Evolving Health Care Market

Transcription

1 The Right Strategy for an Evolving Health Care Market Larry Merlo President & Chief Executive Officer Analyst Day December 16, 2015

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3 Forward-looking Statements During today s presentation, we will make forward-looking statements within the meaning of the federal securities laws. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forwardlooking statements for a number of reasons as described in our SEC filings, including the risk factors section and cautionary statement disclosure in those filings. During this presentation, we will also use some non-gaap financial measures when talking about our company s performance, including free cash flow, cash available to enhance shareholder value and Adjusted EPS. In accordance with SEC regulations, you can find the definitions of these non-gaap items, as well as reconciliations to comparable GAAP measures, on the investor relations portion of our website. 3

4 Key Accomplishments in 2015 Strong financial results Adj. EPS growth of ~15%; Free Cash Flow of ~$6.0B Big wins in 16 selling season Superior specialty growth Enhanced generic sourcing New, adjacent channel Broader retail footprint Advanced front store strategies Continued Built CVS Health brand identity $11.5B net new business; client retention of 98% Continuing to outperform in the rapidly-growing specialty market with revenue growth of ~33% Red Oak is hitting milestones and achieving goals Acquired Omnicare, a leader in long-term care pharmacy Definitive agreement to purchase more than 1,660 Target pharmacies and approximately 80 retail clinics Continued focus on enhancing health and beauty offerings, store brands, personalization and digital Elevated awareness while continuing to play a leadership role in shaping the future of health care Notes: See endnotes. 4

5 The Most Extensive Suite of Leading Assets Retail Clinics Long-term Care Retail Mail Specialty Clinical Programs Infusion Digital Payors Patients Providers Medical Claims Editing providing the right strategy for an evolving health care market 5

6 Today s Key Takeaways The Right Strategy for an Evolving Health Care Market Demonstrating Value to People, Payors and Providers Leadership in multiple competencies to drive superior value for health care partners Growing the Core, p g p y g Broadening the Base Expanding core pharmacy business while broadening reach into new health care channels Always Looking Ahead Introducing innovative products and making long-term, value enhancing investments Driving Sustainable Enterprise Growth Driving shareholder value with strong earnings and cash flow as well as disciplined capital allocation 6

7 Today s Agenda Topic Speaker Maximizing i i Long-term Shareholder h Value Dave Denton Driving Enterprise Growth in an Evolving Health Care Market Larry Merlo Delivering Value Today, Ensuring Growth for Tomorrow Jon Roberts Capitalizing on Growth Opportunities in Specialty Alan Lotvin Changing the Face of Retail Pharmacy Through Innovation Helena Foulkes Serving Patients Across the Continuum of Care Rocky Kraft 7

8 Appendix

9 Endnotes 1. Adj. EPS equals income before income tax provision plus amortization, less adjusted income tax provision, and other, which is comprised of earnings allocated to participating securities, divided by the weighted average diluted common shares outstanding. 2. Adj. EPS excludes a $521 million loss on early extinguishment of debt (approximately $0.27 per diluted share) during 2014, and $52 million of acquisition-related bridge financing costs and $147 million of acquisition-related transaction and integration costs during the nine months ended September 30, relating to the acquisition of Omnicare, Inc., and proposed acquisition of the pharmacies and clinics of Target Corporation. Adj. EPS also excludes any acquisition-related transaction and integration costs for the acquisition of Omnicare, Inc., and the proposed acquisition of the pharmacies and clinics of Target Corporation for the period from October 1, 2015 through December 31, Free Cash Flow as net cash provided by operating activities less net additions to properties and equipment (i.e., additions to property and equipment plus proceeds from sale-leaseback transactions). 4. Adj. EPS growth and Free Cash Flow are based on midpoints of 2015 guidance. 5. Client retention rate is defined as: 1 less (projected 2016 lost revenues from known terminations occurring after January 1, 2015, divided by estimated 2016 PBM revenues) expressed as a percentage. Both terminations and PBM revenues exclude the individual PDP business. 6. The following trademarks appear throughout the 2015 Analyst Day presentations: :, CVS Health, CVS/caremark, Omnicare, CVS/Omnicare, CVS/specialty, CVS/caremark, CVS, Maintenance Choice, Coram, Navarro, Novologix, Omniview, MyOmniview, CVS/minuteclinic, Health Engagement Engine, Accordant, RX Insights, ScriptSync, MinuteClinic and Specialty Connect. They are trademarks or registered trademarks of CVS Pharmacy, Inc. 9

10 Maximizing Long-term Shareholder Value Dave Denton Executive Vice President & Chief Financial Officer

11 Non-GAAP Financial Measures Free Cash Flow and Cash Available for Enhancing Shareholder Value Net cash provided by operating activities - Additions to property and equipment + Proceeds from sale-leasebacks Free cash flow +/- Change in net debt Cash available for enhancing shareholder value Adjusted Earnings per Share Income before income tax provision + Amortization - Adjusted income tax provision - Earnings allocated to participating securities Weighted average diluted shares outstanding Adjusted d earnings per share Note: 1. CVS Health finances a portion of its store development program through sale-leaseback transactions. Use of sale-leaseback financing is subject to change as a variety of financing vehicles for future development are evaluated. This may also result in changes to CVS Health s definition of free cash flow. 2

12 Agenda Strong Record of Execution Marketplace Misconceptions Looking Ahead: 2016 Guidance Review Driving Sustainable Enterprise Growth 3

13 Continuing Focus on Enhancing Shareholder Value Productive Long-term Growth Generating Significantifi Free Cash Flow Optimizing Capital Allocation Enhanced Shareholder Value 4

14 Our Leadership in Multiple Competencies Continued to Drive Shareholder Value in 2015 Revenues and Operating Profit Driving top- and bottom-line results through an enterprise focus Earnings per Share Delivering Adjusted EPS at high end of initial targets 1 accretion from Omnicare acquisition and new debt Free Cash Flow Generating substantial free cash flow Shareholder Value Returning more than $6 billion to shareholders through dividends and share repurchases Note: 1. Earnings per share excludes acquisition-related bridge financing, transaction and integration costs. 5

15 2015 Guidance Reaffirmed Full-year 2015 Net Revenue Growth 9.75% to 10.25% Adjusted EPS From Continuing Operations Year-over-year Growth $5.14 to $ % to 15.25% Free Cash Flow Year-over-year Growth $5.9 to $6.2 billion Down 4% to 10% Notes: 1. Excludes acquisition-related bridge financing, transaction and integration costs. 2. Excludes $521 million loss on early extinguishment of debt recognized in Free cash flow in 2014 was approximately $500 million above goal due to receipt of some early payments from CMS, benefiting 2014 and to the detriment of

16 Original Steady State Targets Enterprise Growth Model from 2010 Net Revenue Operating Profit Adjusted EPS From Cont Ops Five-year CAGR % to 11% 8% to 10% 7% to 9% Average Annual Cash Available For Enhancing Shareholder Value Share Repurchase Contribution $5.5 billion to $6.5 billion 3% to 6% Total Adjusted EPS 10% to 15% * Cash available for enhancing shareholder value = Free cash flow +/- change in net debt 7

17 Enterprise Expansion Has Happened as Originally Targeted Operating Profit ($, billions) to 9.7 Adjusted EPS ($) to % 14% CAGR CAGR E E Growth at higher end of original long-term targets Note: 1. CAGRs use midpoint of 2015 guidance range. 8

18 Strategic Capital Deployment with Acquisitions of Omnicare and Target Pharmacies and Clinics OMNICARE TARGET Brings a new pharmacy dispensing channel to CVS as the leading gprovider of pharmacy services to longterm care facilities CVS + Omnicare enhances ability to provide continuity of care for patients Complementary specialty business will augment our capabilities Enhances network and relevance of CVS Health s integrated offerings Enables Target guests to participate in unique CVS programs (e.g., Maintenance Choice, Specialty Connect) Provides convenience and cost savings to consumers and payors Other pharmacies cannot replicate what CVS provides 9

19 Well-laddered Debt Maturities Remain Core to Strong Balance Sheet Debt Maturity Profile (Bonds) ($, billions)

20 Well-laddered Debt Maturities Remain Core to Strong Balance Sheet Debt Maturity Profile (Bonds) ($, billions) Balance sheet remains healthy with addition of $15 billion of senior notes 11

21 Committed to Maintaining a Healthy Balance Sheet Adjusted Debt-to-EBITDA Target = 2.70 As expected, new debt increased leverage ratio above target of 2.7X Committed to returning to a leverage ratio at target Driven mostly by strong EBITDA growth 2.4 Will also pay down debt with upcoming maturities '13 '14 '15E '16E Focused on maintaining high BBB credit rating Note: 1. Figures shown are as of the end of the fourth quarter for each respective year and do not include bridge financing, transaction and integration costs associated with the acquisitions of Omnicare and the pharmacies and clinics of Target. 12

22 $41 Billion Available to Enhance 2014 Through 2018 Returns ~$39 billion ($8) billion ~$31 billion $10 billion $41 billion Operating Cash Flow Net Capex Free Cash Flow Incremental Debt Cash Available 13

23 Efficient Cash Deployment 2014 Through 2018 Cash Available for Enhancing Shareholder Value $41 billion Dividends Target payout ratio of 35% by 2018 ~18% implied dividend CAGR Return on Invested Capital Drive ROIC with value-enhancing projects Share Repurchases $4 billion to $5 billion per year Value creating 14

24 ~$23 Billion Available for Returns in 2014 and 2015 Effective allocation of cash available in 14 and 15 through: 56% increase of annual dividend Payout ratio estimated to be nearly 29% at year-end end Cash Available & Capital Allocation ($, billions) Share repurchases Target and Omnicare acquisitions consistent with growing core and broadening base 12.0 Acquisitions Expect to complete a total of $9 billion of repurchases by year-end end Cash Available 2.9 Capital Allocated Dividends ~ $24 billion of deployed capital 2014 and 2015 Note: 1. Cash available = Free cash flow plus increase in debt. 2. Acquisitions are shown net of cash acquired. 3. Figures may not foot due to rounding. 15

25 Solid History of Enhancing Returns Using All Three Pillars for Efficient Cash Deployment Annual Dividend per Share ($) 29% CAGR 1.40 Apr 11 Universal American PDP Acquisitions and Ventures Apr 12 Health Net PDP 1.10 Feb 13 Mar 13 Jan Drogaria NovoLogix Coram Onofre Aug Share Repurchases ($, billions) $20b Total Jul 14 Sep 14 Red Oak Sourcing Navarro Omnicare '11 '12 '13 '14 '15E '11 '12 '13 '14 '15E Deployment of capital in line with long-term targets 16

26 2016 Capital Deployment to Include Dividend Increase and Further Repurchases 2016 Annual Dividend Increasing 21%, from $1.40 to $1.70 $1.70 Currently $7.7 billion authorized and remaining from 2014 share repurchase program 2016 Share Repurchases $4 billion More than $5 billion expected to be returned to shareholders in

27 Agenda Strong Record of Execution Marketplace Misconceptions Looking Ahead: 2016 Guidance Review Driving Sustainable Enterprise Growth 18

28 MYTH #1 ALL SPECIALTY PHARMACIES ARE SIMILAR IN PRACTICE TO THE CAPTIVE SPECIALTY PHARMACIES THAT HAVE COME UNDER RECENT SCRUTINY 19

29 FACT #1 TRUE SPECIALTY PHARMACIES LIKE CVS/SPECIALTY HAVE A DIFFERENT BUSINESS MODEL THAN THESE CAPTIVE PHARMACIES 20

30 Misconceptions in Marketplace Are Creating Noise FACT #1: CVS/specialty Is Different These captive pharmacies are NOT specialty pharmacies Derive vast majority of pharmacy volume from one manufacturer Many don t dispense specialty medications Attempting to circumvent cost-saving solutions our clients have adopted To best manage access and cost, CVS/caremark determines which pharmacy is eligible to be an in-network provider Terminate some pharmacies like these each year for non-compliance In contrast, CVS/specialty provides high-touch care to patients with complex specialty conditions requiring costly drug therapies Extensive clinical services help to ensure proper adherence, better health outcomes and lower trend 21

31 MYTH #2 THE RxCROSSROADS BUSINESS COULD BE A BIG RISK FOR CVS HEALTH GIVEN THAT IT IS AT ODDS WITH CLIENTS OBJECTIVES 22

32 FACT #2 THE RxCROSSROADS BUSINESS IS ALIGNED WITH OUR FOCUS ON COST, QUALITY AND ACCESS, AND IS IMMATERIAL TO OUR FINANCIAL RESULTS 23

33 Misconceptions in Marketplace Are Creating Noise FACT #2: RxCrossroads Is Aligned RxCrossroads follows CVS Health s philosophy of: Controlling costs and utilization for our clients Promoting better health outcomes for the patients we serve Promoting access to appropriate prescription medication Patient assistance programs provide help to underinsured and uninsured patients who can t afford drugs RxCrossroads is immaterial to CVS Health s overall financial results Analyzed as part of due diligence efforts Contributes less than 1 to earnings per share 24

34 MYTH #3 ALWAYS PARTICIPATE IN PREFERRED NETWORKS FOR OPTIMAL SUCCESS IN MEDICARE PART D 25

35 FACT #3 NOT ALL MEDICARE PART D NETWORKS ARE CREATED EQUAL FINANCIAL DISCIPLINE IS REQUIRED 26

36 Misconceptions in Marketplace Are Creating Noise FACT #3: Med D Networks Are Not Equal In preferred networks, plan designs must offer pharmacies enough share gain to more than offset reduced margins Significant incentive must be offered to patients to switch pharmacies Key areas of consideration with Med D networks: Mix of lives important as some don t experience any co-pay differential Co-pay differential not always large enough to incent patients Will not participate in Aetna s preferred Med D network for 2016 Share gains won t offset margin loss Don t expect to lose significant share; impact expected to be immaterial We participate in networks that make economic sense Expect to have a significant presence in preferred Med D networks in

37 MYTH #4 UNDERLYING GROWTH IN EACH SEGMENT IS WHAT ULTIMATELY FUELS THE CVS HEALTH VALUE-CREATION ENGINE 28

38 FACT #4 CVS HEALTH S SUCCESS WILL BE DRIVEN BY ENTERPRISE GROWTH SOMETIMES AT THE EXPENSE OF ONE OF THE SEGMENTS 29

39 Misconceptions in Marketplace Are Creating Noise FACT #4: Enterprise Growth Drives Success Critical to focus on enterprise growth Unique offerings are aligned across the company in support of the enterprise growth strategy For example, Specialty Connectshifts virtually all specialty volume and growth to the PBM We are indifferent to channel and manage the business through an enterprise lens 30

40 Agenda Strong Record of Execution Marketplace Misconceptions Looking Ahead: 2016 Guidance Review Driving Sustainable Enterprise Growth 31

41 2016 Guidance: Healthy Enterprise Growth Full-year 2016 Net Revenue Growth 17.0% to 18.5% Adjusted EPS Year-over-year Growth $5.73 to $ % to 14.25% GAAP Diluted EPS $5.28 to $5.43 Notes: 1. EPS growth estimates exclude acquisition-related transaction and integration costs. 2. Year-over-year growth based on midpoint of 2015 guidance. 3. Estimates assume that the acquisition of Target s pharmacies and clinics closes at year-end EPS estimates assume completion of approximately $4 billion in share repurchases in EPS estimates include dilution of $0.01 in 2016 related to the termination of pension plans. The impact on 2017 is expected to be between $0.10 and $

42 2016 Guidance: Substantial Free Cash Flow Growth Impacted by Acquisitions in billions Full-year 2016 Operating Cash Flow $7.6 to $7.9 Gross Capital Expenditures ($2.6) to ($2.5) Sale-leaseback Proceeds $0.3 to $0.2 Net Capital Expenditures Approximately ($2.3) Free Cash Flow Year-over-year Growth $5.3 to $5.6 Down 7% to 12% Notes: 1. Year-over-year growth based on midpoint of 2015 guidance. 2. Estimates assume that the acquisition of Target s pharmacies and clinics closes at year-end Guidance includes approximately $500 million of cash outflows from acquisition-related transaction and integration expenses. 4. CVS Health finances a portion of its store development program through sale-leaseback transactions. Use of sale-leaseback financing is subject to change as a variety of financing vehicles for future development are evaluated. This may also result in changes to CVS Health s definition of free cash flow. 33

43 Healthy Enterprise Growth Expected to Continue Operating Profit ($, billions) 10% CAGR 10.8 to 10.5 Adjusted EPS ($) 14% CAGR 5.88 to E 2016E E 2016E 2016 growth expected to be within or above target ranges Notes: 1. CAGRs are calculated using 2016E midpoint of guidance range. 2. Excludes a $72 million gain from a legal settlement recognized in Excludes a $521 million loss on early extinguishment of debt during Excludes acquisition-related bridge financing, transaction and integration costs in 2015 and 2016E (related to Omnicare and Target). 34

44 2016 Guidance: Strong Growth in Retail/LTC Full-year 2016 Net Revenue Growth 14.25% to 15.5% Same store sales 2.75% to 4.0% Same store adjusted scripts 3.5% to 4.5% Gross Profit Margin Operating Expense (% of revenue) Significant decline Moderate improvement Operating Profit Growth 6.25% to 8.25% Operating Profit Margin Down 60 bps to 70 bps Notes: 1. Year-over-year growth based on midpoint of 2015 guidance. 2. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, LTC operations and from commercialization services. 3. Same store adjusted scripts includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription. 4. Estimates assume that the acquisition of Target s pharmacies and clinics closes at year-end Expectations exclude acquisition-related transaction and integration costs. 35

45 2016 Guidance: Even Stronger Growth in PBM Full-year 2016 Net Revenue Growth 20.25% to 21.75% Total Adjusted Claims Gross Profit Margin Operating Expense (% of revenue) Operating Profit Growth Operating Profit Margin 1.33 billion to 1.35 billion Moderate decline Modest improvement 9.75% to 13.25% Down 25 bps to 35 bps Healthy enterprise growth in 2016 Notes: 1. Year-over-year growth based on midpoint of 2015 guidance. 2. Total adjusted claims includes the adjustment to convert 90-day, mail choice claims to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription. 3. Expectations exclude acquisition-related transaction and integration costs. 36

46 Key Drivers of 2016 Expectations Reimbursement/pricing pressure and timing of share gains Growth in Specialty a plus Mix of business pressures margins Net benefit of Omnicare and Target assets Smaller incremental benefit from break-open generics Smaller incremental benefit from Red Oak Sourcing 37

47 Mix of Business Lowers Gross Margin %, but Drives Volumes and Gross Profit $ Over Time At enterprise level, lower-margin PBM segment is growing faster than Retail/LTC segment Multiple mix-driven impacts compressing underlying gross margins within underlying retail business: Pharmacy growth is expected to continue to outpace front store growth Medicare and Medicaid are becoming larger components of the patient mix; Lower margin rate and dollars per scripts, but higher margins per life due to higher utilization The mix of third party payors is also adversely changing g in

48 Acquisitions Expected to Help Fuel Growth Omnicare expected to deliver ~20 to Adjusted EPS in 2016 ~ 19 incrementally accretive year-over-year Includes associated financing and excludes amortization and integration expenses ~6 of Adjusted EPS dilution expected from Target in 2016 ~9 of dilution from reduced 2015 share repurchase and financing ~3 of accretion from operation of assets, excluding amortization and integration expenses Pharmacies and clinics expected to be fully integrated and rebranded within six to eight months Significant purchasing synergies through Red Oak beginning in 16 Fewer new store and clinic openings planned in 2016 as Target assets are integrated 39

49 While the Level of Generic Introductions Ebbs and Flows Over Time Enterprise profit growth will continue to benefit from generics 40

50 Generics Drive Financial Performance at CVS Health in Two Ways Brand-to-generic conversion Increasingly effective sourcing of generics in CVS Health s existing base of business 41

51 Generics Remain an Opportunity 1 Total Brand Market Sales of Expected Generic Launches ($, billions) 23.9 Abilify 16.5 Nexium 17.3 Celebrex Diovan Copaxone Namenda Crestor Gleevec Lovaza Zetia Seroquel XR 5.5 Viagra 3.6 Cialis E 2016E 2017E 2018E $40.4 billion $26.4 billion Expected Note: includes all actual launches; 2015E forward includes all actual launches and only expected launches in total brand numbers whose annual sales exceed $100M (key launches highlighted) and assumes 6 months pediatric extension on all launches. Forward-looking analysis assumes no at risk launches. Source: IMS Health; company estimates. 42

52 Incremental Break-open Benefit in 2016 Less Than Total Brand Market Sales of Expected Generic Launches in Break-open Period ($, billions) E 2016E 2017E 2018E Notes: 1. Break-open period for generic launches = 12 months from the point at which there are 3+ viable suppliers in the market (may span 2 calendar years), and includes significant, budgeted launch products only. Brand market sales are at the time of first generic launch; break-open dates on the 15th or later were rounded to next full month; dates before the 15th credited for that month includes all actual launches; 2015E forward includes all actual launches and only expected launches in total brand numbers whose annual sales exceed $100M and assumes 6 months pediatric extension on all launches. Forward-looking analysis assumes no at risk launches. Source: IMS Health; company estimates. 43

53 Biosimilars Represent an Additional Opportunity 1 Total Market Sales ($, billions) Total brand market sales of expected generic launches in break-open period Total market sales of specialty drugs losing exclusivity E 2016E 2017E 2018E 2016E 2019E Notes: 1. Break-open period for generic launches = 12 months from the point at which there are 3+ viable suppliers in the market (may span 2 calendar years), and includes significant, budgeted launch products only. Brand market sales are at the time of first generic launch; break-open dates on the 15th or later were rounded to next full month; dates before the 15th credited for that month includes all actual launches; 2015E forward includes all actual launches and only expected launches in total brand numbers whose annual sales exceed $100M and assumes 6 months pediatric extension on all launches. Forward-looking analysis assumes no at risk launches. Source: IMS Health; company estimates. 44

54 With Incremental Generic Benefits Declining, Biosimilars Will Become a Bigger Opportunity 1 Biosimilars are expected to act more like brands than generics Total Market Sales of Specialty Drugs Losing Exclusivity ($, billions) Expected to increase competition in specialty categories 19.5 Expected to present opportunities for formulary strategies Lower cost for payors we support Incremental margin opportunities for the enterprise 2016E 2019E Well-positioned to benefit from biosimilars 45

55 Red Oak Sourcing to Add Smaller Incremental Value in 2016 But Opportunity Remains 2 Venture with Venture Cardinal with Health Cardinal continues Health to continues provide value to to CVS Health in three provide ways: value to CVS Health in three ways Fixed quarterly payments from Cardinal Health $25.6 million per quarter $75 million incremental benefit in 2015; neutral impact year-over-year in 2016 Additional milestone payments from Cardinal Health $20 million received in 2015; FY16 assumes $60 million Scale benefit from significantly higher combined volumes Greatest marginal benefit recognized in 2014 and 2015 with initial bolus, but opportunity remains 46

56 Combined Procurement Has Grown 50% Since Inception of Red Oak Sourcing 2 Relative Dollar Amount of Generics Procured Using Red Oak Red Oak is the largest generic sourcing entity in the U.S. Cardinal Health ~50% Acquisitions iti Red Oak Generic volumes sourced by Red Oak continue to grow Scale matters incremental value continues to be derived from additional volume CVS Health More sophisticated procurement YE 2013 YE 2015 proforma Introduce competition in molecules Increasingly effective generic sourcing will add incremental value Notes: 1. Underlying data is not adjusted for any market activity (e.g., generic launches, generic break opens). 2. Acquisitions include the generic volumes of Omnicare, the Target pharmacies and Cardinal Health s acquisition of Harvard Drug Group before accounting for any synergies derived from being added to Red Oak Sourcing. Source: CVS Health and Red Oak Sourcing estimates. 47

57 2016 Earnings Growth Significantly Back-half Weighted EARNINGS GROWTH TIMING FACTORS Leap day Easter Shift benefits Q1 to the detriment of Q2 EARNINGS GROWTH TIMING FACTORS Generic introductions / break-opens Medicare Part D Front store strategies benefits Share repurchases Tax rate 1 st Half 2 nd Half 48

58 2016 Q1 Guidance: Challenging EPS Growth Due to Timing Factors Q Net Revenue Growth 17% to 18.5% Adjusted EPS Year-over-year Growth $1.14 to $1.17 Flat to up 3.0% GAAP Diluted EPS $1.03 to $1.06 Notes: 1. EPS estimates exclude acquisition-related transaction and integration costs. 2. Estimates assume that the acquisition of Target s pharmacies and clinics closes at year-end EPS estimates assume completion of approximately $4 billion in share repurchases during full-year

59 Agenda Strong Record of Execution Marketplace Misconceptions Looking Ahead: 2016 Guidance Review Driving Sustainable Enterprise Growth 50

60 Steady State Targets Affirmed Five-year CAGR ( ) Net Revenue Growth 9% to 13% Operating Profit Growth 7% to 9% Preliminary Adjusted EPS Growth 6% to 8% Average Annual Cash Available for Enhancing Shareholder Value Approximately $8 billion Share Repurchase Contribution 4% to 6% Final Adjusted EPS Growth 10% to 14% 51

61 Capital Allocation Priorities Guide Use of Cash Operational Investments Organic Growth p Store Stoego growth and remodels odes Continued technology improvements Capital Structure Capital Returned to Shareholders External Investment Maintain capital structure Credit rating of BBB+ Goal of 2.7X Adjusted d Debt-to-EBITDA t Dividends 18% target CAGR 2014 through % target payout ratio by the end of 2018 Repurchase stock Take advantage of share valuation, absent more attractive alternatives Bolt-on acquisitions in core businesses Minimum risk-adjusted return hurdle in mid teens 52

62 Many Initiatives You ll Hear About Today to Continue to Drive Enterprise Profit Growth Health plans represent significant opportunity to drive value and capture share, whether or not we re the PBM Our specialty business has unmatched assets and continues to outpace the market Target and Omnicare acquisitions enable pharmacy share gains Near-term opportunities to gain retail share from market disruption Low-cost provider status expected to help drive share Opportunities remain within generics, Red Oak Sourcing and biosimilars Strategic acquisitions will continue to supplement growth 53

63 The Right Strategy for an Evolving Health Care Market Demonstrating Value to People, Payors and Providers Capturing significant share of new prescriptions Ability to pivot and provide value as market evolves Growing the Core, Broadening the Base Driving business decisions with enterprise mindset Acquisitions delivering growth into new channels Always Looking Ahead Best positioned to grow with unique assets Growth algorithm remains strong Driving Sustainable Enterprise Growth Solid long-term growth targets and substantial cash Optimizing capital allocation to drive shareholder value Maximizing Long-term Shareholder Value

64 Appendix, CVS Caremark, Omnicare, CVS/specialty, CVS/caremark, CVS, Maintenance Choice, Coram, Navarro, Novologix, Omnicare, and Specialty Connect are trademarks or registered trademarks of CVS Pharmacy, Inc.

65 2016 Guidance: Consolidated Income Statement Full-year 2016 Corporate Segment Expense Intercompany Eliminations (% of combined segment revenues) Gross Profit Margin Operating Expense (% of consolidated revenue) Operating Profit Margin $860 million to $870 million ~ 11.6% Significant decline Moderate improvement Down 40 bps to 50 bps Notes: 1. Year-over-year growth based on midpoint of 2015 guidance. 2. Expectations exclude acquisition-related transaction and integration costs. 56

66 2016 Guidance: Consolidated Income Statement Full-year 2016 Net Interest Expense $1.13 billion to $1.14 billion Effective Tax Rate ~ 39.0% Weighted Average Shares Consolidated Amortization Consolidated Depreciation & Amortization ~ 1.08 billion ~ $800 million ~ $2.5 billion Notes: 1. EPS estimates assume completion of approximately $4 billion in share repurchases in Timing of repurchases are expected to be weighted more in the first half of the year rather than the second half. 2. Expectations exclude acquisition-related transaction and integration costs. 57

67 2016 Q1 Guidance: Segment Performance Reflects Impact of Timing Factors Q Net Revenue Growth 19% to 20.5% l/ltc Retai Same store sales 4.5% to 6.0% Same store adjusted scripts 4.75% to 5.75% Operating Profit Growth 5.0% to 7.0% Pha armacy Se rvices Net Revenue Growth 18% to 19.25% Operating Profit Growth Flat to up 4.0% Notes: 1. Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, LTC operations and from commercialization services. 2. Same store adjusted scripts includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription. 3. Estimates assume that the acquisition of Target s pharmacies and clinics closes at year-end Operating profit growth estimates exclude acquisition-related transaction and integration costs. 58

68 Steady State Targets: Key Assumptions to Keep in Mind Favorable industry demographics Utilization Anticipated Impact Generic pipeline Utilize compelling scale Retail share gains / SG&A leverage Net-new PBM contracts Innovative products and technology High-return, bolt-on on acquisitions Increased compliance requirements / regulations Pharmacy pricing / reimbursement trends Gross margin Gross margin Operating profit Mix/volume/lives Volume/lives Operating profit Gross margin Gross margin 59

69 Driving Enterprise Growth in an Evolving Health Care Market Larry Merlo President & Chief Executive Officer

70 Agenda Our Compelling Value Proposition Evolving Health Care Market Creates Opportunities Strategic Framework for Long-term Enterprise Growth 2

71 The Most Extensive Suite of Leading Assets Retail Clinics Long-term Care Retail Mail Specialty Clinical Programs Infusion Digital Payors Patients Providers Medical Claims Editing enabling us to help deliver superior outcomes at a lower cost 3

72 Continue to Build One-of-a-kind Health Care Company with Unmatched Integrated Assets : Our Competitive Edge Only company with the ability to impact patients, payors and providers with innovative, channel-agnostic solutions Broadest capabilities to holistically manage patients in fast-growing specialty market Unparalleled scale in the U.S. makes us a low-cost provider Largest retail clinic operator in U.S. with 28 million patient visits to date Deep clinical i l expertise and insights i across the enterprise enable us to help deliver superior outcomes at a lower cost Leading gprovider of pharmacy services in long-term care 4

73 Pharmacy Is Our Focus and We ve Captured 39% of Past 5-Year Prescription Growth Total U.S. Rx Industry (Rx dispensed, billions) ~710M new Rx E Note: 1. All prescriptions dispensed on a 30-day equivalent basis. Does not include Omnicare. Source: IMS data, CVS Health Internal Analysis. 5

74 Pharmacy Is Our Focus and We ve Captured 39% of Past 5-Year Prescription Growth Total U.S. Rx Industry (Rx dispensed, billions) 4.8 ~710M new Rx 5.5 CVS Health share of market growth 275M 39% E Gaining share in a growing Rx industry Note: 1. All prescriptions dispensed on a 30-day equivalent basis. Does not include Omnicare. Source: IMS data, CVS Health Internal Analysis. 6

75 Prescription Growth Through Enterprise Channels Demonstrates Power of Unique, Integrated Model CVS/caremark Claims (Rx, millions) 1,080 ~1, Channel agnostic offerings allow us to capture growth in CVS/caremark claims while helping to drive client savings E CVS Health dispensed All other Notes: 1. CVS Health dispensed prescriptions include CVS/pharmacy, mail, CVS/specialty and Omnicare prescriptions across all years. 2. CVS retail and mail prescriptions on a 30-day equivalent basis E is midpoint of guidance range. 7

76 and Has Allowed Us to Capture 700 bps of Revenue Share, Equating to $7 Billion CVS/caremark Revenue ($, billions) ~ % 50% 53% 55% 700 bps increase = $7 Billion E CVS Health share All other Our outperformance in specialty is a key driver of revenue share gains Notes: 1. CVS Health share of CVS/caremark revenue equals CVS/caremark revenue dispensed through Enterprise channels (CVS/pharmacy, mail, CVS/specialty, Omnicare) total CVS/caremark revenue E is midpoint of guidance range. 8

77 Agenda Our Compelling Value Proposition Evolving Health Care Market Creates Opportunities Strategic Framework for Long-term Enterprise Growth 9

78 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 10

79 Health Reform and Demographics Expanding Insured Population Growth in U.S. Insured Lives (lives, millions) Individuals/Exchanges Medicaid Medicare Employer-sponsored E 2019E Medicare and Exchanges will be primary drivers Source: CVS Health Internal Analysis; Medicare Trustees Report, 2015; Avalere Medicaid Model, September 2015; McKinsey MPACT 6.2, September 2014; CBO Public Exchange Estimates, March 2015; Accenture, 2015; Congressional Budget Office. Model assumes no additional Medicaid expansion in the 20 nonexpansion states, further Medicaid expansion could improve long-term covered lives outlook. Figures may not foot due to rounding. 11

80 Aging U.S. Population Will Drive Prescription Utilization 1 U.S. Population Aged 65+ (lives, millions) Retail Prescription Utilization by Age Group (Rx per member per year) +18M lives E 2020E 2025E Sources: 1. U.S. Census Bureau. 2. Utilization based on CVS/caremark book of business; all prescriptions on a 30-day equivalent basis; excludes Aetna. 12

81 and Fuel Growth in Prescription Expenditures 1 U.S. Prescription Drug Expenditures ($, billions) % CAGR E 2018E 2021E 2024E Source: CMS, Office of the Actuary, Prescription Drug Expenditures (figures as of July 30, 2015). 13

82 Pharmacy Is One of the Most Cost-efficient Ways to Manage Overall Health Care Costs 1 Healthcare Savings from Improved Adherence (PMPY) Hyperlipidemia Diabetes Hypertension ROI 9X $5,883 ROI $5,676 9X ROI 5.5X $3,311 ($601) ($656) ($629) Added Rx spend Medical and productivity savings Source: Roebuck MC, Liberman JN, Gemmill-Toyama M, Brennan TA. Medication adherence leads to lower health care use and costs despite increased drug spending. Health Affairs. 2011;30(1): Carls GS, Roebuck MC, Brennan TA, Slezak JA, Matlin OS, Gibson TB. Impact of medication adherence on worker productivity: an instrumental variables analysis in five chronic diseases. JOEM, Cholesterol savings from generic medications only. 14

83 CVS Health Can More Broadly Reach Patients Across the Continuum of Care 1 CVS Health Standalone Retailer Standalone PBM Retail pharmacy Mail Order Specialty/Infusion LTC pharmacy Retail clinics Clinical programs Channel connectivity 15

84 Growth in U.S. Population Over 85 Underscores Need for Long-term Care 1 U.S. Population Aged 85+ (lives, millions) Omnicare is a leading pharmacy services provider to LTC facilities ~2X 11.9 Nationwide footprint with leading positions in Assisted Living and Skilled Nursing facilities Ability to leverage clinical insights to improve care for patients CVS Health brings capabilities to better serve patients across the continuum of care 2015E 2025E 2035E Source: U.S. Census Bureau. 16

85 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 17

86 Specialty Growth Will Be Primary Driver of Pharmacy Trend 2 Addressable Specialty Industry ($, billions) 14% CAGR E 2020E Note: 1. Addressable specialty industry currently excludes infused oncology. Source: NHE, Artemetrx, CVS Health Internal Analysis,

87 We Are Well-positioned as the Largest and Fastest-growing Specialty Pharmacy in the U.S. 2 CVS Health Specialty Revenue ($, billions) 27% CAGR E 2016E Dispensed Managed ACS (Omnicare). Source: CVS Health Internal Analysis. Does not include specialty revenue from Target pharmacies. 19

88 with the Broadest Capabilities to Manage Trend and Improve Care 2 Formulary Solutions Network Design Utilization Management Formulary strategies offer drug exclusions, step therapy and new-to-market control Exclusive Choice network can help reduce trend and drive incremental savings Cost-effective, clinically-appropriate therapy solutions for each patient Site-of-care Home or alternate-site infusion services can Management dramatically lower costs Medical Claims Editing Care Coordination Novologix platform enables editing and re-pricing for medical pharmacy claims Certified nurse case managers provide clinical support 20

89 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 21

90 Retailization of Health Care Continues with Growth in Consumer-directed Health Plans 3 CDHP Enrollment (lives, millions) Drivers of Trend % CAGR Employers looking to CDHPs to help control mounting health care costs Employees have accountability in their health care decision-making Growth in CDHPs also driven by health insurance choosers on the exchanges Sources: AIS s Inside Consumer Directed Care; Kaiser; AHIP surveys. 22

91 Promoting Healthy Behavior Is Critical in Avoiding Unintended Consequences with CDHPs 3 As Patient Cost Share Rises CVS Health Advantages sustaining adherence becomes more challenging patients may choose to cut corners on their health and wellness needs to avoid costs Cost Adherence More than 9,500 convenient locations CVS/minuteclinic Innovative plan design options Unique programs: Pharmacy Advisor Trusted brand CVS Health is best-positioned to meet consumer needs Note: 1. Retail pharmacy locations include more than 1,660 Target locations. 23

92 Example: Reduced Co-pay for Key Maintenance Medications Improves Adherence in CDHPs 3 Member Adherence to Prescribed Hyperlipidemia Medication Initiators +560 bps 80% Continuers +130 bps 82% 57% 63% Without preventative drug list With preventative drug list Notes: 1. Initiators defined as patients starting therapy during study period. Continuers defined as patients on therapy before study period. 2. Member adherence defined as average monthly proportion of days covered (PDC). Source: CVS/caremark Enterprise Analytics: Study of CDHP Design Impact on Utilization and Medication Adherence, Study based on subset of CVS/caremark book of business. 24

93 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 25

94 Payment Models Continue to Evolve Away from 4 Fee-for-service and Towards Value-based Payments Medicare Reimbursement by Payment Model 52% 33% 18% 34% 30% 33% Two-thirds in alternative models 2015E 2018E Medicare Advantage Value-based FFS Volume-based FFS By 2018, two-thirds of Medicare payments in alternative models Source: Burwell S. Setting Value-Based Payment Goals HHS Efforts to Improve U.S. Health Care. The New England Journal of Medicine. 2015; 372:

95 Public and Private Payors Taking Steps to Managing Outcomes and Total Cost of Care 4 Medicare mandatory bundles for hips/knees Largest health systems pledge to move 75% of business into value-based arrangements Medicare Part D Enhanced MTM model Sources: 1. HHS, CMS finalizes bundled payment initiative for hip and knee replacements, November CMS, CMS announces Part D Enhanced Medication Therapy Management Model, September Health Care Transformation Task Force, Major Health Care Players Unite to Accelerate Transformation of US Health Care System, January

96 CVS Health Can Support Health Systems Across the Payment Continuum 4 Birmingham, AL Evolving Contracting Arrangements Sacramento, CA Fee for Service (FFS) FFS with Pay for Performance Bundled Payments Shared Savings Shared Risk Global Capitation 28

97 Full Range of Tools and Services to Support Differentiated Needs of Providers 4 CVS/minuteclinic Epic EMR Health Engagement Engine Hospital Transitions Complementary health Enhanced connectivity Powerful analytics Assisting patients to care services to the health care capabilities avoid adherence system lapses Wellness and chronic care support >60% of Americans have Epic record Essential in helping manage population health Enhanced care coordination Well-positioned to excel regardless of how market evolves 29

98 CVS Health Best-in-class Tools to Drive Adherence 4 Medication Possession Ratio Diabetes Cholesterol l Hypertension Therapy Therapy Therapy +700 bps bps bps Top 3 Retail CVS/ pharmacy Top 3 Retail CVS/ pharmacy Top 3 Retail CVS/ pharmacy Adherence for these common conditions can drive Star ratings Note: 1. Adherence measured by Medication Possession Ratio, calculated as total days supply divided by total days in evaluation period. Source: CVS Health Internal Analysis, based on rolling 12 month period: November 2014 to October

99 CVS Largest Health Med Can D PDP Directly to Achieve Impact a a 4-Star Significant Rating Portion for the 2016 of Star Plan Metrics, Year Driving Outperformance 4 Largest PDPs by Enrollment (lives, millions) Star Rating 5.4 OptumRx 3.0 CVS Health Humana Express Scripts CIGNA Aetna WellCare Note: 1. Star Rating based on weighted average enrollment by parent organization. Only plans that were CVS/caremark managed for the 2016 measurement period and received a Star rating were included. Source: CMS (membership figures as of October 9, 2015), CVS Health Internal Analysis. 31

100 CVS Health Can Directly Impact a Significant Portion of Star Metrics, Driving Outperformance 4 Largest PDPs by Enrollment (lives, millions) Star Rating 5.4 OptumRx 3.0 CVS Health Humana Express Scripts CIGNA Aetna WellCare SilverScript is excelling Only PDP with >50% lowincome-subsidy lives to achieve 4 Star rating And we re helping clients achieve their goals Ability to directly impact more than 80% of Med D and 55% of MAPD Star metrics Client lives in high performing plans: 73% vs. 49% for the overall market Note: 1. Star Rating based on weighted average enrollment by parent organization. Only plans that were CVS/caremark managed for the 2016 measurement period and received a Star rating were included. Source: CMS (membership figures as of October 9, 2015), CVS Health Internal Analysis. 32

101 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 33

102 We Can Partner with Health Plans in a Multitude of Ways to Drive Value 5 Strong procurement capabilities and claims scale makes us a low-cost provider Broad service Pharmacy is Unique ability portfolio to our focus and a to leverage support plan key lever for consumer needs whether managing insights or not we are overall health to improve the PBM costs care 34

103 After Consolidation, Regional and Blues Plans Will Still Manage More Than Half of Total Lives 5 Humana Aetna Cigna Anthem Aetna Anthem Nationals 46% United United Regionals 54% Blues Market Today Future Market 35

104 We Dispense 8X to 11X the Prescription Volume of the Proposed Combinations Estimated Rx Volume (Rx dispensed, millions) 1,350 ~8X ~11X CVS Health Advantages Generic purchasing scale makes us a low-cost provider Scale is further enhanced by Red Oak sourcing CVS Aetna Anthem Health Humana Cigna Notes: 1. Estimated dispensed Rx include prescriptions filled at CVS/pharmacy and mail order and specialty prescriptions filled at CVS/caremark. 2. Estimated dispensed Rx also displayed on a pro forma basis to include full year 2015 Dispensed Rx volume from Omnicare and Target. Source: CVS Health Internal Analysis, Company disclosures. All prescriptions dispensed on a 30-day equivalent basis. 36

105 and We Manage 2X to 3X the Claims Volume of the Proposed Combinations 5 CVS Health Advantages Substantial managed claims volume supports negotiations for rebates / formulary placement Creates value as majority of rebates are passed to clients 2015 Estimated Claims Volume (Rx managed, millions) 1,165 ~2X 600 ~3X 480 CVS / Aetna Anthem caremark Humana Cigna Note: 1. Estimated managed claims include all CVS/caremark network claims plus specialty and adjusted mail claims. Source: CVS Health Internal Analysis, Company disclosures. CVS/caremark claims represent midpoint of guidance range. 37

106 We Dispense 8X to 11X and Manage 2X to 3X the Volumes of the Proposed Combinations Estimated Rx Volume (Rx dispensed, millions) 2015 Estimated Claims Volume (Rx managed, millions) 1,350 1,165 ~2X ~8X ~11X 600 ~3X CVS Aetna Anthem CVS / Aetna Anthem Health Humana Cigna caremark Humana Cigna Scale is critical to being a low-cost provider Note: Estimated dispensed Rx include prescriptions filled at CVS/pharmacy and mail order and specialty prescriptions filled at CVS/caremark. Dispensed Rx also displayed on a pro forma basis to include full year 2015 Dispensed Rx volume from Omnicare and Target. Estimated dispensed prescriptions on a 30-day equivalent basis. Estimated managed claims include all CVS/caremark network claims plus specialty and adjusted mail claims. Source: CVS Health Internal Analysis, Company disclosures. CVS claims represent midpoint of guidance range. 38

107 Agenda Our Compelling Value Proposition Evolving Health Care Market Creates Opportunities Strategic Framework for Long-term Enterprise Growth 39

108 Our Strategic Business Imperatives Aggregate Lives Grow Share Execute with Excellence Drive Innovation Enterprise Focus Grow the core, Broaden the base 40

109 Our Strategy for Long-term Enterprise Growth Opportunistic bolt-on acquisitions Continued innovation in drug procurement and supply chain efficiencies 1 2 Enhance patient engagement Deepen relationships with payors and providers to help reduce cost and improve outcomes Add capabilities to enhance core business 41

110 Today s Key Takeaways The Right Strategy for an Evolving Health Care Market Demonstrating Value to People, Payors and Providers Leadership in multiple competencies to drive superior value for health care partners Growing the Core, p g p y g Broadening the Base Expanding core pharmacy business while broadening reach into new health care channels Always Looking Ahead Introducing innovative products and making long-term, value-enhancing investments Driving Sustainable Enterprise Growth Driving shareholder value with strong earnings and cash flow as well as disciplined capital allocation Driving Enterprise Growth in an Evolving Health Care Market

111 Endnote 1., Omnicare, CVS/caremark, CVS/pharmacy, CVS Health, CVS/specialty, CVS/minuteclinic, and Health Engagement Engine are trademarks or registered trademarks of CVS Pharmacy, Inc. 43

112 Delivering Value Today, Ensuring Growth for Tomorrow Jon Roberts Executive Vice President & President, CVS/caremark

113 Agenda Demonstrating Value: PBM Performance f Highlights ht Addressing Clients Top Concern: Cost Ensuring Growth: Our Integrated Model and the Evolving Health Care Market 2

114 Continued Strong PBM Performance Net Revenue ($, billions) Operating Profit ($, billions) 15.6% CAGR % CAGR E E Note: E based on midpoint of 2016 guidance. 3

115 Another Successful Selling Season: Gross New Business Wins of $13.5 Billion for 2016 State of Oklahoma State t of Illinois Notes: 1. As of 12/04/ Gross wins exclude Medicare Part D SilverScript individual products. 13.5B $1.8B $11.2B IN NEW BUSINESS WINS Health Plan Government & Union Employer 4

116 Net New Client Business of $11.5 Billion for 2016 with 98% Retention Revenues ($, billions) 60% of client non-renewals due to acquisition and retirees Business Not Renewed Gross New Acquired Moved to Exchange Competitive Business (Primarily il Retirees) /Oth Other Net New Business Expect another highly successful welcome season Notes: 1. As of 12/04/ Gross wins exclude Medicare Part D SilverScript individual products. 5

117 Gross New Business Creates Share Gain Opportunity GROSS WINS BY CHANNEL $0.6B Mail Choice ENTERPRISE SHARE 54% $1.8B Specialty 22% 28% data $11.1B Retail Networks New Business Existing Health Plan Existing Employer Notes: 1. Enterprise share represents the percent of Rx volume dispensed through a CVS Health enterprise channel (Mail, Specialty, Retail). 2. All claims on a 30-day equivalent basis. 6

118 Client Priorities: Prescription Drug Cost Top Concern Across Segments AVOIDING DISRUPTION MEDICARE EXPERTISE MEMBER SERVICE UTILIZATION & CLINICAL PROGRAMS CLIENT SERVICE PRESCRIPTION DRUG COST LEVEL OF IMPORTANCE 7

119 Our Model Provides Flexibility to Address Client Priorities Employers AVOIDING DISRUPTION MEDICARE EXPERTISE MEMBER SERVICE UTILIZATION & CLINICAL PROGRAMS CLIENT SERVICE PRESCRIPTION DRUG COST LEVEL OF IMPORTANCE 8

120 Our Model Provides Flexibility to Address Client Priorities Health Plans AVOIDING DISRUPTION MEDICARE EXPERTISE MEMBER SERVICE UTILIZATION & CLINICAL PROGRAMS CLIENT SERVICE PRESCRIPTION DRUG COST LEVEL OF IMPORTANCE 9

121 Our Model Provides Flexibility to Address Client Priorities Medicare AVOIDING DISRUPTION MEDICARE EXPERTISE MEMBER SERVICE UTILIZATION & CLINICAL PROGRAMS CLIENT SERVICE PRESCRIPTION DRUG COST LEVEL OF IMPORTANCE 10

122 Multi-segment PBM Market Demands Flexibility Employers Government Health and Unions Plans Expertise, flexibility and proven performance support our continued growth 11

123 Delivering on Client Priorities: Clients and Members Highly Satisfied with Service 2015 Client Satisfaction 2015 Member Satisfaction 96% 95% CVS/caremark scored highest in overall customer satisfaction in 2015 PBMI Survey Source: PBMI 2015 Pharmacy Benefit Management Customer Satisfaction Report; PBMs with >20M members. 12

124 Delivering on Client Priorities: Medicare Consultative Services Competitiveness Actuarial l/bid bid, formulary and plan design support Star Ratings MEDICARE HEALTH PLAN Progressive and integrated strategies to help manage trend Compliance 73% of client lives are 4 to 5 Star plans Robust compliance support for complex regulatory environment Note: 1. Star ratings for 2016 based on internal analysis of CMS data released October Star rating based on weighted average enrollment by parent organization. Only plans that were CVS/caremark managed for the 2016 measurement period and received a Star rating were included. 13

125 Delivering on Client Priorities: Clinical Programs MEDICATION RECONCILIATION ROBUST UTILIZATION PROGRAMS 48% reduction in hospital 6% savings for medical readmissions; $3,300 and pharmacy savings per patient benefits from counseled specialty utilization management PHARMACY ADVISOR SPECIALTY CARE MANAGEMENT NURSE Pharmacist counseling: 4% increase in adherence; 7.5% reduction in gaps in care in care by 23% Enhanced outreach: 60% engagement rate; reduce hospitalizations by 23% Note: 1. Savings quoted may vary based on various factors including things such as plan design, programs adopted and demographics. Sources: Pharmacy Advisor : CVS/caremark internal data, Medication Reconciliation: CVS/caremark sample study, Robust UM (integrated PA) CVS/caremark Specialty Client Solutions and Trend Management, 2013, internal analyses for estimated program savings. Specialty engagement source: Accordant - Comprehensive Data Warehouse; SQL Server Greensboro, NC: care management Health Services, a CVS/caremark Company;

126 Agenda Demonstrating Value: PBM Performance Highlights ht Addressing Clients Top Concern: Cost Ensuring Growth: Our Integrated Model and the Evolving Health Care Market 15

127 Size and Scale Ensures Competitive Cost Generic Purchasing Sourced through Red Oak, the largest generic sourcing entity in the U.S. Formulary Management $6.4B in incremental client savings 12-16E from our leading formulary management strategy Specialty Pharmacy Largest specialty pharmacy; able to manage cost across pharmacy and medical benefit Competitive Networks 1.34B adjusted claims estimated in 2016 through our multiple networks Cost of Service Streamlining continues to deliver value as volume grows Technology investments enable regulatory compliance Note: E based on midpoint of 2016 guidance. 16

128 Comprehensive Program Addresses 3 Possible Areas of Fraud, Waste and Abuse MEMBER Medication abuse / misuse CVS/caremark provides: Doctor shopping Pharmacy shopping Active and retrospective claims monitoring PRESCRIBER Review of high-risk prescribing patterns Illegal or irresponsible prescribing Robust network pharmacy credentialing program PHARMACY Fraudulent billing Inaccurate dispensing Drug diversion Pharmacy audits High- and low-touch interventions For 2015, CVS/caremark pharmacy audits will lead to more than $240M in savings and recovery of incorrect, improper or fraudulently-billed claims Source: CVS/caremark internal data. 17

129 2014 Double-digit Pharmacy Trend: A Call to Action IMPACT TO TREND 2.0% 10% 1.0% 3.4% (5.9)% 11.8% 2.1% 1.5% 7.7% 2014 Book of Business Trend Nonspecialty Brand Inflation Specialty Brand Inflation Utilization Hep C Compounds Generic Inflation Drug Mix Note: 1. Trend is net of rebates. Source: CVS Health Enterprise Analytics, Book of Business Trend Cohort. 18

130 RxInsights: Client-Specific Reporting on Trend Performance and Key Metrics EXECUTIVE SUMMARY Note: 1. Sample data, actual results may vary. 19

131 CVS HEALTH - COMPREHENSIVE SOLUTIONS TO MANAGE TREND IDENTIFY EXPLORE MANAGE OPTIMIZE EMERGING ROOT CAUSES THROUGH CHANNEL TREND FORMULARY Interactive RxInsights Individual classes are plotted below. The graph is showing the relationship between Cost and Contribution to Trend. Size represents the Cost/Days Supply ppy for a given class. CLASS ANALYSIS BY CONTRIBUTION 5% 4% RxInsights 3% 2% TREND 11.2% 1% 0% Demo -1% -2% -3% $0 $1 $2 $3 $4 $5 $6 $7 $8 GROSS COST PMPM TREND $120 $100 $ CVS Health and/or one of its January 2014 May 2014 September 2014 January 2015 May 2015 September 2015 affiliates: Confidential and Proprietary

132 Strong Adoption of Key Cost Management Solutions Meaningful Opportunity Remains Current Lives Total Lives Opportunity Savings MAINTENANCE CHOICE 23M 44M Up to 4% TOTAL NETWORK STRATEGIES 37M 75M Up to 4% FORMULARY STRATEGIES 25M 53M Up to 12% EXCLUSIVE SPECIALTY 35M 50M Up to 7% SPECIALTY MEDICAL MANAGEMENT 10M 41M Up to 13% Notes: 1. Current Lives includes 2016 known enrollments. 2. Exclusive Specialty savings apply to specialty spend under the pharmacy benefit. 3. Specialty Medical Management opportunity based on Health Plan lives in PBM book of business; savings apply to specialty spend under the medical benefit. 4. Savings results will vary based on a variety of factors including demographics, plan design and other programs implemented by the client. 21

133 Adoption of Our Plan Designs Helps Reduce Plan Costs While Growing Enterprise Share Enterprise Share Growth in a Multi-state Health Plan 11.4 pp increase 26.7% 31.3% 19.9% E Plan has implemented programs that reduce plan and member cost and grow enterprise share 22

134 Year-to-date Double-digit Trend Pharmacy Summary Trend: A Call to Action JAN THROUGH SEP COMMERCIAL TREND 11.8% 1.6% (0.3)% (1.9)% 0.8% (2.8)% 2.3% 6.4% 67% 6.7% YTD Book Book of Business Trend Nonspecialty Brand Inflation Specialty Brand Inflation Utilization Hep C Compounds Generic Inflation Drug Mix Note: 1. Trend is net of rebates. Source: CVS Health Enterprise Analytics, Book of Business Trend Cohort. 23

135 Agenda Demonstrating Value: PBM Performance Highlights ht Addressing Clients Top Concern: Cost Ensuring Growth: Our Integrated Model and the Evolving Health Care Market 24

136 Driving Market Evolution: Government Programs Linking Payments to Quality 1in3 Americans are currently covered by governmentsponsored health insurance programs 50% of traditional Medicare spending will be linked to quality incentives by 2018 % OF MEDICARE SPENDING TIED TO QUALITY INCENTIVES 50% $1of every $2 20% spent on health care goes through Medicare and Medicaid id To succeed, payors and providers must align with CMS focus on quality Notes: 1. Health Affairs National Health Expenditure Projections , July Modern Healthcare, January 26,

137 Our Model Uniquely Meets Evolving Needs Integrated Assets and Ability to Improve Outcomes Position Us for Growth Data and analytics to guide interventions and help optimize outcomes Effective outreach to consumers between visits to the doctor Connectivity and coordination with providers to help them succeed in new risk models Capabilities to reduce risk of readmissions and support transitions in care Supporting market initiatives linking payments to quality 26

138 We Make Data Actionable and Deliver It When and Where Interventions Can Do the Most Good Patient Providers Hospitals Post-acute Care Optimal Interventions Powered by the Health Engagement Engine Foundation of rich data and analytic expertise 27 1 Data/Analytics Guide Interventions

139 CVS Health Uses Pharmacy Data to Help Providers Reduce Risk and Improve Quality Which of my Risk Adjustment Targeting: patients are high Accurate assessment of population p risk to help risk? optimize reimbursement Who will drop off therapy and when? Adherence Prediction: Assess a patient s risk of non-adherence to more effectively target adherence interventions Who could incur high costs in the next 12 months? Vulnerable Patient Index: Identify patients at high risk of steep increase in health care costs to enable interventions to improve adherence, safety and outcomes Vulnerable patients have 3.5X higher cost of care Note: 1. CVS Health uses and shares data as allowed by applicable law, our agreements and our information firewall. Source: CVS/caremark internal analysis Data/Analytics Guide Interventions

140 Connected Assets Support Effective Consumer Outreach CVS/omnicare Adherence counseling Support for self-management of chronic conditions Medication reviews for high risk patients Specialty condition management Wellness support Omnicare support Support for for Transitions transitions in in care Care Note: 1. CVS Health uses and shares data as allowed by applicable law, our agreements and our information firewall Effective Consumer Outreach

141 Connecting with At-risk Providers and Extending the Care Team to Help Them Succeed Adherence opportunities Intervention results Medication and allergy info MinuteClinic visit summaries Provider Affiliated with 60+ health systems to share data and support patient interventions and better outcomes Note: 1. CVS Health uses and shares data as allowed by applicable law, our agreements and our information firewall Provider Connectivity

142 Supporting Patients After Discharge from Hospital: Care Transitions Challenge the System 1/5 readmitted within 30 days 3/4 of these readmissions are preventable 2/3 readmissions related to medication issues Costs: $12B per year Sources: 1. Health Affairs Health Policy Brief, November 12, 2013, Medicare Hospital Readmission Reduction Program. 2. Annals of Internal Medicine; The Incidence and Severity of Adverse Events Affecting Patients after Discharge from the Hospital, Transitions in Care

143 Supporting Patients After Discharge from Hospital: Reducing Risk, Improving Outcomes Medication Reconciliation by Pharmacist Shown to reduce readmissions by 48% Home Infusion Services Earlier discharge; alternative, lower-cost sites of care High-touch Specialty Services Adherence support; rare disease management Skilled Nursing or Long-term Care Helping patients through complex changes in regimen as they transition Only CVS Health can provide this end-to-end solution Note: 1. CVS/caremark sample study, Transitions in Care

144 One-of-a-kind: Assets and Capabilities to Connect and Coordinate with All Stakeholders LARGEST RETAIL CLINIC LARGEST SPECIALTY PHARMACY RETAIL PHARMACY FOOTPRINT Integrated Model Helps Lower Costs and Improve Outcomes LARGEST HOME INFUSION INDUSTRY-LEADING PBM PROGRAMS LEADING POST-ACUTE PHARMACY SERVICES 33

145 The Right Strategy for an Evolving Health Care Market Demonstrating Value to People, Payors and Providers Industry-leading trend management tools / solutions Provider and patient support that improves outcomes Growing the Core, Broadening the Base Flexibility to meet evolving market needs Adding value with new capabilities Always Looking Ahead Innovative solutions foster expanded d payor and provider relationships Driving Sustainable Enterprise Growth Integrated assets serve expanding market segments and evolving payment models Delivering Value Today, Ensuring Growth for Tomorrow

146 Endnote 1., CVS/caremark, CVS Caremark, RxInsights, Maintenance Choice, Health Engagement Engine and CVS/omnicare are trademarks or registered trademarks of CVS Pharmacy, Inc. 35

147 Capitalizing on Growth Opportunities in Specialty Alan Lotvin, M.D. Executive Vice President, CVS/specialty

148 Agenda Performance Highlights CVS/specialty Differentiated Assets Future Growth Initiatives 2

149 CVS/specialty Has Grown Faster Than the Industry CVS/specialty CVS Health Specialty Revenue ($, billions) Managed E 2016E. Source: CVS Health Internal Analysis, does not include specialty revenue from Target pharmacies. 3

150 CVS/specialty Has Grown Faster Than the Industry CVS/specialty Dispensed Revenue ($, billions) % CVS/specialty CAGR % Industry CAGR E 2016E. Source: CVS Health Internal Analysis, does not include specialty revenue from Target pharmacies. 4

151 CVS/specialty Is Growing Faster Than Nearest Competitor to Become the Largest Specialty Pharmacy Specialty Pharmacy Share % 25% 300 bps point lead for competitor 35% 26% 2% 2% 28% 3% 19% 10% 6% 11% 700 bps point lead for CVS/specialty $63B Market $78B Market Competitor A Competitor B Competitor C Competitor D All other Source: 2013 Share: Pembroke Consulting estimates. This chart appears as Exhibit 14 in the Economic report on Retail, Mail, and Specialty Pharmacies, Drug Channels Institute, January 2014; Proforma for UHC and Catamaran Combination Share: Drug Channels, The Top 10 Specialty Pharmacies of

152 Agenda Performance Highlights CVS/specialty Differentiated Assets Future Growth Initiatives 6

153 The Traditional Specialty Pharmacy Model Now Represents Table Stakes in the Industry CLINICAL MANAGEMENT Side Effects Injection Training Adherence CLINICAL MONITORING Risk Evaluation and Mitigation Strategies (REMS) Adverse Event Reporting LOGISTICS Cold Chain Shipping Benefit and Financial Support 7

154 CVS Health s Enterprise Assets Raise the Bar in Specialty Pharmacy ONLY Coram, Infusion Services Novologix, Medical Specialty Management Narrowest Exclusion Formulary Accordant, Care Management Cost Management Quality Specialty Connect Best-in-class Mobile App Access to 99% of Specialty Drugs Access TRADITIONAL SPECIALTY PHARMACY Clinical Quality Programs Adherence Programs Preferred Specialty Networks Specialty Dispensing 8

155 CVS/specialty Model Starts with National Footprint CVS/specialty: Target: CVS/pharmacy: Total more h than 12 more 1,660 more than 7,900 than 9,500 9 Access

156 CVS/specialty Model Starts with National Footprint CVS/specialty: Target: Total CVS/pharmacy: more than 12 1,660 more than 9, Access

157 CVS/specialty Model Starts with National Footprint CVS/specialty: Total CVS/pharmacy: 12 more than 9,500 76% of the U.S. population lives within 5 miles of a CVS/pharmacy 11 Access

158 CVS/specialty Model Starts with National Footprint CVS/specialty: 12 Footprint enables streamlined operations, reduced shipping costs and improved efficiency 12 Access

159 Our Specialty Connect Model Improves the Patient Experience with Convenience HIGHLY-UTILIZED CHANNEL DELIVERY OF CHOICE CLINICAL SUPPORT ~500 specialty patients a day 100,000+ Total Patients Note: 1. In-store pick up currently is not available in Arkansas, Oklahoma and West Virginia. Some states require first fill prescriptions to be transmitted directly to the dispensing i specialty pharmacy. Other restrictions i may apply. Products available through h the Specialty Connect program are dispensed d by CVS/specialty in compliance with all applicable state laws. Source: "The Adherence Impact of a Program Offering Specialty Pharmacy Services to Patients Using Retail Pharmacies., Journal of the American Pharmacists Association. In press. 13 Access

160 Our Specialty Connect Model Improves Patient Experience with Flexibility HIGHLY-UTILIZED CHANNEL DELIVERY OF CHOICE CLINICAL SUPPORT 54% prefer to pick up at CVS/pharmacy Note: 1. In-store pick up currently is not available in Arkansas, Oklahoma and West Virginia. Some states require first fill prescriptions to be transmitted directly to the dispensing i specialty pharmacy. Other restrictions i may apply. Products available through h the Specialty Connect program are dispensed d by CVS/specialty in compliance with all applicable state laws. Source: "The Adherence Impact of a Program Offering Specialty Pharmacy Services to Patients Using Retail Pharmacies., Journal of the American Pharmacists Association. In press. 14 Access

161 Our Specialty Connect Model Improves Patient Experience with Better Outcomes HIGHLY-UTILIZED CHANNEL DELIVERY OF CHOICE C CLINICAL SUPPORT 11.4% adherence improvement Note: 1. In-store pick up currently is not available in Arkansas, Oklahoma and West Virginia. Some states require first fill prescriptions to be transmitted directly to the dispensing i specialty pharmacy. Other restrictions i may apply. Products available through h the Specialty Connect program are dispensed d by CVS/specialty in compliance with all applicable state laws. Source: "The Adherence Impact of a Program Offering Specialty Pharmacy Services to Patients Using Retail Pharmacies., Journal of the American Pharmacists Association. In press. 15 Access

162 Our Best-in-class Mobile App Further Improves Experience for Specialty Patients SIMPLE COMMUNICATIONS Choice of Delivery Text Messaging EASY TO LOGIN ONE-STEP REFILL 16 Access

163 Our Best-in-class Mobile App Further Improves Experience for Specialty Patients SIMPLE COMMUNICATIONS Choice of Delivery Text Messaging EASY TO LOGIN ONE-STEP REFILL 17 Access

164 Our Best-in-class Mobile App Further Improves Experience for Specialty Patients SIMPLE COMMUNICATIONS Choice of Delivery Text Messaging EASY TO LOGIN Fingerprint Touch ID Facial Recognition ONE-STEP REFILL 18 Access

165 Our Best-in-class Mobile App Further Improves Experience for Specialty Patients SIMPLE COMMUNICATIONS Choice of Delivery Text Messaging EASY TO LOGIN Fingerprint Touch ID Facial Recognition ONE-STEP REFILL 19 Access

166 Our Best-in-class Mobile App Further Improves Experience for Specialty Patients SIMPLE COMMUNICATIONS Choice of Delivery Text Messaging EASY TO LOGIN Fingerprint Touch ID Facial Recognition ONE-STEP REFILL Scan to Refill Refill Reminder 20 Access

167 Our Best-in-class Mobile App Further Improves Experience for Specialty Patients SIMPLE COMMUNICATIONS Choice of Delivery Text Messaging EASY TO LOGIN Fingerprint Touch ID Facial Recognition ONE-STEP REFILL Scan to Refill Refill Reminder 21 Access

168 Enterprise Assets Make CVS/specialty the Pharmacy of Choice When Patients Have Options SPECIALTY PHARMACY SHARE OF PATIENT-DIRECTED BUSINESS ORAL ONCOLOGY HEPATITIS C Indexed National Market Share Other specialty pharmacies (26 pharmacies in distribution network) CVS/specialty Nearest competitor Source: CVS/caremark Internal Analytics. 22 Access

169 Our Assets Also Make CVS/specialty a Pharmacy of Choice in Limited Manufacturer Networks Blincyto Infused anti-cancer therapy Uptravi Oral pulmonary arterial hypertension (PAH) therapy Distribution Network: 1 of 2 and National Infusion Provider Distribution Network: 1 of 2 and PBM Affiliated Pharmacy Key to win: Coram CVS/specialty Infusion Services Key to win: Clinical i l expertise in PAH, Enterprise assets Our unique model gives us access to 99% of specialty drugs 23 Access

170 Effective Quality and Cost Management Solutions Are Resonating with Payors Nearly 1,000 clients in the past 2 years have selected CVS/specialty as their Exclusive Specialty Provider 24 Quality and cost management

171 Effective Quality and Cost Management Solutions Are Resonating with Payors Enrolled lives in 2014 Enrolled lives in 2016 Eligible lives Lives, millions Accordant Specialty Formulary Specialty Medical Management 25 Quality and cost management

172 Adoption of Our Cost Management Solutions Results in Significantly Lower Trend Illustrative ti Trend 20% Integrated t PA 6% Site of Care 3% Claims Editing & Pricing Specialty Formulary Generic 2% Programs 2% 1% Pricing Models 1% Exclusive Network 1% Remaining Trend 4% Source: CVS/caremark Specialty Client Solutions and Trend Management, 2014, internal analyses for estimated program savings. 26 Quality and cost management

173 Adoption of Our Cost Management Solutions Results in Significantly Lower Trend Illustrative Prior Trend Authorization 34% 14% Employer Client Example Site of Care Claims Editing & Pricing Specialty Formulary 4% Generic Programs 3% Pricing Models Exclusive Network 1% Remaining Trend 12% Comprehensive Trend Management Tools Source: CVS/caremark Specialty Client Solutions and Trend Management, 2014, internal analyses for estimated program savings. 27 Quality and cost management

174 Agenda Performance Highlights CVS/specialty Differentiated Assets Future Growth Initiatives 28

175 Our Strategic Business Imperatives Aggregate Lives Grow Share Execute with Excellence Drive Innovation Enterprise Focus FORMULARY PIPELINE ONCOLOGY CAPABILITIES Grow the core, Broaden the base 29

176 Aggregating Lives Requires Innovative Cost Management Programs: Value-based Contracting CONTRACTING STRATEGIES Value Based Price Protection INDICATION-SPECIFIC APPROACH Simple No complex analyses needed Effective Increases competition Net price better aligned with clinical value AUTOIMMUNE THERAPIES Rheumatoid Arthritis: 9 Crohn s: 4 Exclusion Formulary Available 2016 for CVS/caremark clients Psoriasis: i 4 30 Aggregate Lives

177 Growing Share in Growing Segments: Outperform Upon Launch with Proactive Strategies Indexed Growth: CVS/specialty Share Key Tactics Establish Centers of Excellence Incorporate into Specialty Connect Engage physicians with differentiated service model Pre-launch pharmacy training Multiple Sclerosis Oncology Idiopathic Pulmonary Fibrosis Hepatitis C CVS/specialty Indexed Performance Align enterprise services Note: 1. CVS/specialty share is based on internal analysis and IMS data. 31 Grow Share

178 Strong Pipeline Creates Growth Opportunity for CVS/specialty in Newly Launched Products ROBUST PIPELINE: ANTICIPATED SPECIALTY AGENTS IN New Drugs 238 ANTICIPATED BLOCKBUSTER DRUGS: NSC Lung Cancer rociletinib (2016) Breast Cancer ribociclib (2017) Liver Disease (NASH) obeticholic acid (2018) Alzheimer s Disease aducanumab (2018) Note: 1. NSC (Non-small Cell) NASH (Nonalcoholic Steatohepatitis) 32 Grow Share

179 Oncology Remains Key Pain Point for Payors: CVS/specialty Developing Innovative Approach AVERAGE EPISODE SPEND BY PROVIDER: BREAST CANCER Outliers 7-8X median FIVE MODIFIABLE COST FACTORS Regimen Selection Duration of Therapy $30K 75 th percentile: $60K Median: $42K Use of Generics Site of Care 25 th percentile: $30K Drug Related Cost per Episode Use of Supportive Agents 33 Drive Innovation

180 Oncology Remains Key Pain Point for Payors: CVS/specialty Developing Innovative Approach AVERAGE EPISODE SPEND BY PROVIDER: BREAST CANCER CVS/SPECIALTY VALUE-BASED APPROACH Focus on drug and related costs Collaborate with oncologists, aligning to the highest value treatment Reduced d variability Reduce variability in expense with capitated risk program for plans Drug Related Cost per Episode 34 Drive Innovation

181 Adding New Capabilities to the Enterprise Augments Organic Growth Strategies Infusion Share Industry Dynamics 10% 5% 5% 6% 74% More people aging in place Home as lowest-cost site of care Administrative burden for plans Enhanced quality standard, 503B, most stringent in the industry CVS/specialty All others Infusion Services Infusion A Infusion B Infusion C Source: HarrisWilliams&Co Home Infusion Industry Overview, June Enterprise Focus

182 New Relationship with Leading Social Network for Patients with Chronic Disease MyHealthTeams 36 Enterprise Focus

183 New Relationship with Leading Social Network for Patients with Chronic Disease 300K 48% Registered Users Active Users Creating Awareness and Engagement Increasing Script Growth 37 Enterprise Focus

184 The Right Strategy for an Evolving Health Care Market Demonstrating Value to People, Payors and Providers Improving specialty patient and provider experience Advanced trend management solutions for clients Growing the Core, Broadening the Base Leading expertise and position in all specialty segments Strategic acquisitions to enhance product position Always Looking Ahead Innovating to meet customer and patient needs Expanding into social media; developing oncology Driving Sustainable Enterprise Growth Balanced growth portfolio Scalable operating model Capitalizing on Growth Opportunities in Specialty

185 Endnote 1., CVS/specialty, Coram, Novologix, Accordant, CVS/pharmacy, and Specialty Connect are trademarks or registered trademarks of CVS Pharmacy, Inc. 39

186 Changing the Face of Retail Pharmacy Through Innovation Helena Foulkes Executive Vice President & President, CVS/pharmacy

187 Agenda Strong Core Performance Expanding Our Footprint Reinventing Retail Pharmacy to Drive Outcomes Evolution of CVS/minuteclinic Driving Growth in Front Store 2

188 Retail Pharmacy at a Glance 2015E CVS/pharmacy Revenue 72% Pharmacy Pharmacy is a significant portion of retail revenue 3

189 Strong Record of Share Growth in Both Pharmacy and Front Store CVS/pharmacy Share of Total U.S. Retail Prescriptions Health & Beauty Share 19.2% +240 bps 21.6% 11.5% +50 bps 12.0% E E Note: 1. Compares day adjusted scripts from January through August to 2010 January through August Source: IMS Note: 1. Market = remainder of Food/Drug/Mass;compares 2015 YTD through August to 2010 Jan through August Source: IRI 4

190 Continued Strength in Core Retail Pharmacy Business 38% Growth in Prescriptions ( ) 19% ~2X Faster Nearly 44% of our growth through non- CVS/caremark payors CVS/pharmacy All Other Market Notes: 1. Compares total CVS/pharmacy prescriptions for 90 day adjusted scripts January through August for 2010 compared with January through August for Compares total market (excluding CVS/pharmacy) for 90 day adjusted scripts January through August for 2010 compared with January through August for Reduction in labor cost to fill excludes wage inflation. Source: IMS 5

191 Continued Strength in Core Retail Pharmacy Business 38% Growth in Prescriptions ( ) 19% ~2X Faster ~13% reduction in labor cost to fill each Rx since 2010 CVS/pharmacy All Other Market Notes: 1. Compares total CVS/pharmacy prescriptions for 90 day adjusted scripts January through August for 2010 compared with January through August for Compares total market (excluding CVS/pharmacy) for 90 day adjusted scripts January through August for 2010 compared with January through August for Reduction in labor cost to fill excludes wage inflation. Source: IMS 6

192 We Are Continuing to Use Various Channels to Drive Growth in Pharmacy Volume Retail (CVS/pharmacy & CVS/minuteclinic) CVS/caremark Target Partnership Omnicare Acquisition Leveraging our integrated model to drive pharmacy innovation 7

193 Success in High Margin Health & Beauty Businesses Health & Beauty Sales ($, billions) +3.7% CAGR 11.0 Key Takeaways These are categories where we have a right to win, most closely tied to pharmacy Projected to grow 2X faster than General Merchandise & Edibles over the next 3 years Margin is 17Xhi 1.7X higher h than other categories E Note: YTD through August with estimate through end of year. Source: CVS Health Internal Analysis. Sources: CVS Health Internal Analysis, IRI, Mintel market reports, Global- Markets reports, ITE Beauty, CVS Health Internal Analysis. 8

194 Continued Success in Store Brands Store Brands Penetration Key Takeaways ~22% 25% Penetration increased ~300 bps since 2014, with 150 bps attributable to tobacco exit ~17% CVS Store Brands growing more than 2X faster than industry Store Focus on Healthy Food, exclusive Beauty brands and core OTC E Goal Note: 1. Based on SB Drug market. Sources: CVS Health Internal Analysis; IRI 2015 YTD through August. Store Brands driving front store margins 9

195 Agenda Strong Core Performance Expanding Our Footprint Reinventing Retail Pharmacy to Drive Outcomes Evolution of CVS/minuteclinic Driving Growth in Front Store 10

196 Growing Our Business Through Acquisition of Target Pharmacies and Clinics TARGET PHARMACIES TARGET CLINICS More than 1,660 pharmacies ~4,000 pharmacists ~10,000 technicians ~80 field leaders ~100 million prescriptions filled annually ~80 clinics ~380 clinical i l providers and staff members 430,000 annual visits Expands footprint of pharmacies by ~20% and clinics by ~8% Note: 1. FY 2014 data, prescriptions on a 30-day equivalent basis. Source: Target. 11

197 Target Pharmacies Complement and Expand Our Existing Footprint, Increasing Patient Access OR ID SD CO AK New regions include Seattle Denver Portland Salt Lake City Current CVS/pharmacy states New states 12

198 Transitioning New Assets to Our Brand and Network Rebrand as CVS/pharmacy and MinuteClinic Introduce unique CVS clinical programs and capabilities Focus on driving script growth and profitability 13

199 Acquisition Will Benefit New and Existing Patients Opportunity to Narrow the Prescription Volume Gap Average Prescriptions per Pharmacy ~2X and Help Patients on Their Path to Better Health Target guests gain access to bestin-class health care services Maintenance Choice Pharmacy Advisor Specialty Connect Currently ~5% to 7% of Target guests use Target pharmacies; CVS Health can drive that percentage higher Target CVS/pharmacy Note: 1. FY 2014 data, prescriptions on a 30-day equivalent basis. Source: Target. 14

200 Expanded Network Increases Options for Payor Partners Example: Minnesota Number of Locations % increase in CVS/caremark members with access to CVS/pharmacy Pharmacies CVS Clinics Target We are now better positioned to help Minnesota payors by reducing their costs and helping the members they serve 15

201 Agenda Strong Core Performance Expanding Our Footprint Reinventing Retail Pharmacy to Drive Outcomes Evolution of CVS/minuteclinic Driving Growth in Front Store 16

202 Unique Model Enables Deep Understanding of Both B2B and B2C Capabilities Integrated B2B and B2C Capabilities i B2B Focus on Uniquely positioned payors and for the retailization of providers to drive B2C health care with the outcomes power of our face-to-face model 17

203 Five Key Innovations Are Delivering Value to Customers and Strategic Partners 1 Next Generation Patient Care 2 ScriptSync 3 4 Specialty Connect Strategic Partnerships Value to Customers and Partners 5 Digital Integration 18

204 Next Generation Patient Care: New Patient- centric Approach to Drive Retail Pharmacy Growth 1 Traditional Pharmacy Model Next Generation Patient Care Customer insights enable patient-centric, targeted approach Demographics Broadbased service to all Geography Clinical inputs Customer preferences Shift to a more personalized strategy to drive adherence and outcomes 19

205 Example: Proactive Weather Campaign Partnering with the U.S. Department of Health & Human Services Mobilized and Launched in 36 Hours Positive Responses Across Multiple Channels ~185k voice calls Thank you very much; you guys are ~400k automated awesome. I am so glad I have you for my calls drugstore. ~175k texts sent ~220k voic s - CVS SMS patient response I didn t know CVS was doing this type of thing now. How nice! - CVS live call patient What a class company; just got a call ahead of severe weather stating to check if I had enough meds If I wasn t a fan before, this would have sealed the deal! - CVS live call patient More sophisticated outreach helps our business and our customers 1 20

206 ScriptSync: Making It Easier for Our Patients to Manage Multiple Medications 2 Pre-ScriptSync JANUARY Post-ScriptSync Post-ScriptSync FEBRUARY Solution benefits patients, payors and CVS Consolidates to one pick-up date each month Provides improved patient adherence Creates efficiencies for pharmacy teams ~70% of patients accept the program when offered; >500k have enrolled 21

207 Specialty Connect: Seamless Customer Experience for All Specialty Care Needs at CVS/pharmacy 3 Patients Receive Support from Both Local Pharmacists and Specialty CareTeam Experts Local CVS pharmacist can help onboard specialty patients Specialty CareTeam provides ongoing counseling to support adherence 93% patient satisfaction 62% Net Promoter Score Adherence up 11.4% 22

208 Strategic Partnerships: We Partner with BCBSA Federal Employee Program to Provide Customer Care 4 Encouraging FEP Members with Diabetes to Complete an A1c Test 1. Letter from plan 2. Face-to-face counseling from pharmacist about A1c tests at CVS/minuteclinic 3. HealthTag message An important message about your healthcare The American Diabetes Association (ADA) recommends you check your Hemoglobin A1C value, also known as A1C, at least every six (6) months to assess how controlled your diabetes is. It s important to remember that your A1C level is different from the blood glucose (sugar) results that you may test on your own at home. Testing your blood glucose at home is a good way to see how your sugar levels are at the time you are testing. An A1C test is different and important because it will show you and your doctor how controlled your diabetes is over time. Your doctor may suggest things you can do to improve your diabetes depending on your A1C test results. Our integrated model allows us to deliver targeted messages and drive better outcomes for clients and patients 23

209 Strategic Partnerships: A Resource for Health Plans as They Respond to the Retailization of Health Care 4 Value to Health Plans Cost-effective way to drive member acquisition, engagement and retention Value to Consumers Convenient access to health insurance resources for customers Value to CVS Health Increased trips to CVS/pharmacy 24

210 Digital Drives Adherence, Pharmacy Growth and Loyalty 5 Prescriptions Filled 2.4X 1 in 3 patients enrolled in text messaging More than 200 million text reminders sent to patients Non-Digital Patients Digital Patients Added medication reminder and mobile Rx pick-up tools Digital integration creating a better experience for patients 25

211 Agenda Strong Core Performance Expanding Our Footprint Reinventing Retail Pharmacy to Drive Outcomes Evolution of CVS/minuteclinic Driving Growth in Front Store 26

212 2010: 454 MinuteClinic Locations 454 Full-time clinics in

213 2015: 1,055 MinuteClinic Locations in 32 States and Washington, D.C. 1,055+ Full-time clinics in

214 2016: 1,055 MinuteClinic Locations in 32 States (and D.C.) and Integrating ~80 Target Clinics 1,135 Full-time clinics in 2016 Legend: Clinic State MinuteClinic Target Clinic More than 50% of the U.S. population is within 10 miles of a MinuteClinic 29

215 CVS/minuteclinic Expanding Scope of Care on Epic Electronic Health Record Platform Epic Implementation Primary Care Services: 50 Most Common Diagnoses National MinuteClinic roll-out of Epic EHR completed in 2015 Epic EHR has extended connectivity to about 250 provider organizations Enables accelerated roll-out of new services Expanded CVS/minuteclinic Scope 11 Diagnoses (22%) ~56% of most common diagnoses Historical CVS/minuteclinic Scope 17 Diagnoses (34%) Notes: 1 Diagnoses not weighted by individual volume. 2 Examples of expanded scope include gastrointestinal illnesses, musculoskeletal pain. Source: Top 50 Codes: 2015 Family Practice. 30

216 Looking Ahead: Expanding Digital Services and Partnering to Expand TeleHealth Digital Solutions Partnering for TeleHealth Online wait times Remote queuing Future scheduling Innovations will continue to evolve our model of convenient and affordable health care 31

217 Agenda Strong Core Performance Expanding Our Footprint Reinventing Retail Pharmacy to Drive Outcomes Evolution of CVS/minuteclinic Driving Growth in Front Store 32

218 Continue to Expand Our Basket Despite Industry Headwinds U.S. Store Trips (trips per person per year) -2% Growth in Sales per CVS Basket (2015 over 2014) 4.0% 2.0% Overall Health & Beauty Focus on driving profitable front store growth, attracting new pharmacy patients Note: 1. U.S. shopper for Food/Drug/Mass retail. Source: IRI. Note: 1. All transactions are for TY vs. LY YTD August and adjusted to exclude tobacco. Source: CVS Health Internal Analysis. 33

219 We Launched Front Store Strategy in 2015 with Five Key Themes to Drive Growth Be a Leading Health and Beauty Destination Better Health Made Easy Elevate Beauty MyCVS Store Customer- Driven Personalization Digital Innovation Investing for the Future 34

220 We Launched Front Store Strategy in 2015 with Five Key Themes to Drive Growth Be a Leading Health and Beauty Destination Better Health Made Easy Elevate Beauty MyCVS Store Customer- Driven Personalization Digital Innovation In-store enhancements in the chain 35

221 We Executed Key Elements of Our Better Health Made Easy and Elevate Beauty Strategy in 3 Different Ways In-store enhancements 1 Better Health Made Easy 2 Elevate Beauty Store Remodel Light Touch Store Enhancement Assortment Expansion 36

222 These Changes Have Enhanced Thousands of Stores and Improved Customer Experience In-store enhancements 1 2 Better Health Made Easy Elevate Beauty Store Remodel Light Touch Store Enhancement Prioritized Health, Healthy Food and Beauty for ~450 stores +250 bps sales lift in overall front store performance Focus on elevating beauty fixtures at a minimal i cost Assortment Expansion Rolled out Better-for-You Healthy Foods assortment t in chain Continuing to expand key segments & product lines (e.g., nutrition bars) Note: 1. Store reset doors (n=85) at steady state (24+ weeks post-construction, through 9/26). 37

223 Better Health Made Easy: Revolutionizing Healthy Food Industry 1 Edibles up +8.5% overall in remodel stores I love the fact CVS added so much healthy food CVS is really putting their money where their mouth is! 75% of shoppers indicate an intention of shopping more for on-the-go snacking at CVS Note: 1. Store reset doors (n=85) at steady state (24+ weeks post-construction, through 9/26). 38

224 Better Health Made Easy: Leading Change from Sick Care to Self Care 1 Health Quadrant Hearing & Optical Center Pilots Health up +1.9% in remodeled stores Key categories such as Vitamin, Allergy, Cold have seen high growth due to space optimization 12 pilot stores launched in 2015 Expanding on innovative healthoriented services in the store Note: 1. Store reset doors (n=85) at steady state (24+ weeks post-construction, through 9/26). 39

225 Elevate Beauty: Multi-step Process to Re-imagine Beauty Segment 2 Before (2014) 40

226 Elevate Beauty: Multi-step Process to Re-imagine Beauty Segment 2 After 1. Elevated Cosmetics Wall 4,500 stores 41

227 Elevate Beauty: Multi-step Process to Re-imagine Beauty Segment 2 After 2. Self Service Customer Units 1,600 stores 42

228 Elevate Beauty: Multi-step Process to Re-imagine Beauty Segment 2 3. Elevated Facial After 2,000 stores 43

229 Elevate Beauty: Multi-step Process to Re-imagine Beauty Segment 2 After Remodel Store Results Beauty / Personal Care: +3.7% Note: 1. Store reset doors (n=85) at steady state (24+ weeks post-construction, through 9/26). 44

230 MyCVS Store: Poised to Capture the High-growth Hispanic Cluster 3 Sales up +10% in 11 test stores Strong results: Edibles +11% and Beauty +20% 700 stores in chain with matching demographics Note: 1. Results are at steady state program to date thru 9/15 excluding construction period. 45

231 Customer-driven Personalization: The Future Is Personalization by Leveraging ExtraCare 4 More Efficient Promo Spending Accretive to Margin De-emphasizing promotion that loses margin Certain Circular Promotion (e.g. Soda) Drive Sales But Lose Margin Prioritizing promotion Certain Circular Promotion (e.g. Soda) with lower Drive Sales sales But but Lose significantly Margin positive margin Aspiring to deliver Divestment Investment Investment in promotions that drive Personalization higher sales and margin from negative margin promo (e.g., soda) in high margin promo (e.g., vitamins) 46

232 Customer-driven Personalization: Using Shopping Behavior to Segment and Value Our Customers 4 20% Lower FS Front Value Store Customers Value Customers 70% 80% Higher FS Front Value Store Customers Value Customers 30% FS Shoppers FS Revenue 47

233 Customer-driven Personalization: Leverage Data to Produce Relevant and Personalized Communications 4 Customer Level Data Used to Model and Predict Behavior Customer Behavior Buys Hair Color Increasing promo sensitivity Our Strategy Establish routine Create a reason to visit weekly 1:1 Higher value Communication customer Personalized resupply reminder monthly Personalized sale items Average weekly spend up 38% and average redemption rate up almost 2X 48

234 Digital Drives Front Store Sales and Loyalty 5 Spend per Customer 4.5X Digitally engaged visiting stores 6X more per year More than 12.2 million app downloads, 67% yearover-year growth Non-digital Customers Digital Customers Enhanced customer convenience Digital integration creating a better experience for customers 49

235 The Right Strategy for an Evolving Health Care Market Demonstrating Value to People, Payors and Providers Delivering value through adherence Reducing cost of care for all stakeholders Growing the Core, Broadening the Base Continuing Rx innovation to serve customer needs Strengthening leadership in overall health & beauty Always Looking Ahead Driving digital innovation across the enterprise Anticipating evolving customer health needs Driving Sustainable Enterprise Growth Growing footprint to reach customers and patients Expanding breadth of health services and products Changing the Face of Retail Pharmacy through Innovation

236 Endnote 1., CVS/pharmacy, Omnicare, CVS/minuteclinic, CVS/caremark, Specialty Connect, ScriptSync, MinuteClinic, MyCVS are trademarks or registered trademarks of CVS Pharmacy, Inc. 51

237 Serving Patients Across the Continuum of Care Rocky Kraft Executive Vice President & President, Omnicare

238 Agenda Senior Care Market Overview Omnicare: A Leader in Long-term Care Pharmacy CVS/omnicare Positioned to Drive Value in an Evolving Health Care Market 2

239 Aging Population Shaping U.S. Health Care System Under 65 Years (lives, millions) Aged Years (lives, millions) Aged 85+ Years (lives, millions) +4% +56% +45% ,000 baby boomers projected to turn 65 every day for next 15 years Source: U.S. Census Bureau. 3

240 Increase in Older Population Driving the Need for Long-term Care Services and Support Population Requiring LTC Services (lives, millions) +80% Trends in Need for LTC Services 70% of people over age 65 will require some form of LTSS Number of frail adults rising rapidly with expanding older population Between 2000 and 2040, number of older adults with disabilities is expected to increase from 10 to 21 million By 2050, 27 million people will need long-term care services and support Note: 1. Long-Term Services & Support (LTSS) based on limitations regardless of age, cause, etc. Source: Long Term Care Services in the U.S.: 2013 Overview: U.S. Department of HHS. 4

241 Navigating Through the Senior Care Continuum Low Acuity High Acuity Residential/ Home Aide Independent Living (IL) Assisted Living (ALF) Skilled Nursing (SNF) SERVICES PROVIDED PHARMACY CHOICE Cooking, cleaning, transportation, etc. Retail, mail order Dining, social, and recreational services Retail, mail order, institutional pharmacy Social activities, assistance with ADLs Institutional pharmacy, retail, mail order 24-hour nursing care Institutional pharmacy ANNUAL RX SPEND TOTAL COST 5-YR CAGR Not Available $3 Billion $5 Billion $8 Billion 1.0% Not Available 2.5% 3.7% Omnicare: Industry leader in ALF and SNF markets Sources: 1. IMS Health, Goldman Sachs Global Investment Research (September 2014). 2. Genworth 2015 Cost of Care Survey. 5

242 Agenda Senior Care Market Overview Omnicare: A Leader in Long-term Care Pharmacy CVS/omnicare Positioned to Drive Value in an Evolving Health Care Market 6

243 An Industry Leader in Long-term Care Pharmacy Institutional Post-acute Revenue ($, billions) Omnicare Advantages Omnicare 4.8 Leading pharmacy provider to elderly in chronic care settings $4.8 billion in revenue Next largest (1) 1.9 Approximately 100 million scripts dispensed annually All others 9.4 Approximately 2 million unique patients served annually Notes: 1. Publicly disclosed 2014 revenue. 2. Revenue is estimated for Skilled Nursing, Assisted Living and Independent Living communities. 3. For the year ended December 31, Long-Term Care Pharmacy Revenue only:; does not include manufacturing services. 7

244 Omnicare Value Proposition Gives Us a Competitive Advantage in the Long-term Care Market Nationwide id footprint t Efficient operations Robust clinical infrastructure Innovative technology 8

245 ADVANTAGE #1 Omnicare s Nationwide Footprint Makes Us an Ideal Partner for National Providers and Their Residents 80% within 50 miles 9

246 ADVANTAGE #1 CVS/omnicare s Expanded Retail Footprint Further Enhances Our Ability to Serve Our Customers 80% within 5 miles 10

247 ADVANTAGE #2 Operating Efficiency Ensures Our Low-cost Position Infrastructure Hub and spoke network Enabler for automation, efficiency and quality service Automation Hub pharmacies utilize automation technologies Improves dispensing accuracy while reducing operating costs On-site Dispensing On-site first fill / emergency dose Key component to emergency dose strategy and delivery cost management 11

248 ADVANTAGE #3 Our Robust Clinical Services Drive Better Outcomes While Lowering Costs On-site Consultant Pharmacists Patient-facing services within institution Driving adherence improvement Reducing avoidable readmissions Clinical Intervention Centers Formulary adherence Generic penetration Therapeutics interchange Non-covered charges Clinical Differentiation Quality-based cost containment Standardized processes 2% to 5% savings for customers and patients 12

249 ADVANTAGE #4 Innovative Technology Solutions Resonate with Our Customers and Drive Higher Retention Rates Omniview MyOmniview Omnicare s secure web-based worksite for customer facilities, prescribers and patients 13

250 ADVANTAGE #4 Innovative Technology Solutions Resonate with Our Customers and Drive Higher Retention Rates Designed for residents of communities and their caregivers Access financial information and health records Tlk Talk with a pharmacist it MyOmniview Omnicare s secure web-based worksite for customer facilities, prescribers and patients 14

251 ADVANTAGE #4 Innovative Technology Solutions Resonate with Our Customers and Drive Higher Retention Rates Secure customer facing technology Optimize cost effectiveness Enhance medication management Expedite patient care Omniview Omnicare s secure web-based worksite for customer facilities, prescribers and patients 15

252 Agenda Senior Care Market Overview Omnicare: A Leader in Long-term Care Pharmacy CVS/omnicare CVS/Omnicare Positioned to Drive Value in an Evolving Health Care Market 16

253 Multiple Opportunities for Driving Enterprise Value from CVS/omnicare Both Near- and Long-term Integrating Procurement Significant purchasing synergies Integrated 1H 2016 Phase-in Systems Technology focused on high quality customer service and visibility Predominately complete by YE 2016 Leverage Shared Services Leveraging best practices across the business Predominately complete by YE 2016 Drive Operational Efficiencies Combined operational infrastructure Improved workflow More efficient delivery service Deliver Future Revenue Synergies Focused on transitions of care, market adjacencies and differentiated offerings 17