Cvs Pharmacy

CVS Pharmacy
1 Introduction
On October 14, 2010, the  United  States  Attorney’s  Office  for  the  Central  District  of  California   announced that CVS Pharmacy, Inc. was fined $77 million (including $75 million civil penalty and the forfeit of $2.5 million profit) for its unlawful sales of pseudoephedrine, a regulated drug, to criminals between September 2007 and November 2008. During that period, the company failed to comply with laws that limit the quantity of the drug sold to individual customers. The sales, according  to  the  Attorney’s  Office,  directly caused an increase the production of methamphetamine in California. CVS Pharmacy, Inc (“CVS/pharmacy”) is the retail pharmacy subsidiary of CVS Caremark Corporation  (hereinafter  collectively  referred  to  as  “CVS”).  In addition to retail pharmacy, CVS also runs pharmacy services, retail clinics, and mail-order pharmacy businesses. In fiscal year 2010, the company had net revenues of more than $96 billion and a net profit of more than $3 billion. Selected financial data by business segments (pharmacy services, retail pharmacy, and corporate) is shown in Exhibit 1. CVS was the 18th largest company on the Fortune 500 according to its 2010 annual report and CVS/pharmacy is one of the largest retail pharmacy chains in the United States. As of December 31, 2010, it operates more than 7,100 retail pharmacy stores in the United States. Exhibit 2 shows the number of CVS/pharmacy stores in each state (as of December 31, 2009). Today’s  CVS  (listed  on  New  York  Stock  Exchange,  ticker  “CVS”, web site: http://www.cvs.com/) is the results of a series of mergers and acquisitions and expansion into new markets in the past few years. Major mergers and acquisitions during the past six years included Eckerd ($2.15 billion), Albertson's ($4.0 billion), Caremark ($26.9 billion), and Longs Drugs ($2.6 billion). The markets in which CVS has presence also increased from 36 states in 2004 to 44 states in 2010. A summary of CVS financial data and store statistics (2004-2010) is shown in Exhibit 3. Like other companies in the industry, CVS has to efficiently and effectively manage  various  risks  such  as  completion  and  economic  downturn  in  order  to  deliver  “strong   growth  and  returns  to  shareholders”.    Exhibit 4 lists some risks identified by the management in the  company’s  2010  annual  report.

2 Legal Background
Pseudoephedrine is one of the materials that are used to make methamphetamine, which “is a powerfully  addictive  drug  that  severely  affects  users’  minds  and  bodies,  ruins  lives,  and   endangers communities and the environment”  (U.S. Department of Justice Drug Enforcement Administration, 2007). To curb the illicit production of methamphetamine, the Combat Methamphetamine Epidemic Act of 2005 (CMEA) was signed into law effective March 9, 2006 to limit the sales of pseudoephedrine and other related materials. The CMEA sets limits of sales of pseudoephedrine by retail drugstores to individuals as follows: The quantity sold to an individual in a day should not exceed 3.6 grams, regardless the number of transactions; and 1

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For individuals, purchases in a 30-day period are limited to 9 grams

In addition, the CMEA mandates that regulated retail drugstores should implement necessary measures to control and monitor the sales of pseudoephedrine. The required measures include: placing product such that customers do not have direct access before the sale is made (“behind  the  counter”  placement)  or  in  a  locked  cabinet  that  is located in an area of the facility to which customers do have direct access; delivering the product directly into the custody of the purchaser; maintaining written or electronic list (logbook) of sales, including quantity sold, names and addresses of purchasers, and date and time of the sales; examining acceptable forms of photo identification card; requiring purchasers to sign the logbook and enter...