a wide range of services to employers and insurers. 1994: Caremark expands product lines and sets up additional offices in Northbrook, Illinois. 1993: Caremark sets up offices in Redlands, California. 1992: Caremark spins off from Baxter. The Caremark Formulary is developed and Clinical Intervention Programs are introduced. 1991: Caremark purchases Prescription Health Services (PHS). 1985: Baxter taps its expertise in healthcare cost management to begin providing prescription benefit management services. As a division of Baxter, Caremark launches Mail Service Pharmacy, IGIV Home Care Services, and Growth Hormone Distribution and Services. 1983: Hemophilia Patient Home Health Care is launched. 1978: Baxter Healthcare Corporation (Deerfield, Illinois) launches the First National Hemophilia Home Service. MinuteClinic 2008: MinuteClinic opens its landmark 500th health clinic. 2007: In August, MinuteClinic reaches the 200-clinic mark. 2006: CVS Corporation acquires MinuteClinic, America’s leading operator of in-store health clinics. 2005: CVS/pharmacy partners with MinuteClinic, announcing three clinics to open in CVS/pharmacy stores. Months later, in preparation for rapid expansion, MinuteClinic Board of Directors names Michael Howe as company’s CEO. 2002: The demand for walk-in convenience led to quick growth, with several large employers asking their health plans to include QuickMedx in their networks. With the addition of insurance coverage and a few other improvements, QuickMedx becomes MinuteClinic in December 2002. 2000: Rick Krieger and partners Douglas Smith, M.D., Steve Pontius and Kevin Smith, RN, FNP founded QuickMedx (the retail health care centers that became MinuteClinic). Exhibit-2: Financial Performance Source: CVS Caremark Annual Report 2008 Exhibit-3: Five Year Financial Summary Exhibit-4: Segment Analysis Source: CVS Caremark Annual Report 2008 Exhibit-5: Pharmacy Services Segment Analysis Exhibit-6: Retail Pharmacy Segment Analysis Read More