Biotech Values

[DewDiligence]

Barron’s touts CVS, but I’m skeptical of all PBMs as long-term buys:

http://online.barrons.com/article/SB50001424053111903506304579374920237274990.html

Based in Woonsocket, R.I., CVS has more than 7,600 stores, making it the second-largest drug chain behind Walgreen (WAG). Thanks to a 2007 merger with Caremark, it's also the second-largest pharmacy benefit manager behind Express Scripts (ESRX), which merged with Medco Health Solutions in 2012. But it surpasses both in terms of total prescription revenue, with nearly a quarter of the market.

This past week, CVS reported 2013 revenue of $126.8 billion, up 3%, on healthy growth for drug plans and in-store pharmacies offset by weak growth in front-of-store sales.

…CVS' generic dispensing rate rose to 81.4% last year from 79.2% in 2012. Generics are much cheaper than branded drugs, of course, but they can carry gross profit margins of over 40%, versus single-digit margins for branded drugs. So while they don't do much for revenue, they can provide a handsome boost to earnings. CVS could raise its generic dispensing rate to 85% by 2016.