November 30, 2022

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headshot - CVS Health President and CEO Karen Lynch

CVS plans to sell pharmacy long-term care company Omnicare, saying it is ‘no longer a strategic asset’

CVS Health President and CEO Karen Lynch

CVS Health, based in Woonsocket, RI, is selling its long-term care pharmaceutical business, Cincinnati-based Omnicare, reporting a $2.5 billion associated loss in the third quarter, the company announced Wednesday.

“We continue to strategically assess our portfolio and make decisions about assets that do not strategically fit into our portfolio. Omnicare is a good example of that,” said President and CEO Karen Lynch Wednesday morning on the company’s third-quarter earnings call.

CVS said in: “The company has determined that its LTC business is no longer a strategic asset, and during the third quarter of 2022 has committed to a plan to sell its LTC business.” deposit With the Securities and Exchange Commission on Wednesday to coincide with the call.

Omnicare serves communities of seniors, skilled nursing facilities and Comprehensive Care for Seniors (PACE) programs.

For accounting purposes, Omnicare “met the held-for-sale accounting standards and net assets were accounted for as assets held for sale,” the company said Wednesday. “The book value of the LTC business was determined to be greater than its fair value and a loss was recognized on assets held for sale during the third quarter of 2022.”

In the third quarter, according to CVS, the company recorded a pre-tax loss of $2.5 billion on assets held for sale to take note of the company’s long-term care business in the current year, which was partially offset by a lack of $431 million in goodwill impairment. Fee on the remaining goodwill of an Omnicare unit registered in the previous year.

2015 acquisition

CVS acquired Omnicare in 2015 for $10.4 billion plus assumed $2.3 billion in Omnicare debt, according to published sources. At the time, the then CEO was Larry Merlo He said That purchase gave the retail pharmacy giant “access to a new pharmacy dispensing channel.”

rumors about a Possible to sell Omnicare It was distributed in August 2020, when a CVS spokeswoman said Senior life at McKnight It will enhance positions within the long-term care business. Some put the number of positions at stake at more than 700, although CVS has not confirmed an exact amount.

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“The healthcare industry is evolving as patients and customers change how they interact with providers and as payment programs evolve,” Shelley Bendet, senior communications advisor at CVS Health, said at the time. “We regularly evaluate all of our work to ensure that we are in a position to provide the best service to our customers while running our operations as efficiently as possible.”

CVS hasn’t publicly expressed its intention to leave the long-term care business at that point, but a few months ago, in January 2020, Merlo described the company’s experience with Omnicare as “disappointing. In his remarks during a session of the JPMorgan Healthcare Conference, he also noted that the skilled nursing sector is “challenging” and that people’s desire to recover at home has continued to influence the demand for long-term institutional pharmacy services.

“We continue to see opportunity in the growth of supported and independent living, and that is where our focus remains,” he said at the time, according to a transcript.

in August 2020 earnings callCVS executives note that the COVID-19 pandemic has “significantly impacted” Omnicare and the company’s overall long-term care existence.

“While taking a look at the industry’s challenges, we saw a 20% drop in admissions and some facilities continued not to accept new patients but not shut down per se,” said Eva Burato, CVS Health’s vice president and chief financial officer at the time. .

Lynch joined CVS as New CEO In February 2021. Early this year, as of July 1, Ahmed Hassan was Designated President of Omnicarehaving joined CVS Health in 2015. At the time, Omnicare was called “a solid company filled with passionate long-term care professionals.”

It costs company money

But legal action related to long-term care has also cost the company money.

In May 2020, for example, Omnicare agreed to pay an amount $15.3 million civil fine To settle allegations of violation of federal law by allowing the distribution of opioids and other controlled substances without a valid prescription.

Omnicare denied the allegations but settled the lawsuit “to avoid expenses and uncertainty about potential litigation,” a company spokesperson said. Senior life at McKnight in time.

Separate and not intended for long-term care, on Wednesday, CVS announced An agreement in principle to pay approximately $5.2 billion over 10 years, beginning in 2023, to settle what Lynch described as “substantially all opioid-related lawsuits and claims against CVS Health by states, political subdivisions, and tribes.”

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This finding is “in the interest of all parties and will help us put a decades-old issue behind us as we continue to focus on delivering a superior healthy experience to the millions of consumers who depend on us,” she said.

On Wednesday’s earnings call, Lynch also noted that CVS has signed an agreement to sell bswift to online benefits registration/management system creator (to global investment firm Francisco Partners), a company it also described as “non-strategic.” CVS acquired the company as part of its Aetna purchase in 2018.

“As we liquidate assets, we will continue to invest in areas that align with our strategy with a disciplined approach to capital allocation,” she said. The company also recently Sold Lynch referred to the Payflex business of a health savings account (to the Millennium Trust) and part of Aetna’s international business.

Not all sales

But it is not all company liquidations.

In September, CVS announced that it was buying Signify Health, a company focused on “health risk assessments, value-based care, and empowering service providers” for $8 billion.

“This acquisition will enhance our connection with consumers at home and enable service providers to better meet patients’ needs as we implement our vision to redefine the healthcare experience. Additionally, this combination will enhance our ability to expand and develop new product offerings in a multi-payment approach,” Lynch said in time.

On Wednesday, it said the deal is expected to expire in the first half of next year, and also hinted at future spending related to homes.

“We said we wanted to be at home. We’re going to make investments around that,” Lynch said, echoing. Comments I made in September At the Morgan Stanley Global Healthcare Conference.

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$3 billion + forecast revenue for the sector in 2022

Despite the potential sale of Omnicare, CVS’s retail/long-term care segment is expected to see more than $3 billion in revenue in 2022 due to COVID-19, said Shawn Gorten, executive vice president and chief financial officer.

However, he said, “It is not wise to expect a similar level of COVID-based revenue in the future,” and we expect the economics of vaccines and diagnostic tests to change after the public health emergency expires, which we expect will happen in the first part of the first quarter of 2023.”

Overall, the retail/long-term care segment, which includes CVS pharmacy locations serving the general public as well as Omnicare, “continues to outperform expectations,” Lynch said, with revenue of $2.67 billion in the quarter representing 7% growth. Almost versus a year earlier, with $1.4 billion in adjusted operating income, according to executives.

“Performance at both the front-store and pharmacy was strong,” Lynch said, noting that front-store sales were up nearly 4% and that demand for COVID vaccines and over-the-counter tests, as well as cough, cold and flu products, remained high.

It said the number of prescriptions grew 1.8% year-over-year in the third quarter, or 3.6% if COVID vaccines are excluded.

“This growth helped propel our retail pharmacy business to another quarter of year-over-year market share gains, extending the trend that began in the first quarter of 2020,” Lynch said.

In addition to the retail/long-term care segment, CVS also has a healthcare benefits division and a pharmacy services segment.

Overall, Lynch described the quarter as “excellent.”

“During the third quarter, revenue grew 10% year-over-year to more than $81 billion, and we increased adjusted operating income by nearly 4% year-over-year to $4.2 billion,” she said. “Adjusted earnings per share for the quarter were $2.09, up more than 6% from the previous year.”

Learn more about the company’s performance in the third quarter of CVS Company Website.