UPDATE 3-CVS profit beats estimates as high drug prices boost pharmacy business

Manas Mishra

business@ (Adds company comment from conference call, analyst comment; updates shares, PIX available)

Feb 12 (Reuters) - CVS Health Corp reported a higher-than-expected fourth-quarter profit on Wednesday as its stores sold more medicines and the pharmacy benefit management (PBM) business benefited from higher U.S. prescription drug prices.

CVS shares rose 1.4% to $74.91.

List prices of branded medicines have continued to rise in the United States, although at a slower pace under intensifying pressure from politicians of both major U.S. parties.

CVS, which gets discounts and rebates from drugmakers in exchange for listing their products on its formularies of preferred drugs, in turn guarantees rebates to its customers. Profits have diminished in the past few quarters as the rate of price hikes slows.

The company played down the role of rebate guarantees on a conference call with analysts, and said it expects the issue to be immaterial to earnings as it heads into 2021.

"We've obviously been working hard to reverse our rebate exposure, and we've seen that exposure has lessened in our outlook for 2020," said Derica Rice, head of CVS' PBM unit, who plans to leave the company after February.

Mizuho analyst Ann Hynes said one of the main drivers of the upbeat forecast for the PBM unit was the likelihood of better-than-expected rebate guarantee trends.

The company forecast total adjusted 2020 profit of $7.04 to $7.17 per share. The analysts' average estimate is $7.15 per share, according to Refinitiv data.

Barclays noted that CVS has a track record of providing conservative initial forecasts compared to its ultimate actual results.

Sales of CVS' Aetna health insurance business, acquired for $69 billion in 2018, nearly tripled to $17.15 billion from a year ago.

CVS plans to offer less expensive expanded health services such as blood pressure screening and diabetes monitoring in 1,500 stores by 2021. Executives said they could eventually expand the format dubbed HealthHubs to all of its stores.

CVS retail store sales rose 2.5% to $22.58 billion, also helped by higher branded drug prices, while sales in the PBM business rose 6.2% to $37.07 billion.

PBMs negotiate drug discounts for health insurers and employers, and take a cut of the rebates provided by drugmakers. They have been criticized by politicians and patient advocates for their role in keeping U.S. healthcare costs high.

Excluding items, CVS earned $1.73 in the quarter, beating Wall Street estimates by 5 cents, according to IBES data from Refinitiv.

Total revenue for the quarter rose 23% to $66.89 billion. (Reporting by Manas Mishra, Tamara Mathias in Bengaluru and Carl O' Donnell in New York Editing by Saumyadeb Chakrabarty and Bill Berkrot)