CVS chief likes taking risks

Aggressive style built $43.8 billion empire

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February 16, 2007|By The Boston Globe

WOONSOCKET, R.I. -- During a reprieve from the escalating battle over the pharmacy benefits provider Caremark Rx Inc., CVS chief executive Tom Ryan was keeping his cool.

Leaning back in his chair at the company's headquarters, Ryan insisted he was confident that CVS Corp. would fend off a higher, unsolicited bid from rival Express Scripts Inc. for Caremark. The company's board had just reaffirmed its commitment to the CVS deal, hatched over dinner at the University Club in Providence, R.I., in 2005, to create a drug distribution powerhouse.

"It's breaking new ground. It's never been done, so it's harder for the financial community to understand it," Ryan, 54, said. "But we will reshape and lead the market."

Still, Ryan, often praised for his keen ability to anticipate opportunities and threats, seemed somewhat surprised by the hostile Express Scripts challenge, which grew even nastier when the rival company launched a proxy battle for Caremark.

Caremark is the riskiest deal yet for Ryan, who joined the company as a pharmacist three decades ago and has since stretched it coast to coast and transformed the drugstore into a $43.8 billion national health-care empire.

"What's distinguished CVS has been their size and their aggressiveness. When they see an opportunity to purchase more stores or have a bigger presence in an area, they move on it," said Carmen A. Catizone, executive director of the National Association of Boards of Pharmacies, a professional group that represents state boards of pharmacy. Ryan, he said, "pushes others to be survivors outside of CVS. People try to keep up or follow his lead."

Since taking the helm at CVS in 1998, Ryan has focused on the acquisition of chains and small, independent shops, expanding the business 50 percent to 6,200 stores. Today, Ryan views everyone as a potential rival or partner: pharmacy benefits managers that negotiate drug prices, as well as department stores that carry the makeup CVS wants to sell. With last year's takeover of MinuteClinic, Ryan is adding in-store clinics that treat common illnesses, such as strep throat, ear infections, and pink eye - a move that allows the company to offer accessible and affordable medical care.

Ryan learned about the power of consolidation under Terrence Murray, the banking guru who grew up in Woonsocket and invited the young Ryan to join the board of Fleet Financial Group in the 1990s. There, the New Jersey native watched Murray aggressively snatch up banks the way Ryan would later acquire pharmacies.

As a board member, Ryan had good instincts, figuring out six months before Murray did that an executive at a company Fleet was acquiring wasn't committed to their vision, according to Murray, who now serves on CVS' board of directors.

"Tom fingered it well," said Murray, Fleet's former CEO. "So we accelerated the executive's departure."

Ryan, the son of a homemaker and a machinist at the New York Daily News newspaper, got his first taste of the pharmacy business as a delivery driver in high school for Jay's Pharmacy in Oradell, N.J. (He says it's the one independent he has promised not to buy.)

The former altar boy studied the pharmacy business at the University of Rhode Island, almost quitting in his third year when organic chemistry got too tough. Ryan stuck it out and followed the advice of one of his professors, Norman A. Campbell, to apply for an internship at a small company, now known as CVS.

Ryan says he scored the internship because he was the only applicant who showed up with a tie, borrowed from a fraternity brother. He had some more good luck a few years later, when cofounder Stan Goldstein tapped Ryan, then 29, to lead the pharmacy division after an external candidate turned down the job at the last minute.

"Ryan was the kind of guy who benefited from that adage, `the harder people work, the luckier people get,'" Campbell said. "He's that kind of individual."

Along the way, Ryan took CVS in new directions while keeping his eye on the finer details of running the business. The chief executive earned a compensation package valued at $25 million in 2005, according to the latest data from research firm Corporate Library, but he still makes calls to random CVS pharmacies to see how long it takes for workers to pick up the telephone.

On his way to dinner last month, Ryan left a message for a manager after spotting one of the lights out on a CVS sign on 5th Avenue in New York City.

Given this acute attention to detail, some find it hard to understand how Ryan could overlook major problems at CVS pharmacies. Last year, the Massachusetts Board of Pharmacy said it signed a first-of-its-kind agreement with CVS that required its pharmacies to be monitored by an independent agency after the state received scores of allegations of prescription errors.

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