Driving More Affordable, Accessible and Effective Care
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Driving More Affordable, Accessible and Effective Care Larry Merlo President & Chief Executive Officer Forward-looking Statements; Non-GAAP Measures During today’s presentation, we will make forward-looking statements within the meaning of the federal securities laws. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our SEC filings, including the risk factors section and cautionary statement disclosure in those filings. During this presentation, we will also use some non-GAAP financial measures when talking about our company’s performance, including free cash flow, cash available to enhance shareholder value and Adjusted EPS. In accordance with SEC regulations, you can find the definitions of these non-GAAP items, as well as reconciliations to comparable GAAP measures, on the investor relations portion of our website. 2 Key Accomplishments in 2016 Strong financial performance Enhanced Long-Term Care Adjusted EPS growth of ~12%; Introduced pilot programs to improve Free Cash Flow of $6.9B patient care Successful PBM selling season Completed Target integration $7.8B gross new business for 2017; Integrated Target pharmacies and clinics client retention of ~97% Effectively managed trend Advanced front store strategies Delivered profitable sales through Achieved client drug trend of only 3.3% enhanced offerings, personalization through September and digital capabilities Superior Specialty growth Plan to reaccelerate growth Includes new partnerships with payors, Dispensed revenue growth of ~19%, new PBM products, cost savings initiative continuing to outpace market and capital deployment 3 Refer to endnotes for additional information. Driving More Affordable, Accessible and Effective Care Affordable Accessible Effective Cost management Unmatched breadth of Analytics capabilities solutions to drive real assets to connect with and clinical programs savings in the health patients fully across to help drive adherence care economy the care continuum and health outcomes 4 Driving More Affordable, Accessible and Effective Care Affordable Accessible Effective Cost management Unmatched breadth of Analytics capabilities solutions to drive real assets to connect with and clinical programs savings in the health patients fully across to help drive adherence care economy the care continuum and health outcomes 5 Today’s Key Takeaways Driving More Affordable, Accessible and Effective Care Driving Outcomes In an era of rising costs, we are the optimal partner to deliver savings and Savings and help improve outcomes for health care stakeholders Providing the Front Pharmacy has the highest frequency of interaction and our unmatched Door and the Last Mile patient touch points across the enterprise help shape behavior Best Partner for PBMs We can partner with all PBMs and health plans, leveraging our and Health Plans enterprise assets and capabilities to meet their individual needs Integrated Our exclusive programs are seamlessly integrated through our Health Pharmacy Care Engagement Engine, providing better member experience and results Positioned for L-T Maximize shareholder value with an enterprise mindset; generate strong Enterprise Growth cash flow and employ a disciplined approach to capital allocation 6 Today’s Agenda Topic Speaker Maximizing Shareholder Value With an Enterprise Mindset Dave Denton Delivering Value for All Health Care Stakeholders Larry Merlo Meeting the Health Care Challenges of Tomorrow Jon Roberts Leading the Evolution of the Specialty Model Alan Lotvin Capitalizing on the Retailization of Health Care Helena Foulkes 7 Endnotes Slide 3 1. Refer to non-GAAP tab in Analyst Day presentation book or the Investor Relations portion of the CVS Health website for Adjusted EPS reconciliation for the year ending December 31, 2016 and the year ended December 31, 2015. 2. Refer to non-GAAP tab in Analyst Day presentation book or the Investor Relations portion of the CVS Health website for Free Cash Flow reconciliation for the year ending December 31, 2016 and the year ended December 31, 2015. 3. Adjusted EPS growth and Free Cash Flow are based on midpoints of 2016 guidance. 4. Gross new business revenue excludes Medicare Part D SilverScript individual products. 5. Client retention rate is defined as: 1 less (projected 2017 lost revenues from any known terminations plus annualization of any mid-year 2016 terminations, divided by estimated 2017 PBM revenues) expressed as a percentage. Both terminations and PBM revenues exclude Medicare Part D SilverScript individual products. 6. Client drug trend is the measure of growth in prescription spending per member per month. Trend calculations take into account the effects of drug price, drug utilization and the mix of branded versus generic drugs. Trend figures cited are for commercial cohort (health plans and employers). Trend is 2016 YTD through September and is reported net of rebates. 7. Specialty growth defined as 2016 forecasted dispensed revenue growth for specialty products vs. 2015. 8 Maximizing Shareholder Value With an Enterprise Mindset Dave Denton Executive Vice President & Chief Financial Officer Agenda Strong Record of Execution Marketplace Misconceptions 2017 Guidance Review Solid Long-Term Outlook 2 Continuing Focus on Maximizing Shareholder Value Productive Long-Term Growth Generating Enhanced Significant Shareholder Value Free Cash Flow Optimizing Capital Allocation 3 Key Financial Accomplishments of 2016 Adjusted Earnings Per Share • Delivering strong Adjusted EPS growth of ~12% Prescription and • Enterprise script and claim growth of ~19%, including the Claim Growth additions of Omnicare and Target pharmacies • Successfully refinanced debt to take advantage of Refinanced Debt favorable interest rates Free Cash Flow • Generating significant free cash flow of nearly $7 billion • Returning ~$6 billion to shareholders through dividends Shareholder Value and share repurchases 4 Refer to endnotes for additional information. Solid Performance Expected in 2016 Full-Year 2016 Net Revenue Growth 16.0% to 16.5% Adjusted EPS $5.77 to $5.83 Year-Over-Year Growth 11.75% to 13.0% Free Cash Flow $6.8 to $7.0 billion Year-Over-Year Growth Up 5% to 8% GAAP Diluted EPS $4.82 to $4.88 5 Refer to endnotes for additional information. Meeting Enterprise Growth Targets Through 2016 … Operating Profit Adjusted EPS ($, billions) ($) 5.77 10.5 to to 5.83 ~10% 10.6 ~14% CAGR CAGR 8.0 3.96 2013 2014 2015 2016E 2013 2014 2015 2016E 6 Refer to endnotes for additional information. … And Generating Significant Free Cash Flow Key drivers: Free Cash Flow ($, billions) • Enterprise prescription dispensing 6.9 share gains 57% • Specialty pharmacy 4.4 • Improved purchasing • Working capital management 2013 2016E Free cash flow has increased by $2.5 billion over the last three years Refer to endnotes for additional information. 7 Committed to Maintaining a Healthy Balance Sheet Adjusted Debt-To-EBITDA • Committed to returning to 2.7x targeted leverage ratio 4.0 3.39 3.02 – Driven mostly by EBITDA growth and debt repayments 3.0 2.66 Target = 2.70 – Modified long-term debt 2.0 2.39 structure in 2014 and 2016 to take advantage of favorable interest rates 1.0 '13 '14 '15 '16E Focused on maintaining BBB+ credit rating 8 Refer to endnotes for additional information. Well-Laddered Debt Maturities Remain Core to Strong Balance Sheet Debt Maturity Profile (Bonds) 3.5 ($, billions) 3.5 3.1 2.8 2.8 2.4 1.8 1.3 0.9 0.9 0.7 0.8 0.4 0.4 0.0 0.1 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2035 2039 2041 2043 2045 Debt refinancing reduced interest expenses by ~$50 million 9 Efficient Cash Deployment 2014 Through 2016 Focused on Three Pillars Cash Available for Enhancing Shareholder Value $32 billion Dividends Acquisitions Share Repurchases and Ventures Nearly $5 billion More than $13 billion returned to Nearly $14 billion in in value-creating shareholders acquisitions repurchases 10 Solid History of Enhancing Returns Using All Three Pillars for Efficient Cash Deployment Annual Dividend Acquisitions Share Repurchases Per Share and Ventures ($, billions) ($) Jan ’14 Jul ’14 24% Coram Red Oak 5.0 CAGR Sourcing 4.5 1.70 4.0 1.40 Sep ’14 1.10 Aug ’15 Navarro Omnicare Dec ’15 '14 '15 '16 '14 '15 '16E Target 11 2017 Will See a Dividend Increase of 18% and Further Share Repurchases Annual Dividend Per Share ($) more than 18% 2.00 1.70 billion 1.40 $18 1.10 authorized and remaining for share repurchase '14 '15 '16 '17E 12 2017 Will See a Dividend Increase of 18% and Further Share Repurchases Annual Dividend Share Repurchases Per Share ($, billions) ($) 18% 5.0 5.0 4.5 2.00 4.0 1.70 1.40 1.10 '14 '15 '16 '17E '14 '15 '16E '17E Nearly $7 billion expected to be returned to shareholders in 2017 13 Agenda Strong Record of Execution Marketplace Misconceptions 2017 Guidance Review Solid Long-Term Outlook 14 MYTH #1 IF REBATES DISAPPEARED, PBM PROFITS WOULD SUBSTANTIALLY DROP 15 FACT #1 REBATES ARE BUT ONE OF MANY ELEMENTS OF PBM PROFITABILITY 16 FACT #1: Rebates Are but One of Many Elements of PBM Profitability A Number of Elements Drive PBM Profitability • Manage to overall profitability margin more than • Clients’ contracts structured differently, per client needs • Profitability elements include: 90% - Margin on: • Dispensing mail and specialty pharmacy scripts of rebates overall • Network pharmacy benefit management passed to clients - Clinical programs