Pricey specialty drugs are helping CVS Health thrive after kicking tobacco sales, with revenue from the treatments pushing first-quarter earnings well above Wall Street expectations for the drugstore chain and pharmacy benefits manager.
The Woonsocket, Rhode Island, company said Friday that sales from its pharmacy benefits management business jumped 18 percent to nearly $24 billion in the quarter, and specialty drug revenue soared 46 percent.
Specialty drugs are complex medications that treat certain forms of cancer, multiple sclerosis and hepatitis C, among other conditions. They often represent treatment breakthroughs but can cost considerably more than other prescriptions. Use of the drugs is climbing in part due to some newer hepatitis C treatments that could reach millions of patients. Insurers and other bill payers are looking more for help from companies like CVS Health to corral that cost.
CVS Health runs the nation's second-largest chain of drugstores and one of the biggest pharmacy benefits management, or PBM, businesses. PBMs help negotiate the prices that customers pay for prescription drugs.
Revenue from the company's drugstores grew at a much slower clip, 3 percent to $17 billion, in the first quarter.
CVS stopped selling tobacco products last September after deciding more than a year ago to drop the business as it works to improve its image as a health care services provider. That hurt drugstore sales, as the company and analysts expected. Revenue from the front end, the area outside the pharmacy, of the company's established drugstores fell 6 percent.
Those sales would have risen about 2 percent without the loss of sales from tobacco and the other products smokers pick up when they stop in for a fresh pack.
Company officials told analysts Friday that the drop wasn't as bad as they expected in the first quarter. The removal of tobacco products actually helped profitability for the front-end business because those items came with very thin margins.
Overall, CVS Health earned $1.22 billion, up from $1.13 billion in last year's quarter. Earnings in the most recent quarter, adjusted for one-time gains and costs, were $1.14 per share.
That was better than the per-share earnings of $1.08 that Wall Street had expected, according to a survey by Zacks Investment Research.
Revenue rose 11 percent in the quarter to $36.33 billion, also beating forecasts.
The first quarter gave CVS Health a good start to the year, said Jennifer Lynch, an analyst who follows drugstores for BMO Capital Markets.
"We believe specialty drugs will contribute to good top-line performance for the balance of the year," she wrote in a research note.
The company also said Friday that it raised the bottom end of its 2015 earnings forecast by three cents, resulting in a new expectation for $5.08 to $5.19 per share.
Analysts forecast, on average, $5.16 per share, according to FactSet.
"While the quarter was strong overall, management only modestly raised the low end of its full year guidance given that it's still early in the year," Credit Suisse analyst Edward Kelly said in a separate note, calling the new range conservative.
The company operated 7,850 retail locations at the end of the first quarter, a total that trails only Walgreens Boots Alliance Inc.
CVS Health Corp. shares edged up 81 cents to $100.10 in midday trading Friday, while broader indexes also climbed slightly. The stock has climbed about 37 percent in the last 12 months.