CVS Caremark Corp (CVS.N) said it won an extension on its contract with the Teacher Retirement System of Texas (TRS), worth about $1 billion, to provide pharmacy benefits for two years.
CVS shares closed up more than 2 percent on Friday.
The contract, which begins Sept. 1, 2010 is valued at $480 million in 2011 and $518 million in 2012. It allows for as many as four optional one-year renewals, TRS spokeswoman Juliana Fernandez Helton said in a statement.
CVS said last month that its pharmacy benefits management (PBM) business lost $4.8 billion in contracts heading into next year. Investors sold off shares and began to question its 2007 acquisition of Caremark. [ID:nN05502370].
Texas is also investigating CVS alleged underpayments in its Medicaid program and other government agency claims. [ID:nN05129729]
TRS said it selected CVS Caremark as the pharmacy benefit manager from among five bidders, based on what was determined “to best serve TRS members.”
More than 202,000 retirees and their dependents participate in the TRS-Care plan or the group retiree health benefits program administered by TRS. While Aetna takes care of the medical benefits, CVS administers the pharmacy benefits.
CVS was selected following “a thorough due diligence process,” Fernandez Helton said.
Wells Fargo Securities analyst Matt Perry said the contract is “good news” for CVS Caremark in the light of the current investigation and as it has lost a significant number of PBM contracts recently.
Although Perry sees good long-term value in the drugstore chain’s shares, he does not expect the stock to regain its prior valuation until CVS shows some success in the next PBM selling season. Perry rates CVS at “outperform”.
CVS shares, which shed as much as 21 percent when it disclosed its PBM losses on Nov. 5, closed up 72 cents at $32.22 Friday on the New York Stock Exchange
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