Ladies and gentlemen, thank you for standing by and welcome to CVS Health’s Third Quarter 2014 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday, November 4, 2014. I would now like to turn the conference over to Nancy Christal, Senior Vice President of Investor Relations. Please go ahead, ma’am.

Thank you, Carlos. Good morning, everyone, and thanks for joining us. I’m here this morning with Larry Merlo, President and CEO, who will provide a business update; and Dave Denton, Executive Vice President and CFO, who will review our third quarter results as well as guidance for the fourth quarter and year. Jon Roberts, President of PBM; and Helena Foulkes, President of the Retail Business, are also with us today and will participate in a Q&A session following our prepared remarks. During the Q&A, please limit yourself to no more than one question with a quick follow-up, so we can provide more callers with the chance to ask their question. Now I want to take a moment to remind you that our annual Analyst Day will take place on the morning of Tuesday, December 16 in New York City. At that time, you’ll have the opportunity to hear from several members of our senior management team who will provide 2015 guidance as well as a comprehensive update on our growth strategy. If you’d like to attend and haven’t already signed up please contact me as soon as possible as remaining space is limited. The meeting will also be simulcast on our website for those of you who are unable to be there in person. Now I have another important item you to note. Please keep in mind that in order to provide a better view of our underlying performance our results and guidance for the full year as well as all of the year-over-year growth rates we discuss today are calculated after excluding two items; these include the gain from the legal settlement in the third quarter of last year and the loss from the early extinguishment of debt in the third quarter of this year. As a reminder, the…

Thanks, Nancy. Good morning everyone and thanks for joining us to hear more about the terrific third quarter results we posted this morning. Overall, we met or exceeded our expectations on every key measure-performance. Our adjusted earnings per share increased from 9% to $1.15 per share, a penny above the high end of our guidance range. Both the PBM and retail segments exceeded our revenue expectations along with the retail business delivering expanded gross margin. Operating profit in the retail business grew 8.8% at the high end of our expectations while operating profit in the PBM grew 8.5% exceeding our expectations. In the PBM, our performance was primarily attributable to stronger than expected claims volume and favorable purchasing economics. Additionally, we generated $1.4 billion free cash in the quarter and given the favorable tax effect of the debt extinguishment we are increasing our guidance range for free cash flow for the full year by approximately $200 million to $5.7 billion to $6 billion. Now given our strong performance, we are also narrowing this year’s adjusted EPS guidance to a range of $4.47 to $4.50 and that’s from a range of $4.43 to $4.51 and again excludes the cost this quarter associated with the early extinguishment of debt. And Dave will provide the details behind our financial results and guidance during his review. So with that let me turn to the business update and I’ll start with the 2015 CVM selling season which I’m pleased to report has continued its growth trajectory. Gross wins for ’15 currently stand at 6.4 billion and that’s up 1 billion from our last update with net new business standing at 3.1 billion up 500 million from our previous report. And let me point out that this excludes any impact from our SilverScript PDP. Now pricing…

Thank you Larry and good morning everyone. This morning I will provide a detailed review of our solid third quarter results followed by an update on our guidance including the first look at our fourth quarter guidance. But before I do that though let me begin as I typically do and highlight how our disciplined approach the capital allocation continues to enhance shareholder value. During the third quarter, we paid $324 million in dividends to our shareholders. We have already surpassed the 25% dividend payout level and we are making continued good progress towards achieving our 35% payout target by 2018. Additionally, we will purchase more than 10 million shares for approximately $800 million at an average price of $78.51 per share. Year-to-date we've repurchased more than 37 million shares for $2.8 billion and we still expect to complete at least $4 billion of share repurchases for the full year of '14. So between dividends and share repurchases, we have returned more than 1.1 billion to our shareholders in the third quarter alone and return more than 3.7 billion during the first three quarters of the year. Our goal has been to return more than 5 billion in 2014 and we remain on track to meet that goal. As Larry said, we generated more than $1.4 billion of free cash in the third quarter bringing our total for the first nine months of the year to approximately $3.6 billion. The key driver continues to be our healthy growth in earnings coupled with continued improvements in our retail cash cycle fueled mainly by performance and payables. All in, we now expect to generate free cash flow between $5.7 billion and $6 billion in 2014 up from our prior guidance of $5.5 billion to $5.8 billion driven in large part by the…

Okay, thank you Dave. And I just want to say again that I am very pleased with our performance year-to-date and I do want to take a moment to thank our colleagues across the CVS Health Enterprise for everything that they are doing day in and day out to serve our many customers and stakeholders while driving results. And as a pharmacy innovation company, we are focused on our growing role in shaping the future of healthcare, and with our unmatched enterprise assets we are very well positioned for today and at the same time we’re still hard at work on the next innovation that will prepare us for tomorrow and drive value well into the future as we look forward to sharing those with you next month at our Analyst Day. So with that let’s open it up for your questions.

(Operator Instructions) And our first question comes from the line of John Heinbockel with Guggenheim Securities. Please go ahead.

So guys, I wanted to drill down a little bit on the Retail gross margin performance. Is there any more color front end versus pharmacy on a relative basis one versus the other, because either pharmacy was up a decent amount or X tobacco front end was up a very considerable amount. And so I'm thinking about the two of those. And then what impact would Specialty Connect transfer have on your pharmacy margins?

Good morning John its Larry and I’ll take the first part and then I think Dave will go ahead and jumped in. John, as we described in our prepared remarks I think we talked about some of the variables in play that impacted both front store and pharmacy margins. We saw growth in both of those areas but I think as you know we have not historically broken those out, other than qualitatively or directionally talking about the factors that are impacting. And obviously in the front store there is going to be some adjustment because of eliminating the lower margin tobacco products and we talked about the fact that, that represented about a third of the improvement that we saw. And as we’ve been talking out for quite some time I think our retail team has done a very effective job in terms of walking that fine lines we’ve described it as the balance between art and fines in terms of how do you drive traffic and sales in a responsible way so that it has a flow through to the P&L and part of that is also reflected in the growth in store brands as well. And I think in the pharmacy segment again there has been a lot of cross turns in the market but similar to what we talked about in the front we’ve brought that same level of discipline as we’re thinking about participation and preferred restricted networks. And at the same time some of the factors that are in play in terms of driving generic utilization and formulary management et cetera, et cetera.

And Specialty Connect on pharmacy?

Just in general specialty drugs are typically branded drugs almost exclusively branded drugs -- lower gross margin rate so it would have a slightly positive effect on retail pharmacy as you script those drugs out and move them to PBM but very modest.

And then lastly on -- with regard to what you're doing promotionally, are you -- what are you learning about promotional elasticity? Because it seems like you're promoting a little less, you're not seeing a traffic drop off, so is promotional elasticity in a lot of cases not as great as we thought it was?

I think we spent a lot of time over the last year so really using our extra care data to look at promotional effectiveness so what we’re doing there is understanding; you promote which product who you’re inviting into your stores eventually. So we’ve been using that just to balance ourselves and make sure we’re making the right promotional investments.

Our next question comes from the line of George Hill with Deutsche Bank. Please go ahead.

Larry, I was wondering if you could talk a little bit more about moving some of the specialty business outside of the medical benefits and into the pharmacy benefit. And I don't know if you are able to quantify either the types -- modified the success you're having their or can you talk about which types of clients do you think are most likely to want to rethink how they manage debt Specialty Benefits that's executed under the medical side and maybe think about it on the pharmacy side.

Good morning George its Larry I’ll start and ask Jon to jump in here. Again this is something we spend a fair amount of time talking about at Analyst Day last December and the capabilities that the NovoLogix technology that really serves as the driver to be able to do things on the medical side of pharmacy that we think have been largely unmanaged I think we’re in a point now where we can sit down with a respective client and look at their claims that if you will and actually show them the opportunities that we can bring the savings that are derived as a result of that.

Yes and George this is Jon. So I would think about this in two ways. One is the ability to move some of the specialty drugs out of the medical benefit and into the pharmacy benefit rheumatoid arthritis is a good example so that we can use our existing capabilities tools utilization programs to effectively manage those for our clients and we do have clients that have an interest in doing that and something we continue to recommend. For the balance of the specialty drugs are managed under the medical benefit we have what Larry talked about the NovoLogix capability to essentially do everything we’re doing on the pharmacy side today, prior authorizations, reprising, utilization programs and manage those programs under the medical benefit. We’re primarily seeing interest from our health plans with the NovoLogix tool and we have got a lot of success there in growing that business.

Okay. That's interesting color and it's helpful to hear that you're seeing success on the plans I. I've made have thought it would have been more with the employee sponsors may be a real quick follow-up for Dave and Larry I am sorry for dispensing with the pleasantries to start the Q&A but Dave how about -- is there any number you can kind of give us to kind of characterize where we are coming up the curve on Red Oak and try to quantify success there? Thanks and I'll hop back in.

Well, George as you think about Red Oak as we mentioned in our prepared remarks I think the team has gotten off to a terrific start and I do want to emphasize that we essentially airlifted if you will very talented individuals from CVS and from Cardinal that were performing those functions within each company respectively. So, we don’t have a brand new team that is doing this work so I can tell you it’s a very talented team if you sat with these individuals you would know which individuals came over from CVS and which ones came over from Cardinal so I think the management team there has done a terrific job in terms of blending the culture and so on. I think as we talked about value being created, George, there is really three ways that value gets created. One is from the fixed payments that Dave alluded to in his prepared remarks and the fact that we’ll see the first of those payments flowing through the P&L in the fourth quarter of this year. The second is based on a set of predetermined milestones that if they’re achieved there is the opportunity for additional payments to CVS and again I want to emphasize that those are milestones derivatives, if those milestones are not achieved there aren’t additional payments but if they’re there will be and then the third is, this is where scale and expertise and knowledge comes into play that we believe that there will be opportunities to further lower our acquisition cost from what exist today.

Our next question comes from the line of Scott Mushkin from Wolfe Research, please go ahead.

I had a housekeeping item and then I wanted a strategic question. And Dave, was the debt retirement part of the guidance originally or no? I think you said it and I just missed it and I apologize.

No, Scott it was not part of our guidance originally.

Okay, perfect. And this isn't much more of a strategic question maybe we'll hear more about it when we get to Analyst Day, but it seems to me taking a step back that the Retail business is a little bit at a crossroads. And I'm specifically talking on the front end. You've obviously taken tobacco category out, but photos diminished a lot, the cards are not what they once used to be. You guys are adding a lot of clinics in which means not only for pharmacy but people are coming in for health reasons. And then we got the change in the healthcare business where more consumers are going to be making their choices. And then I overlay that with lots of assets tied up in Retail and wondering where you think the business is going on the Retail side and how do you manage all this dynamic?

Got it, I will ask Helena to talk a little more about that.

Okay, good. Yes, I mean I think we’re thinking very holistically from the customers perspective just in terms of the experience and how we want to use our asset and certainly we mentioned before we are focusing on driving profitable growth we think when the customers think that CVS she is thinking first and foremost about pharmacy and health and beauty is a really important part of that CVS and continue to invest in health and beauty and elevate our presence there we are also spending a lot more time talking about digital and thinking about the connection between stores and digital and really enhancing the experience of our customers around digital. So, I’m excited about the work with that going on there. It’s again particularly focused in the pharmacy but the front stores are an important part of that as well.

Hey Scott, this is Jon. From a client perspective, they use a retail locations just really synergistic to their goals of being able to reach the consumer, influence that consumer, change that consumer’s behavior and lower overall healthcare cost. So, I think you have to think about really as an integrated model not just as a standalone retail pharmacy bolted on to a pharmacy to integrate all these channels.

Our next question comes from the line of David Larsen with Leerink Partners, please go ahead.

Can you please talk about these relationships that you've developed with these larger health systems? What value is CVS bringing to these health systems that's unique to the Retail channel? And then can you touch on the goal of the in-store clinics and how you see that expanding overtime potentially with more specialty services and potentially lab and is that helping you win on the PBM side? Thanks.

Yes, Dave it’s a great question. And I think as I mentioned, we now have 44 of those affiliations and I think we've got a number of pilots underway with several of those health systems where we are actually transmitting the patient CMR back and forth. I think that it is a synergistic opportunity where both parties see the opportunity as a referral source. There are patients that we are seeing that have to be referred to for more comprehensive work up and further diagnosis. And at the same time, recognizing our focus on acute care, there are services that we can provide, high quality at a much lower positive care and as we've talked many times getting the visit out of the emergency. So I think it starts there I think with we are in the early innings of the capabilities that we have. I think as the second part of your question we are doing point of care testing in our clinics today and we are evaluating the various technologies that exist in terms of playing a deeper and vigor role and we are excited about a pilot that we now have underway in one of our Texas markets where we are actually performing infusion services in one of our clinics. So I think you will hear us talk a little more about that at Analyst Day but I think there are a number of opportunities that we have there.

Our next question comes from the line of Lisa Gill with JPMorgan. Please go ahead.

Thanks very much. I just had a couple of follow questions on the PBM selling season. Larry or Jon can you talk about plan design changes for 2015. And then secondly just there are several amount of question in the marketplace of, is CVS winning because of its combined offering Jon that you talked about today as being fully integrated or have you been winning because of merger related activity and some other things in the marketplace? So if you can give us some of the comment around that as well as your thoughts on plan design changes for 2015?

Let me take the second question and I will put the first question back to Jon but Lisa I think is again as you've heard us talk in the past, you've got to be right on and competitive on pricing, you've got to deliver service, so I think those are ticket for the games. But beyond that I think we have an off a lot of differentiators and it's a cliché to say that when you see one client you see one client but they all have different priorities and I think that we have a growing list of services and products that meet the needs of very diverse clients, whether it's maintenance, choice, Specialty Connect Pharmacy advisor we just talked about MinuteClinic, our leadership and growing position that exists in specialty and as well as the consultant services and that exist within our Medicare Part D assets whether it's providing that service for health plan or our standalone SilverScript products. So we can go on and on with that, okay but I think that we are all very confident and bullish on the fact that our integrated assets are making a meaningful difference in the marketplace in terms of reducing the cost of care and at the same time improving the quality of that care. So I will flip it over to Jon if he wants to add anything to that and then talk more about plan designs.

Yes. So Lisa I am out in front of a lot of new perspective clients have been over the last year obviously very pleased with the results of the selling season. I would say service issues that they may be experiencing kind of get them to look at what else is available in the marketplace but it's clear once we sit down and talk about everything that Larry covered they see our value proposition and I think it's led to a lot of our success. I think as far as plan design changes we're obviously see more movement consumer driven health plans. We're the member there's more financial responsibility particularly upfront. So we are seeing providers, a high interest of providers in fact most of 50% providing coverage of generics so that there isn’t a negative impact on adherence which we are very pleased to see. I think other things around plan design are I think you are going to see more interest in narrow networks as we are kind of, as we are returning to higher trend I think plans are going to be looking to at the lower cost and ways like that. And I think when you think of narrow networks you really got to just aggregate the different segments. If you look at Medicare Part D, clearly we are seeing a lot of preferred networks there, managed Medicaid, we see them narrow networks employers have been great adopters of maintenance choice but we are also seeing movements into narrow preferred networks. And commercial health plans really have been I would say the slowest to adopt these plan designs, but I think with the growth of exchanges I think you’re going to see movement there. So when you look at the new business wins that we brought on this year we have about a third of our new wins adopting different plan designs and moving into narrow networks as an example.

Our next question comes from the line of Robert Jones with Goldman Sachs. Please go ahead.

To follow-up on the PBM and the net wins you mentioned over $1 billion better relative to this update this time last year. Can you talk a little bit more about where you're winning and any sense you can give us on mix around profitability of where you're winning? I know you mentioned some shifts in where people are looking to go with narrow networks, just curious on how that all impacts the profitability of the pretty successful season you've had this year.

Bob, again I think we mentioned in our prepared remarks that we’re very pleased in that the wins that come across all sectors of the business, we’ve seen it on the important side on the health plan side as well as the government sponsor side. So we’re pleased with that. The dynamic in terms of the profitability I don’t think that dynamic we have seen materially changed that typically over the life of the contract you see profitability of those contracts improve and typically it is at its low point in that first year of the new contract.

Bob this is Jon. As trend continues to grow and there has been a lot of discussion about that the slowing down of the generic pipeline, the growth in specialty I think the good news is that we are seeing this in the new business wins, these clients are going to be adopting our programs which help them lower our cost but are also good for us and improve our profitability. So we think it’s a win-win and there is good alignment there.

That's helpful. And if I could sneak one in on the preferred networks, a big focus around part D this year. As somebody with a fairly unique vantage point on both as a part D provider, plan provider and then also has obviously a retail network, can you talk about what you're seeing as far as the rise in the appetite for preferred networks? And any notable change in the economics in participating in these preferred networks?

Bob, I think that obviously we have seen an accelerated growth in Med-D. I think from our retail provider side as I mentioned earlier there is going to be a step down in margin associated with participating in those networks as one of the preferred providers and once again I think our retail team has done a very effective job in terms of evaluating the step down in margin against the anticipated share shift and as a result of that there are plans that make sense to participate in a preferred way. There are other plans where it doesn’t make sense. Keeping in mind that all Med-D plans are not equal when you look at the co-pay delta that exist for the beneficiary, the consumer in terms of preferred, not preferred as well as the make-up of that Med-D plan in terms of, if it has a high percentage of low income subsidies they are not subject to the co-pay differentials. I’ll refer to them as the chooser beneficiaries. So I used those as just two examples as well as geographic strength and presence that go into that evaluation.

Our next question comes from the line of Eric Percher with Barclays. Please go ahead.

Thank you. Eric Percher, and Meredith Adler here for Barclays. So question on Specialty Connect now that you have couple of months under your belt as you focused on providing access to the open market, the market where you don’t have captive pair lines, have you focused on actually investing in market to the physician or the patient or is this more in manner just being able to capture scripts that walk in to the doors of the store and I imagine you would have an advantage in that marketing effort given your name brands?

Great question, we’re very happy with how Specialty Connect is performing. We’re seeing a very high level of patient satisfaction and it’s been deployed across our retail stores in specialty pharmacies. Let me say it’s start because there is client component to this also when our clients value this capability and they see this is another differentiated service that we offer and somewhere the maintenance choice has been very successful where we see about 50% of the people want to keep their specialty script up with the local CVS and other half want it sent home. And so realizing most of our important clients are exclusive with us. This is a big benefit that they can give their members. Now when you go to the open market and these are physicians and patients that get to choose our specialty pharmacy. They value service and convenience of Specialty Connect offers. And we have, and have had for years well north of 100 people out working with physicians and talking about the services that we provide and getting their patients started on specialty medications and so this is just we think this just gives us an added advantage in the marketplace because it’s going to be more convenient for their patients and it provides a high level of service for their physicians. So, we’re very bullish on this in both the open market and also the market for our clients we think it gives us an advantage. What’s interesting is that our pharmacy teams love it, because it’s leveraging our integrated assets that no one in the marketplace can and allows them to serve their patients in their local pharmacy and pharma is also very happy with it the inherent results they see in this program because it's equal to or better than what they see traditional specialty pharmacy and better than adherence that they see and normally see in Retail Pharmacy so overall very happy.

It sounds like the value of your commercial basis is quite strong and you’re feeling on the open market is not that this is so much something new but it captures and allows you to capture incremental lives I guess where I’m going is that some of the big players without captive lives have seen a lot of growth in the open market, it doesn’t sound like you think that you’ve left a lot there on the table?

No, we’ve seen a lot of growth in the open market as well. So, we’re growing both segments so very happy, this gives us we think an advantage over the traditional open specialty pharmacy players.

Our next question comes from the line of Mark Wiltamuth with Jefferies & Company, please go ahead.

Hi, good morning. On the specialty story, you said 53% growth here in the specialty business, what’s the organic growth excluding the Coram acquisition and maybe give us a little more color on the drivers behind that growth because that’s a very large number relative to the 20% growth is kind of expected in the broader marketplace?

Hey Mark, it’s Dave. Exclude Coram I think our growth in specialty is about 44% for the quarter so while Coram did contribute to the growth it was not an overwhelming driver of that performance. I’ll flip it to Jon.

And…

So is it mostly Sovaldi?

No, that is one product but that’s certainly that was not the lion share of the growth.

But yes we’ve added new business we’re seeing existing clients primarily health plans narrow their networks they normally have several preferred pharmacy so we’re seeing more interest and pushing more share into our channels and we’re rolling the open business as well as I talked about so we’re very happy with the performance of specialty.

And what's your sense on the awareness out there in the marketplace? Because we did a survey earlier this year and some of the employers still weren't completely tuned into the coming wave of specialty spending.

Clients that I speak to are very aware of it and they’re seeing it in their trend growth so it was something we talked about at our client forum this year. Specialty is their number one priority, they’re looking for ways to control those cost as an example, very high interest and formula strategies but four years ago there wasn’t a real strong interest in, very interested in some of our capabilities around side of care that we can do with NovoLogix. So, yes I think they’re very aware of specialty.

And Mark, I think that has been a step change over the last let’s say 12 months and I think for the reasons that Jon mentioned, they heard it was coming and now that they’re seeing the impact of drugs like Sovaldi they’re very anxious about ways in which we can bend that cost curve if you will.

Our next question comes from the line of Steven Valiquette with UBS, please go ahead.

So seeing the topic of exchanges had thankfully moved to the back burner, but with your disclosure that's roughly $800 million or so of business that was lost to exchanges for 2015. And I guess, at first blush, it seems like a big number but then the fact that it equates to just under 1% of your total annual PBM business, it seems pretty manageable when you put it in that context. So I know it's hard to predict this, but I'm curious do you think that roughly 1% attrition is a reasonable run rate for exchange risk over the next few years? Or could that change higher or lower for any specific reason that you foresee right now? Thanks.

Well, Steve I think it’s important to put this in context I mean I think the Red Oak around people migrate, active employees migrating over to the exchanges but Red Oak around that has quite a down tremendously and other than perhaps small employee organizations we’re not hearing any of that in mid and large size companies. I think as we alluded into in our prepared remarks I think that and it’s not in consistent with what we’ve talked about in the past. I do think that if there is any trend emerging it is employers getting out of the retiree business and I think that’s what we’re seeing back to our earlier comments and it’s kind of hard to put a number on that but I don’t see anything migrating beyond that at this point in time.

And Steve, this is Jon. And just remember we have an opportunity to recapture those lives through our health plan relationships and also for retirees or Silver Script product that as you can see it is very competitive this year. So we think we will do well and some people move into that exchange.

Yes. Steve this is Dave, maybe just one other comment. We could maybe harken back a little bit to the some of the comments we made several quarters ago. If you look at the exchange market and you look at the assets that we have in place across our enterprise, we are very well positioned from the exchange perspective in a sense that one, you obviously can plug in from a PBM perspective. I think about plugging in from a specialty perspective, from a retail perspective, from a clinic perspective, there is a host of assets that we have here that really we can plug and play and really meet the needs of the exchange population and really with our touch points with consumers across the marketplace really allow us to kind of utilize those assets in meaningful ways to drive value for both consumers also plan sponsors in the exchange markets.

Our next question comes from the line of Charles Rhyee with Cowen and Company. Please go ahead.

Thanks. A question here. Just got a couple of follow ups. On the MinuteClinic side, can you talk about any sort of metrics in terms of what sort of your same store visits are looking like for stores that have been opened longer than a year? And also maybe any sort of metrics around one of the referral benefits from your earlier health lines partner has been looking like.

Yeah, Charles we have not broken out your second question in terms of referral visits. I think in our prepared remarks, we've talked about the fact that year-over-year visits were up 30%. Now that is not a comp number we have not broken that out, okay. But I can tell you that, that growth did not come just from new clinics. We are continuing to see healthy growth in clinics that have been open for a couple of years now.

Okay, that's helpful. And secondly just a follow up on sort of the preferred networks in Medicare Part D, it seems like the issue with the contracting here is where you set sort of this overall effective rate on the pricing. It seems like from your comments that you guys have not had as much of an issue in Medicare Part D as you negotiated your way into these preferred networks or chose not to be in them. My question is really around the overall effective rate. I mean it seems like this is a negotiated rate, whether it sort of puts and takes on when you go to health plans to negotiate this, in particular is this, do you give up something for a higher overall effective rate and what you've gained for negotiated more aggressive on? Thanks.

Hey, Charles. This is Dave; maybe I will take that, just one comment. I think we’ve been very disciplined and I think applied somewhat of a sophisticated lens to this activity. As you can imagine, as Larry stated earlier it’s not all Medicare Part D products and benefit designs are created equal. And I think we look at the each one of those designs, we analyze the utilization impact and the share movement impact based on the design and the co-pay differentials and we understand what makes sense for us and what makes sense for our plan sponsor. And we also compare and look at the makeup of that membership base and understand whether it's a low income subsidy base or a chooser base and that creates different dynamics in the marketplace. So we've factored all that in and essentially underwrite our performance there and make choices that we think are economically in the best interest of CVS Health, but also the best interest of our health plans and best interest of the consumers that we serve and I think we have been very disciplined around our approach to that.

Okay. Carlos we will go ahead and take two more questions please.

Very well. Our next question comes from the line of Robert Willoughby from Bank of America Merrill Lynch. Please go ahead.

All right just a quick one. Dave how much of the cash flow benefit for the year might be, might you consider one time in nature i.e. tobacco inventory reduction. And then secondary what's driving the higher accounts receivable days. Is there any opportunity to bring that down?

Yes, a couple of things. One is I don't think there is anything that is necessarily one time in nature per se if any material nature absolutely normal cadence of recoveries for Medicare Part D which is kind of baked into kind of our run rate. So I don't see anything abnormal from a cash flow delivery perspective. And I think both from a receivables and payables perspective I think if we continue to work on a payable side and probably still some opportunities. On the accounts receivable side is really, we are probably constrained a little bit as it relates to Medicare Part D and a performance and requirements around CMS which is probably not a lot that we can do to influence that specifically other than just make sure that we are fully on top of it managing it effectively.

And that's on the retail side.

It’s most on the PBM side frankly.

Fair enough. Okay, thank you.

The next question comes from the line of John Ransom with Raymond James. Please go ahead.

Two questions, what you are guys saying it is too early in terms of the specialty trend for 2015 and how much of that will affected by the lapping of Sovaldi and I have one follow-up.

I think it’s probably little too early to chat about specialty trend in specifics as it relates to 2015. I would say that Jon and his team have been working with client to kind of outline that if you don’t manage specialty trend over the long-term, that you can see trend in kind of the mid-teens level over the next several years but I think that what we have been working with our clients to do is go back and outline a series of steps and activity that they can implement with us that can actually help them manage that trend down to very reasonable levels they chose to do so. And we’ve been very explicit with our clients and working very diligently with them to make sure they understand those tradeoffs.

John the only thing I’d add what Dave said is that, when you look at the 2014 specialty trend I mean it is going to be double digits and so all these going to play a big role in that. And there is, we actually saw on the back half of this year that the utilization in the Hep C market primarily driven by Sovaldi plateau. We’ve seen Harvoni launched already and we’re actually seeing an uptake in utilization and most of that uptake is coming at the expense of Sovaldi. But also there is a new MV product coming out in December that will compete with Harmony. And so our plan is to leverage our formulary strategy and bring cost down and we’ll determine which products one or more actually are on our ‘15 formulary so I think we are going to have a little different dynamic as we move into ‘15 because we’re now seeing competition in the Hepatitis C category.

Right. And my other question was the pushback of Nexium a needle mover in terms of your original guidance for this year and what you're now thinking about for fourth quarter?

It is the push back and it is change to our expectations but I think that shift in that change is fully contemplated our guidance for this year I think the actual launch date of that is recycle into ‘15 is still up in the air quite frankly we are not certain. So we keep posted on that we’ll keep watchful eye on that. We may know more by Analyst Day I think we may not. But we’ll see where we are.

Okay. So with that, once again let me thank everyone for your time today and for your ongoing interest in our company and we look forward to seeing hopefully all of you next month in New York.

Ladies and gentlemen, that does conclude the call for today. We thank you for your participation and ask you to please disconnect your lines.