Biotech
Tuesday, October 1st, 2024 5:54 pm EDT
Key Points
- Activist Engagement and Strategic Review: Glenview Capital, a significant shareholder in CVS Health, is set to meet with company leadership to discuss potential fixes for the struggling business, which may signal an activist push. Glenview has previously invested in various sectors and currently holds positions in CVS as well as other healthcare companies.
- Financial Challenges and Cost-Cutting Measures: CVS is facing investor skepticism due to three consecutive quarters of guidance cuts, primarily driven by rising medical costs in its insurance segment and decreased profitability in its retail pharmacy. In response, the company plans to cut $2 billion in expenses, close 900 stores, and reduce its workforce by approximately 2,900 jobs.
- Leadership Changes and Market Pressures: The company has experienced a leadership shakeup in its insurance unit, with CEO Karen Lynch taking over following the departure of the previous president. CVS is grappling with declining reimbursement rates for prescriptions, inflation, and changing consumer spending patterns, all of which are contributing to increased pressure on its retail pharmacy operations.
Glenview Capital, a significant shareholder in CVS Health, is scheduled to meet with the company’s leadership to discuss potential strategies for revitalizing the struggling business, which may signal an impending activist campaign. Glenview has built a substantial position in CVS alongside its investments in other healthcare companies like Centene and Teva Pharmaceuticals. Although specific details of Glenview’s proposals remain undisclosed, this meeting includes key figures from CVS management, such as CEO Karen Lynch. In light of this engagement, CVS has confirmed its commitment to maintaining a strong dialogue with its investors while refraining from comments on discussions with particular entities.
CVS shares saw a modest increase of about 2% on the day of the announcement, yet the stock remains down approximately 22% for the year. This is not the first instance of activist interest in CVS; earlier this year, Sachem Head Capital Management revealed it had acquired a stake in the company, and Starboard Value had previously engaged in discussions after establishing its stake in 2019. Investor confidence has been waning, particularly following three consecutive quarters of lowered full-year guidance, largely due to the company’s insurance segment grappling with escalating medical costs. These challenges have been exacerbated by the return of seniors to hospitals for delayed procedures following the COVID-19 pandemic.
As the owner of Aetna, the third-largest health insurer in the U.S., CVS’s insurance unit encompasses various plans under the Affordable Care Act, Medicare Advantage, and Medicaid, along with dental and vision offerings. In response to its financial difficulties, CVS unveiled a plan in August to cut $2 billion in expenses over several years, emphasizing operational streamlining and enhanced use of artificial intelligence. As part of this restructuring, CVS is also nearing the completion of a three-year initiative to close 900 underperforming stores, having shut down 851 locations as of August.
Additionally, CVS is implementing workforce reductions affecting less than 1% of its total staff, approximately 2,900 positions, primarily targeting corporate roles rather than retail or pharmacy employees. Affected workers will be notified and provided with severance packages and benefits. In addressing the evolving challenges in the healthcare sector, CVS acknowledged the necessity to adapt to regulatory pressures, market disruptions, and changing consumer demands to maintain its competitiveness.
The company has also undergone leadership changes, particularly within its insurance segment, where CEO Lynch has taken over following the departure of the previous president, Brian Kane. As CVS grapples with declining reimbursement rates for prescriptions and the impact of inflation on consumer spending, it continues to face significant pressure in its retail pharmacy operations, further complicating its recovery efforts.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/09/30/cvs-activist-glenview-karen-lynch.html
