Karen Lynch, CEO of CVS Health, has resigned. The company’s shares are down 19% this year and the healthcare giant is struggling on several fronts.
Company shares tumbled early Friday after CVS Health also said third-quarter earnings will come in well below Wall Street expectations.
Lynch will be replaced by CVS CEO 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 are trying to find their way in a drastically changed landscape, facing competition both 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 lowered its financial guidance in August for the third time this year, hurt by growing claims from its Medicare Advantage coverage, and Lynch had just taken control of the insurance segment, where she worked before becoming CEO.
Her predecessor in the insurance department, Brian Kane, left the company about a year after his arrival.
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 Aetna insurance arm.
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.”
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). He has 37 years of experience in healthcare and pharmacy benefit management.
CVS Health also announced Friday that chairman Roger Farah will now become executive chairman.
“We believe David and his deep knowledge of our integrated business can help us more directly address the challenges facing our industry, accelerate the operational improvements our business needs and fully realize the value we can uniquely create to achieve,” Farah said in a statement. .
The Woonsocket, Rhode Island-based company’s preliminary forecast is for adjusted earnings of $1.05 to $1.10 per share for the third quarter, citing higher-than-expected trends in medical costs. Analysts polled by FactSet forecast earnings of $1.69 per share.
Rising claims due to the company’s Medicare Advantage coverage have hurt CVS Health for much of this year and contributed to repeated adjustments to its 2024 outlook. Medicare Advantage plans are private versions of the federal government’s coverage program, primarily for people aged 65 and over.
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.
Shares of CVS Health fell more than 10% before the market opened Friday.
