CVS reportedly weighing breakup seven years after acquiring Aetna
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The era of powerful pharmacy chains dominating the American drug landscape is fading.
Why it matters: CVS, Walgreens and Rite Aid long held a tight grip over prescription fulfillment, but they're losing their footing to a multitude of competitors, including mail-in options, online pharmacies and big-box stores.
The intrigue: CVS is reportedly weighing a breakup plan that could separate the company's Aetna insurance business and its retail pharmacy division, according to Reuters, the WSJ and CNBC.
- The move would come only seven years after CVS had gotten so big that it was able to acquire Aetna — one of the nation's largest health insurers — in a deal that was supposed to deliver significant efficiencies for both the company and patients.
- A separation would force CVS to choose which business to pair with its giant prescription drug middleman, Caremark. And there are no perfect options there.
- "Each side makes the other side better, competitively," Leerink Partners analyst Michael Cherny told WSJ.
What they're saying: "CVS Health's management team and Board of Directors are continually exploring ways to create shareholder value," the company said today in a statement. "We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model."
Zoom in: As the 10th largest company in the world by revenue, CVS remains a powerful force in health care and retail with more than 9,000 pharmacies, 1,000+ walk-in clinics and over 300,000 employees.
- The company was scheduled yesterday to meet with hedge fund Glenview Capital, which owns around 1% of CVS outstanding stock and wants changes, Dan Primack and Claire Rychlewski reported for Axios Pro: Health Tech Deals.
The big picture: CVS is under pressure on multiple fronts:
- Aetna is facing rising medical costs, much like its industry peers.
- Pharmacy benefit managers (PBMs) like its Caremark subsidiary, are under bipartisan fire from regulators, consumer watchdogs and lawmakers for their role in elevating drug prices.
- Pharmacy competition is intensifying, and the company's non-drugs retail business is struggling to maintain its relevance as consumers increasingly look elsewhere for everyday items.
State of play: It's not just CVS.
- Walgreens is planning significant store closures as it deals with debt issues and disgruntled workers.
- Rite Aid recently emerged from Chapter 11 bankruptcy as a much smaller company after hundreds of locations.
Yes, but: Investors didn't seem exhilarated by the idea of a breakup as CVS shares fell 2% today.
- "We have mixed views," Bank of America analyst Allen Lutz wrote today, adding CVS "could generate substantial shareholder value by improving margins within Aetna over the next few years."
