CVS HEALTH 8th Annual Wolfe Research Healthcare Conference

Yeah, sure, Justin. Thanks for having us this morning. This obviously came as a surprise last week. I think as I look at the process that you normally go through in terms of running and operating a business like this is that every year, if not more, you are constantly looking at the asset and the ability to be able to compete in the marketplace. I look back onto my 40-year career with this company, and this has been somebody or a company that is constantly changing and iterating to make sure you are positioned appropriately in each one of the respective markets. It started really almost 20 years ago when CVS and Caremark came together.

I think the operating dynamic and the things that we were trying to solve for then are still the same today, but it is obviously the market, the regulatory environment, the competitor, and the customer dynamics change and evolve. I think the most important part that we look for is making sure that each one of the companies continue to perform. As I look back, two years ago, it was very clear that my focus was on continuing to improve the recovery of the Aetna business, and more specifically, continue to invest heavily in our retail business. I think that was the focus then, and I think the focus now is especially working on the strength of our respective businesses, is making sure that we actually look at the businesses in terms of how they can perform.

I think what I feel really good about right now, and you'll hear this theme of one great company becoming two great companies, and that we are looking at the strength of each one of the respective businesses and being able to have the long-term durable growth.

Yeah, I mean, it's clearly the regulatory environment is changed from 20 years ago when CVS and Caremark came together, all the way from just even eight years ago when we acquired Aetna. So, I think just this iterative process of what we call kind of the degrees of freedom to be able to run our business has changed. As we look at that's certainly one of the things that we assess and/or evaluate in terms of how we want the companies to be operating and competing. But I think more importantly, if I kind of look back on the reasons why, because I think you're probably getting to why now and why we're making this thing today versus two years ago.

Right. Two years ago, obviously, kind of what I mentioned earlier, our focus was on making sure that we recovered the Aetna margin, and we spent two years of demonstrating that that is going down what we believe is a very successful path.

Then we were also guiding down 5% in our retail business. When you look at the decisions that we were able to make two years ago versus today, we talk about this being a position of strength, and I think most importantly, we're in a place that each one of the businesses are running and operating, and we believe have the ability to compete on their own as opposed to just necessarily part of a larger enterprise.

It is a really good question and certainly one that we have given quite a bit of thought to in terms of what is the right asset perimeter or the right structure for each one of these businesses to be able to compete. As I look at what CVS Health remains, it is a focus on what I would call the high acuity, high-cost markets. We have talked a lot about the Medicare business a minute ago. Equally as important is the growth of specialty pharmacy, and that is, and will remain the fastest growing part of specialty. In order to be able to compete in that marketplace, you should be able to have some control over both the formulary and the brand purchasing, creating a competitive dynamic. We believe it best fits within a PBM structure because that is exactly what a PBM does. It actually creates competition. It actually allows you to deliver value to what your customers want, which is the ability to control and manage the fastest growing part of healthcare.

We think it fits naturally within the PBM for competitive reasons, and we also think it builds on this focus of CVS Health, which is the organization that is going to continue to address the fastest and most important parts of the growth in healthcare.

I think that's right. When we are in the various states, especially with a very strong independent pharmacy voice, they are targeting, for the most part, PBMs that have a retail pharmacy attached to it. In large part because that is the natural competitive landscape for the independent pharmacies versus specialty, which we've talked about. Specialty is for the 80% plus of the specialty products coming to market come through a limited distribution channel. The manufacturers decide the channel that they want their products dispensed from, and the independents up to this point have not played a role in that market because it requires deep expertise and specialization in therapies that we believe our CVS Specialty is uniquely positioned to compete.