Drugstore chain and pharmacy benefits manager CVS Health Corp cut its profit forecast for this year and projected weak growth for 2017, saying it expected to lose more than 40 million retail prescriptions to other pharmacy chains, sending its shares down as much as 17 percent to a more than two-year low.
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In a major blow, CVS lost contracts to fill prescriptions for Tricare, a Department of Defense health care program, and for customers of pharmacy benefits manager (PBM) Prime Therapeutics, to Walgreens Boots Alliance Inc this year.
Tricare has about 9.7 million members while Prime Therapeutics, the fourth-largest PBM, has 22 million.
Slower-than-expected accretion from the acquisition of specialty pharmacy business Omnicare and Target Corp's pharmacies and reimbursement pressures will also be a drag on earnings growth, the company said.
Rising generic drug prices have squeezed retail pharmacies as well as PBMs - which help private sector medical insurers negotiate better prices from drugmakers - because insurers are raising reimbursement rates slowly.
CVS is particularly vulnerable to rising drug prices because it has both retail and PBM businesses.
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"2017 will be a challenging year..." Chief Financial Officer David Denton said on a call with analysts.
CVS's shares fell as much as 16.9 percent to $69.30 on Tuesday, their lowest since February 2014. Rival Walgreens' shares also fell, by 4.24 percent.
Woonsocket, Rhode Island-based CVS said it expected a 2017 adjusted profit of $5.77-$5.93 per share, below the average analysts' estimate of $6.52, according to Thomson Reuters I/B/E/S.
The company cut its 2016 adjusted earnings forecast to $5.77-$5.83 per share from $5.81-$5.89, citing slowing prescription growth and a "soft" seasonal business.
Net sales rose 15.5 percent to $44.62 billion in the third quarter ended Sept. 30, helped by demand for PBM services, but this was short of the average estimate of $45.29 billion.
Net income attributable to CVS rose 23 percent to $1.54 billion, or $1.43 per share.
The company approved a new $15 billion share repurchase program. This is in addition to the $3.7 billion that remains from a previous buyback program, the company said.
CVS's shares were down 12.9 percent in afternoon trading, while Walgreen's stock was down 1.8 percent.