(Bloomberg) -- CVS Health Corp. named David Joyner as its new chief executive officer, ending a tumultuous tenure for Karen Lynch at the pharmacy giant.
Longtime executive Joyner, 60, took over Thursday, according to a Friday release. The move comes after the company repeatedly missed earnings targets, spurring activist interest and setting off unrest among shareholders that spilled into public view in recent weeks.
CVS said its third-quarter results are expected to miss Wall Street’s expectations and that the company will pull its 2024 earnings guidance because of elevated medical costs. Joyner reached out to employees on Friday in a memo, pleading for help.
“It is no secret that our industry faces significant and dynamic challenges, and that CVS Health must make financial and operational improvements to drive elite execution and maintain our position as a leading health care company,” he said, without laying out specific changes.
Shares in the company fell as much as 7.9% at the New York market open after losing 19% this year as of Thursday. Rival Walgreens Boots Alliance Inc.’s stock dropped 3.1%.
The company reported preliminary adjusted earnings of $1.05 to $1.10 a share in the third quarter. The health benefits business expected a medical-loss ratio of 95.2% in the third quarter, far worse than analysts anticipated.
The results also reflect a $1.1 billion charge for a premium deficiency reserve to cover excess medical costs. Executives plan to update investors during CVS’s third-quarter earnings call in November.
The company had been reviewing its strategic options for months, including a potential breakup, Bloomberg News has reported, as rising medical costs in its Aetna insurance arm weighed on the health-care conglomerate. On Friday, the company said it was no longer considering a breakup.
The entrance of hedge fund Glenview Capital Management, which approached the company about bolstering the business, increased the pressure on Lynch, 62. The decision to replace the CEO is “one we respect and support,” Glenview said in a statement.
The investor doesn’t appear to be moving on from its push to improve outcomes at CVS. “We look forward to engaging with David Joyner in the near future to discuss opportunities to enhance the performance, culture and governance of this iconic institution to drive value for all stakeholders,” Glenview said, adding that shareholders should continue to push for “immediate board refreshment.”
Upheaval at CVS
CVS shares are down 10% since Lynch became CEO in February 2021. She struggled to create a one-stop shop for medical services amid a government crackdown on spending, increasing health expenses, and post-pandemic pressure on retail stores. It still operates the largest US retail pharmacy chain, but competition from Amazon.com Inc. and Walmart Inc. has eroded drugstores’ profits. Pharmacies have been shuttering locations and dealing with labor shortages, driving up patient wait times and frustrating customers.
Lynch responded by deepening CVS’s reach into health-care services, purchasing Medicare clinic chain Oak Street Health and home-visits company Signify Health. Those deals aimed to augment Aetna’s large Medicare Advantage insurance business with care delivery, mirroring the strategy of rival UnitedHealth Group Inc.
But they came just as the Biden administration tightened payments to Medicare insurers and curbed tactics they used to boost revenue. The company also lost a huge contract to provide pharmacy benefits for insurer Centene Corp., which awarded the business to Cigna Group.
The Caremark pharmacy benefits management business that Joyner led is under scrutiny from the Federal Trade Commission, which alleged CVS and its rivals drove up insulin prices. Congress is weighing new restrictions on PBM practices that could get a vote after the election. Joyner defended the business in front of a congressional panel earlier this year.
Biggest Troubles
The company’s biggest troubles are in the health benefits segment. CVS rapidly grew its Medicare Advantage rolls in 2024 with enticing benefits, but expenses for their care far outpaced projections and it’s poised to lose members next year. Runaway costs in the health benefits business prompted CVS to pull its forecast, already lowered multiple times this year.
Almost two years ago, CVS told investors to expect adjusted earnings to be $9.75 to $9.95 a share in 2024. That company dropped that target over and over again, most recently to a range of $6.40 to $6.55 a share in August, an estimate CVS now says should no longer be relied on.
Analysts were already planning for 2024 earnings-per-share to drop by 25% from last year, according to a Bloomberg survey, estimates that will likely have to drop further.
Executive Turnover
The turmoil at CVS has been marked by departures among top executives. Brian Kane, the former chief financial officer of Humana Inc., joined to lead Aetna in 2023 but was ousted after less than a year. A president of health-care delivery hired from UnitedHealth returned to that company six months later.
The decision to replace Lynch with Joyner was made unanimously by the board, CVS said. A first-time CEO at one of the country’s best-known companies, Joyner will face a challenging turnaround. He began his career at Aetna as an employee benefit representative. After three years away from the company, he returned to lead the pharmacy services business in 2023 and was most recently executive vice president of CVS Health and president of CVS Caremark.
“David and his deep understanding of our integrated business can help us more directly address the challenges our industry faces,” said Roger Farah, who was named executive chairman as part of the move.
(Updates with shares, additional background, memo starting in fourth paragraph.)
©2024 Bloomberg L.P.