CVS Health Corporation

Good morning, and thank you all for attending the CVS Health Q1 2025 Earnings Conference Call. My name is Brica and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Larry McGrath, Chief Strategy Officer. Thank you. You may proceed, Larry.

Good morning, and welcome to the CVS Health first quarter 2025 earnings call and webcast. I'm Larry McGrath, Chief Strategy Officer. I'm joined this morning by David Joyner, President and Chief Executive Officer, and Tom Cowie, Chief Financial Officer. Following our prepared remarks, we'll host a question and answer session that will include additional members of the leadership team. Our press release and slide presentation have been posted to our website, along with our form 10Q filed this morning with the SEC. Today's call is also being broadcast on our website, where it will be archived for one year. During this call, we'll make certain forward-looking statements. Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties. In particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our most recent annual report on Form 10-K, our quarterly report on Form 10-Q filed this morning, and our recent filings in Form 8-K, including this morning's earnings press release. During this call, we'll use non-GAAP measures when talking about the company's financial performance and financial condition. And you can find a reconciliation of these non-GAAP measures in this morning's press release and the reconciliation document posted to the investor relations portion of our website. With that, I'd like to turn the call over to David.

David? Thank you, Larry, and good morning, everyone. We continue to build momentum across CVS Health and are progressing on our aspiration to be America's most trusted healthcare company. This morning, we are pleased to report solid results in what continues to be a challenging and volatile environment. We delivered first quarter adjusted earnings per share of $2.25 and adjusted operating income of $4.6 billion. In addition, we increased our full year 2025 adjusted EPS guidance to a range of $6 to $6.20, up from our previous range of $5.75 to $6. Our strong start to the year and our increased guidance reflect solid performance and execution across each of our businesses. as we maintain a prudent outlook with opportunities for outperformance and deliver on a promise to you, our shareholders. One of my top and most urgent priorities coming into this role was ensuring I had a leadership team with diverse experiences that can help me execute against my strategic priorities. Last month, we announced the appointments of Brian Newman as Chief Financial Officer, effective May 12th. and Amy Compton-Phillips as the chief medical officer effective May 19th. I am confident that Brian and Amy will help us continue building upon the momentum we've created over the past several months as we execute on our strategy to deliver better healthcare to those we are privileged to serve. I believe I now have completed my management team and that Brian and Amy's collective and individual experience and expertise are well suited to position CVS Health for the future. Brian is succeeding Tom Cowie, who will continue to serve as a strategic advisor to me effective May 12th to help ensure a successful transition. I want to express my personal appreciation for all Tom has done in his 11 years at Aetna and three years at CVS Health. Tom has been instrumental in advancing our talent, advocating for the finance function, and engaging with our shareholders. Tom has also played a critical role and our efforts to stabilize the Aetna business and position us on the path to improve results. I'm grateful for my time with Tom and wish him all the best in the future. We are driving towards becoming America's most trusted healthcare company. Every day, we earn the trust of customers we serve by improving outcomes, expanding access, and improving affordability to address one of the largest problems faced by our country, rising and unsustainable healthcare costs. We hold a unique position in healthcare with our scaled assets, our 9,000 community health destinations, our more than 1,000 walk-in and primary care clinics, and the deep connections we have with more than 185 million consumers we serve. It is this combination that differentiates CVS Health and provides us with a competitive advantage, allowing us to drive change and bring solutions to market at scale. Addressing the fragmented and broken healthcare system of today is not easy, but we are facing this challenge head on. This is personal for me, my leadership team, and the more than 300,000 CVS Health colleagues that work tirelessly every day to earn the trust of the customers we serve. Our solutions are driven by insights from the millions of consumer touchpoints we have across CVS Health. We are purposely using these insights through our digital capabilities to improve transparency, empower our members, and drive better outcomes. In our CVS Health app, customers now have greater visibility into their healthcare journey and how to address potential barriers to care. This core digital asset is helping to drive a more trusted and integrated healthcare experience for our customers. We are also directly supporting our members with real-time AI-powered recommendations to help them better manage their health and achieve better outcomes. Our capabilities allow us to precisely engage with members where we can have the most impact on their health and experience. We have the best run pharmacy businesses in the country. We have been investing in our colleagues, strengthening our technology, and we continue to build on our market leading cost of goods sold. Our focus in these areas has allowed us to deliver superior experiences to our customers while driving significant operational improvements across our nationwide footprint. Between our community, specialty, and mail order pharmacies, we process and dispense over 1.7 billion scripts each year, generating unique insights that create opportunities to improve processes and healthcare experiences at scale. We have been focused on simplifying and improving the prior authorization process for many years, with the goal of getting patients their critical medications as quickly as possible. We eliminated requirements. accelerated decisions, created transparency, as well as provided proactive support to improve their experience. We took what we know matters most to our customers and applied it to what we do every day across each of our businesses. In the last several months, our team is taking meaningful steps to address points of friction, including simplifying and streamlining the prior authorization process at Aetna. Today, Aetna maintains one of the shortest list of treatments and procedures that require prior authorization. Of the eligible prior authorization requests we receive, over 95% are approved within 24 hours, with some approved in as little as just a few hours. However, we know patients still feel friction in the system, and we are not satisfied with the status quo. We will continue leading the industry in driving change and improving member and provider experiences. We recently announced a novel approach bundles multiple prior authorization requests into one. We have begun to deploy this solution in some common areas of cancer care where we can have a meaningful impact supporting our members. By bundling the prior authorization for multiple high-tech imaging scans like MRIs that are used for restaging cancer care, we are reducing the administrative load on providers, expediting treatment, and reducing uncertainty for our members. Our goal is to launch additional bundles later this year and to expand the program more broadly to other conditions such as musculoskeletal and select cardiology services. We are excited about rolling out this new approach, particularly after the positive response we've received from plan sponsors. Another critical component of earning the trust of our customers is enhancing access and making the cost of life-changing medications more affordable. We have a proven history of leading the market with the use of preferred formularies more than a decade ago. We led the market in driving the adoption of Humira biosimilars, delivering over a billion dollars in savings for our clients. A year after we revitalized the biosimilar market with our launch of Cordobis, our low-cost Humira biosimilar has the largest market share in the U.S. Today, we're leading the way forward on GLP-1s, These innovative drugs, which can have a meaningful impact on people's health, were launched at prices that pressured our clients' budgets. To address this, we are pleased to announce that we are partnering with Novo Nordisk to significantly increase access to Agobi for our members at a more affordable price. We can increase the power of GLP-1s by combining them with additional lifestyle clinical support as part of our CVS weight management program offered to our clients through Caremark. This combination allows members to achieve better outcomes and even greater weight loss than the pre-program results. Additionally, we are the first retail pharmacy in the Novocare Pharmacy Network. This will enable us to provide convenient, safe, and affordable access to WGOVI for eligible patients at our 9,000 community health locations across the country. Taken together, this demonstrates the value of our integrated model and what CVS Health does day in and day out. Our clients and the patients we serve continue to choose us because we innovate, create competition, increase access, and deliver savings while leveraging our leading clinical capabilities to improve health outcomes. Our industry-leading pharmacy capabilities built across our national footprint and powered by our efficient operations and our innovative and transparent pricing models have allowed us greater flexibility to focus on improving health outcomes. Patient experience and trust have a meaningful impact on medication adherence. Our success in this area has enabled us to be the top-ranked national retail chain for medication adherence. In our Aetna business, Medicare Advantage members who utilize CBS Pharmacy are more adherent to the therapy. This results in fewer acute medical events, such as emergency room visits, and on average, these members have 3% lower medical costs. Our unrivaled reach to consumer and our integrated business model allow us to establish deeper connections in the community and drive better outcomes. The combination of our capabilities across each of our businesses are what allow us to deliver on these promises. This is why the ongoing rhetoric and misguided actions by some aimed at integrated healthcare companies like CVS Health are so flawed. In April, the Arkansas government took unjustified action that will leave hundreds of thousands of patients without their community pharmacy, severely limiting access to critical drugs and increasing costs for employers and consumers. The actions will also affect more than 10,000 people in Arkansas who have complex conditions like cancer and multiple sclerosis. These vulnerable patients require specialized care and close coordination with their specialty pharmacist. Independent pharmacies will not be able to fill the void this legislation creates in Arkansas as they often do not stock specialty medications and lack the capabilities to manage complex conditions. We saw an overwhelming response against this proposal from patients and customers who will now see a rise in the cost of medications and a decrease in their accessibility. We've also seen several direct letters from trade groups like the American Benefits Council and the ERISA Industry Committee. who are also concerned about the negative impact resulting from this bill. Our health plan partners have also raised issues, as they will now have trouble satisfying network adequacy requirements, including for the Medicare program. We will continue to serve patients in the state for as long as we can, and we'll work to educate stakeholders on all the ramifications of this flawed legislation. We are already seeing other states rejecting the Arkansas approach. Our position remains that we believe in common sense, meaningful actions to help lower the cost of medications in the U.S., which is why we were pleased to see that the President's executive order on drug pricing focuses on the entire supply chain. We remain focused on building trust with you, our shareholders, by taking the right actions to strengthen our business and deliver on our commitments. As you've seen over the last six months, we actively manage our portfolio of businesses to ensure a pathway to sustainable earnings and competitive viability. We took action at the end of last year with our infusion business at Quorum, and we've announced earlier this year our exit from the ACO REACH program and the sale of our MSSP business. We are disappointed by the continued underperformance from our individual exchange products, and have recently determined there is not a near or long-term pathway for Aetna to materially improve its position in this product. As a result, we've decided that effective 2026, we will exit the states in which Aetna independently operates ACA plans. Despite our multi-year efforts, we must recognize what is and what is not working, and we'll focus on the areas where we have a clear right to win. This is not a decision we made lightly, as we recognize the importance of this product to millions of members. This action will allow us to focus on areas We will have the strongest capabilities, including Medicare, commercial, and Medicaid, where we continue to build on our ability to serve members and customers in a differentiated way. We are committed to supporting our individual exchange members for as long as we have the privilege to serve them, and we'll also work closely with our partners to ensure a smooth transition, and that these members continue to have access to quality, affordable care. We are dedicated to transforming the healthcare experience in this country and believe we have the right set of assets, the right strategy, and the right team to deliver the most affordable and highest quality healthcare solutions to our customers. We are focused on executing against the strategic priorities I laid out when I spoke to you last quarter and delivering strong results. We continue to lead the industry in driving innovation and better experiences for our members, patients, and consumers and are working hard to ensure we deliver best-in-class performance from each of our businesses. As we continue to build trust and look to the future, we are setting expectations that are appropriate and achievable and continue to focus on areas where we can drive out performance. With that, I'd like to hand the call over to Tom.