WOONSOCKET – Analysts will be watching closely this week to see whether a Texas pension fund keeps its $1 billion pharmacy-benefits contract with CVS Caremark Corp. or switches to a competing provider.
The Teacher Retirement System of Texas is in the fifth year of a six-year pharmacy-benefit management (PBM) contract that has been worth $1.5 billion to CVS thus far, spokeswoman Juliana Fernandez Helton told Bloomberg News.
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The Texas system’s board will vote this week on whether to give CVS a new two-year contract for 2011 and 2012 valued at $998 million that also includes options for up to four one-year renewals.
CVS stock fell by about 20 percent last month after the company disclosed that its Caremark division had lost $4.8 billion worth of PBM contracts for 2010. The PBM unit contributed about half of CVS’ revenue in 2007. The rest of the company’s income comes from about 7,000 retail stores.
A 2008 survey showed 94 percent of Teacher Retirement System’s members were satisfied or very satisfied with the service provided by CVS, Helton said. But the company also faces a lawsuit in the state that accuses the company of overcharging.
Christopher Meeker, a banker with Farr, Miller & Washington in Washington, D.C., which owned 345,897 CVS shares as of Sept. 30, said he would keep a close eye on the results.
“To the extent that if we saw another large contract loss over the span of the next 12 to 18 months, it might cause us to rethink our thesis as to if these problems really are fixable or not,” Meeker told Bloomberg. “If they got a nice win, I think that would be very positive for the stock.”
