America's #1 Pharmacy

...the most customer-focused... "More people trust CVS for their healthcare needs than any other drugstore chain in America."

    Customer-focused, innovative and convenient healthcare strategies have propelled CVS to #1 on the list of U.S. drugstore chains. More people filled their prescriptions at CVS last year than at any other drugstore. Our pharmacy sales climbed 17% to nearly $13 billion, representing 63% of our total annual revenues. Moreover, given the highly attractive fundamentals of the retail pharmacy industry, we expect this strong growth to continue.

Key Trends Driving Growth

    The retail pharmacy industry is a $140 billion market with a projected compound annual growth rate of more than 13% through 2004. The increases in pharmaceutical sales are being fueled by the convergence of a number of positive trends. Drug companies are introducing a steady stream of new pharmaceuticals into the marketplace, while investing heavily to advertise these products directly to the consumer.

CVS led the industry with an 18% increase in pharmacy same store sales in 2000.

It is estimated that 35 "blockbuster" drugs, with the potential to generate more than $1 billion in annual sales each, are in the final stages of trial. This strong pipeline bodes well for the future, as 40% of pharmaceutical sales are historically generated by drugs developed within the preceding five years.
    At the same time, patents on an estimated $40 billion worth of branded drugs are set to expire over the next 10 years, opening the door for generic alternatives.

Demand for prescriptions continues to rise as the population ages, and CVS continues to capture an increasing share of this growing market.

That's good news for our customers, who will benefit from lower prices.
    Demographic trends and the expansion of managed care are also playing substantial roles in driving retail pharmacy growth. With members of the "Baby Boom" generation moving into their 50s, demand for prescriptions should continue to accelerate. Individuals over age 65 take approximately 16 prescriptions per year, compared to about six prescriptions annually for Americans under age 45. We have found that when people switch from no prescription coverage to a managed care plan requiring only a customer co-pay, prescription use nearly doubles. These trends, coupled with the possibility of a prescription drug benefit for Medicare enrollees, provide further catalysts for continued pharmacy growth.

CVS' Technological Edge

The aggressive rollout of EPIC, our state-of-the-art pharmacy workflow modernization program, began in 2000. EPIC will help streamline the prescription filling process by using new information technology hardware and software systems.

    We have positioned CVS to capture a growing share of the expanding pharmacy market by achieving an industry leadership position and utilizing technology to enhance our capabilities. A cornerstone of our pharmacy strategy is our Excellence in Pharmacy Innovation and Care (EPIC) project, which will help us maintain our pharmacy leadership as the industry low-cost provider of prescriptions. Through workflow improvements and proprietary technology, we are able to let pharmacy technicians who have completed a comprehensive training program perform many of the tasks related to filling a prescription. This frees our pharmacists to spend more time doing what they were trained to do—counsel patients and oversee drug interaction reviews. We are also adding pill-counting automation to our higher-volume stores to improve productivity and reduce wait times for customers. As we continue to roll out the EPIC program throughout our stores, we expect to see improved quality assurance and customer service, while reducing labor costs throughout the Company.
    We were the first in the industry to introduce Drug Utilization Review (DUR) technology that checks for harmful interactions between prescription drugs, over-the-counter products, vitamins and herbal remedies. Our DUR system reduces the risk of adverse drug interactions by cross-checking each prescription against other medications that a patient may be taking. It is unique in that it also looks for potential incompatibilities between prescriptions and over-the-counter medications. As a result of DUR, customers who fill their prescriptions at CVS can be confident that the latest technology is working to improve their health and safety.
    Programs like EPIC underscore our role as the clear industry leader in introducing new technologies as well as our commitment to quality assurance. We were also the first in the industry to install a chain-wide automated prescription refill system. We call it the Rapid Refill System because it lets customers renew prescriptions, 24 hours a day over the phone, without having to speak directly to someone in our store. This provides greater convenience for our customers by eliminating wait time, and benefits CVS by reducing labor costs and improving our productivity.