By Paul Ziobro and Austen Hufford 

CVS Health Inc. warned that it stands to lose 40 million prescriptions next year as deals signed by rival Walgreens Boots Alliance Inc. with other participants in the drug supply chain shut out CVS stores.

The restricted networks caused the country's largest drugstore operator to temper its profit outlook for the rest of this year and next year, sending shares down 15% in premarket trading.

CVS Health shares have already fallen nearly 15% this year, as investors fretted over push back to rising drug prices. That trend has the potential to harm the company's large business that manages prescription drug plans, which negotiates prices paid by large employers and captures some of the rebates built into drug prices. CVS filled 1.03 billion prescriptions in 2015, the last full year available.

But another challenge is coming from the drugstore space, where competitors like Walgreens are joining to create networks that exclude CVS stores.

Under Chief Executive Stefano Pessina, Walgreens has been aggressively pursuing deals that makes its pharmacies part of preferred networks where patients can fill their prescriptions at a discount. It has had a number of wins too, including becoming the preferred pharmacy for United Healthcare Inc.'s OptumRx and for Prime Therapeutics, which manages drug benefits for 14 leading Blue Cross and Blue Shield health plans.

Last month, Walgreens signed a deal to become the preferred network for Tricare, the Defense Department's health care network, supplanting CVS Health.

CVS Chief Executive Larry Merlo said Tuesday that recent pharmacy network changes have caused some retail prescriptions to move out of its network in the latest quarter. He also cited slowing prescription growth in the market overall. The drug industry has recently shown signs that it is slowing the pace of price increases after years of hefty hikes, after pressure from politicians, consumers and employers.

On Tuesday, CVS lowered its financial targets. It now expects full-year adjusted earnings per share to be between $5.77 and $5.83, down from $5.81 to $5.89 previously. Analysts polled by Thomson Reuters had expected earnings per share of $5.85. For 2017 it expects adjusted earnings per share of $5.77 to $5.93. Analysts had expected $6.52.

Pharmacy-benefits managers, which include companies like Express Scripts Holding Co. and CVS Health's Caremark, operate as middlemen between insurance companies, corporations that pay for health coverage, drugmakers, and pharmacies. They help process claims for prescriptions drugs while also negotiating with drugmakers and insurance companies over the price of medications.

By owning Caremark as well as thousands of drugstores, CVS Health has been able to closely align both businesses to encourage patients to fill their prescriptions somewhere within the CVS empire. For instance, under its Maintenance Choice program, patients can get 90-day prescriptions filled either through the pharmacy benefit program's mail order business or at CVS stores at the same lower price.

The Woonsocket, R.I.-based drugstore giant has increasingly relied on its pharmacy benefits management division for growth. In the latest quarter, CVS reported a profit of $1.54 billion, or $1.43 a share, up from $1.25 billion, or $1.11 a share, a year earlier. Excluding certain items, per-share profit rose to $1.64 from $1.28.

Revenue increased 15% to $44.62 billion.

Analysts predicted $1.57 in adjusted earnings a share and $45.29 billion in revenue, according to Thomson Reuters.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Austen Hufford at austen.hufford@wsj.com

 

(END) Dow Jones Newswires

November 08, 2016 08:51 ET (13:51 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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