CVS Health CEO Karen Lynch has resigned, with the company’s shares down 19% this year and the healthcare giant is struggling on several fronts.
Company shares tumbled again on Friday after CVS Health also warned of disappointing third-quarter earnings results and said investors should not rely on guidance set out in August.
Lynch will be replaced by veteran CVS Health executive David Joyner, who will try to steer the company through rising costs for its health insurance business, declining drugstore sales and growing pressure from investors. All major pharmacy chains trying to find their way in a drastically changed landscape, facing competition online and elsewhere.
Leerink Partners analyst Michael Cherny said the leadership change was unexpected, although he understood the rationale behind it “after another quarter of underperformance.”
“It is difficult, given the operating and underperforming stock performance, to say that a change at the top is undeserved,” he said in a research note.
CVS Health runs one of the nation’s largest drugstore chains and a massive pharmacy benefits management company that provides prescription drug coverage for employers, insurers and other major customers. It also covers nearly 27 million people through its insurance arm Aetna.
The company lowered its financial expectations for the third time this year in August, hurt by growing claims from Medicare Advantage coverage, and Lynch then said she was taking control of the insurance segment.
Her predecessor in the insurance division, former Humana executive Brian Kane, left the company about a year after his arrival.
Barclays analyst Andrew Mok said on Friday that the struggling insurance business now has a leadership gap that the company will need to address in the near term.
CVS Health said Friday that it is still struggling with higher medical costs in that segment and therefore investors should not rely on guidance the company provided in August.
The company has “operated well below its potential and has fallen short in its investment and actuarial approach in recent years,” Glenview Capital Management said in a statement issued earlier this month.
The hedge fund, which has a stake in CVS Health, said it was “making suggestions to improve CVS Health’s governance, culture, efficiency, sustainability and growth.”
Rising claims from the company’s Medicare Advantage coverage have hurt CVS Health for much of this year and contributed to its repeated outlook cuts. Medicare Advantage plans are private versions of the federal government’s coverage program, primarily for people age 65 and older.
CVS Health also said in August that it has been hit by a drop in quality ratings for those plans and pressure from Medicaid coverage it administers in several states.
The Woonsocket, Rhode Island-based company said Friday it expects third-quarter adjusted earnings to fall between $1.05 and $1.10 per share. Analysts polled by FactSet forecast earnings of $1.69 per share.
CVS Health will report third-quarter results on November 6, the day after Election Day.
Joyner, who will also join the company’s board of directors, most recently served as executive vice president of CVS Health and president of Pharma Benefit Management (PBM). The company said he has 37 years of experience managing health care and pharmacy benefits.
CVS Health also announced Friday that chairman Roger Farah will now become executive chairman. Farah said in a statement that the board believed this was “the right time to make change” and that they had confidence in Joyner’s leadership.
Lynch became CEO in early 2021, replacing the company’s longtime leader, Larry Merlo. She joined CVS Health when the company acquired the Aetna division several years ago.
Her tenure began as the company’s drugstores benefited from a wave of revenue from COVID-19 vaccines. She then led an aggressive push into healthcare delivery.
Lynch told analysts in 2021 that “we are closer to the consumer than anyone else” and that providing more care can help the company impact overall healthcare costs.
CVS Health spent $8 billion to buy home health care provider Signify Health and early last year another $10.6 billion on Oak Street Health, which runs clinics that specialize in treating Medicare Advantage patients.
Shares of CVS Health fell 8%, or $5.10, to $58.56 on Friday, while the broader indexes were mixed.
