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CVS attracting new potential healthcare service partners, CEO says

CVS Health Corp.'s attempt to offer more healthcare services is leading to discussions with new potential partners, the retail pharmacy chain's top executive said Aug. 7.

The company is planning to move ahead with clinical trials for a hemodialysis treatment as well as roll out a new service for patients returning home from a hospital stay in 2019, CVS President and CEO Larry Merlo told analysts during a call to discuss the company's second-quarter results, which came in above analysts' expectations.

Those programs have attracted a number of queries from other companies interested in working with CVS on other treatment areas, Merlo said, though he declined to name any potential partners.

"That is something that we underestimated in terms of the potential for those opportunities and what that can mean," the CEO told analysts.

The pharmacy chain's second-quarter adjusted EPS and net income both beat analyst expectations Aug. 7, and its revenue grew 35% year over year, in part due to its acquisition of insurer Aetna Inc. The company also raised its guidance for full-year adjusted EPS, though its upper bound of $7.00 would still put it below the $7.08 it reported for 2018.

Shares of CVS were about 6% higher at $57.33 in early afternoon trading.

CVS has bolstered its efforts to offer more healthcare services outside of its core pharmacy offerings in recent years and since closing its acquisition of Aetna in 2018. Expanding treatments for specific chronic conditions, such as kidney disease, as well as broader wellness programs, are among the initiatives that the Woonsocket, R.I.-based company has highlighted.

HealthHUBs — or CVS locations featuring a selection of medical treatments and services — have also been a centerpiece of the combined company's strategy. The company plans to have 1,500 of the stores up and running by the end of 2021.

The company is also attempting a revamp of its front-of-store merchandise sales through CarePass, a program through which customers can receive a 20% discount on CVS-branded items, order products for one- or two-day delivery and chat with a pharmacist via phone. CVS announced the program Aug. 5.

The most important part of the program for CVS may be the $10 monthly reward coupon that customers receive. CVS Executive Vice President and CVS Pharmacy President Kevin Hourican told analysts Aug. 7 that the discount drove return visits to CVS.

"The $10 promotional reward in particular is what's increasing trips to our stores" and online, he said. "And that increased visit frequency is what's driving the positive return for CVS."

CVS is booking synergies from its deal with Aetna at a faster pace than expected, Merlo told analysts Aug. 7. The company expects to post $400 million in cost savings from running the businesses together by the end of 2019, above its previous expected range between $300 million and $350 million.

Synergies for 2020 are still expected to total $800 million, Merlo added.