CVS Health CEO Karen Lynch has stepped down with company shares sinking 19% this year and the health care giant struggling on several fronts.
Company shares tumbled again Friday after CVS Health also warned of disappointing third-quarter earnings and said investors should not rely on guidance it laid out in August.
Lynch will be replaced by veteran CVS Health executive David Joyner, who will attempt to steer the company through rising costs to its health insurance business, slumping drugstore sales and growing investor pressure. All major pharmacy chains are attempting to navigate a drastically changed landscape, facing competition online and elsewhere.
Leerink Partners analyst Michael Cherny said the leadership change was unexpected, though he understood the rationale behind it “following another quarter of underperformance.”
“It is hard, given the operational and stock underperformance, to say 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 huge pharmacy benefit management business that operates prescription drug coverage for employers, insurers and other big clients. It also covers nearly 27 million people through its Aetna insurance arm.
The company cut its financial expectations for a third time this year in August, hurt by growing claims from its Medicare Advantage coverage, and Lynch said then that she was taking over leadership of the insurance segment.
Her predecessor in the insurance wing, former Humana executive Brian Kane, left the company about a year after his arrival.
Barclays analyst Andrew Mok said Friday that the struggling insurance arm now has a leadership gap that the company will have to address in the near term.
CVS Health said Friday that it still was struggling with higher medical costs in that segment and, because of that, investors shouldn’t rely on the guidance it provided in August.
The company has been operating “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 holds a stake in CVS Health, said it was offering “suggestions to enhance the governance, culture, efficiency, sustainability and growth of CVS Health.”
Rising claims from the company’s Medicare Advantage coverage have hurt CVS Health for much of this year and contributed to it its repeated outlook cuts. Medicare Advantage plans are privately run versions of the federal government’s coverage program mainly for people age 65 and older.
CVS Health also said in August that it has been hurt by a drop in quality ratings for those plans and pressure from Medicaid coverage it manages in several states.
The Woonsocket, Rhode Island company said Friday that it expects third-quarter adjusted earnings to fall between $1.05 to $1.10 per share. Analysts polled by FactSet predict 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, most recently served as executive vice president of CVS Health, and president of its pharmacy benefit management, or PBM, arm. The company said he has 37 years of health care and pharmacy benefit management experience.
CVS Health also announced on Friday that Chairman Roger Farah will now be executive chairman. Farah said in a statement that the board believed it was “the right time to make a change,” and they were confident in Joyner’s leadership.
Lynch became CEO in early 2021, replacing the company’s long-time leader Larry Merlo. She came to CVS Health when the company acquired its Aetna division several years ago.
Her tenure started with the company’s drugstores riding a wave of revenue from COVID-19 vaccines. She then led an aggressive push into care delivery.
Lynch told analysts in 2021 that “we are closer to the consumer than anyone else,” and providing more care can help the company influence the overall cost of care.
CVS Health spent $8 billion buying home health care provider Signify Health and then another $10.6 billion early last year on Oak Street Health, which runs clinics that specialize in treating Medicare Advantage patients.
CVS Health’s stock fell 8%, or $5.10, to $58.56 Friday while broader indexes were mixed.