Raphael Stevens

CVS Health could be starting to turn itself around after a dismal 2024.
Its shares are up more than 45% this year, outperforming pharmacy rival Walgreens and other insurers like UnitedHealth Group and Cigna.
The company’s stock plummeted last year, largely due to higher-than-expected medical costs in its insurance unit that hurt its bottom line, but some analysts are more optimistic about the company’s ability to navigate that challenge moving forward.

The CVS pharmacy logo is displayed on a sign above a CVS Health Corp. store in Las Vegas, Nevada, on Feb. 7, 2024.
Patrick T. Fallon | AFP | Getty Images

After a dismal 2024, CVS Health could be starting to turn itself around. 
Some investors seem convinced, especially after the retail drugstore chain on Wednesday posted a big beat on fourth-quarter earnings and a 2025 profit outlook that was in line with expectations. 

Shares of CVS are now up more than 45% for the year, unlike the company’s main retail pharmacy rival Walgreens, whose stock is up nearly 3%. Shares of other insurers UnitedHealth Group and Cigna are up about 4% and nearly 8%, respectively.
The upbeat quarterly results may be a sign that brighter days are ahead for the CVS – or at least that things may not be as bad as they were last year. 
The company’s stock plummeted more than 40% in 2024 after it missed earnings estimates for three straight quarters and withdrew its annual forecast, largely due to higher-than-expected medical costs in its insurance unit, along with other issues like pharmacy reimbursement pressure.
CVS isn’t out of the woods yet. Medical costs were less severe during the fourth quarter but will likely remain elevated in 2025, as more seniors flock to hospitals and doctor’s offices and use more health-care benefits. 
But some analysts are more optimistic about the company’s ability to navigate those challenges moving forward and reach its full-year 2025 adjusted earnings outlook of $5.75 to $6 per share. CVS has pursued store closures and other cost cuts, and its new CEO David Joyner has spent much of his first 100 days at the helm focusing on the company’s insurance unit Aetna. 

“The pieces are in place for [CVS to return] from what has been a bottoming of operations performance,” said Leerink Partners analyst Michael Cherny, who upgraded the stock on Wednesday after the results. 
Cantor Fitzgerald analysts on Wednesday also upgraded CVS’ stock, citing “increased confidence in a successful turnaround.” 

Insurance business woes

CVS has already taken steps to rightsize its insurance business, which includes plans for the Affordable Care Act, Medicare Advantage and Medicaid, as well as dental and vision. The company exited certain unprofitable health plans in 2024, and hiked premiums to enroll fewer members this year. 
In a research note, Cantor Fitzgerald analysts said they are “incrementally more confident” that CVS will improve margins in its Medicare Advantage business and return to “normal levels” by 2027. 
CVS has said it wants to get the Medicare Advantage business back to a 3% to 5% margin. They were in the negative 4.5% to 5% range at the end of 2024, CVS CFO Tom Cowhey said during an earnings call on Wednesday. 
CVS and other insurers such as UnitedHealth Group and Humana have seen medical costs spike over the last year as more Medicare Advantage patients return to hospitals for procedures they delayed during the pandemic. 
Medicare Advantage, a privately run health insurance plan contracted by Medicare, has long been a driver of growth and profits for insurers. But investors have become concerned about the runaway costs tied to those plans, which cover more than half of all Medicare beneficiaries. 
To improve margins, the company plans to shrink Medicare Advantage membership by a “high single-digit percentage” from the end of 2024, executives said on Wednesday. Aetna had 4.4 million Medicare Advantage members as of December, up from 3.5 million the year before, according to the company’s fourth-quarter release.
Overall, CVS executives said they expect to decrease insurance members by more than 1 million this year, including 800,000 in the individual market. Patients who lose insurance can enroll in a new Medicare Advantage plan or join traditional Medicare plans.
Aetna also scored better Medicare Advantage star ratings for the 2025 payment year, which should boost its federal payments in 2026. Those crucial ratings help patients compare the quality of Medicare health and drug plans and determine how much an insurer receives in bonus payments from the Centers for Medicare & Medicaid Services.

CVS Health Corp. acquired Hartford-based health insurer Aetna Inc. in 2018. 
Brad Horrigan | Hartford Courant | Getty Images

On the earnings call, Joyner said the company is pushing for higher payment rates from the government for Medicare Advantage. He said the proposed rates for 2026 don’t account for higher medical costs over the last year. 
The Biden administration in January proposed to increase Medicare Advantage reimbursement rates by 2.2% in 2026, up from the 0.2% drop in rates for this year. But Cantor analysts also said they expect the Medicare Advantage reimbursement rate could rise, projecting a finalized increase of 2% to 2.8%.
“We’re assuming an improving rate environment … maintaining STARS ratings, and [medical] costs trends that do not exceed 2024 levels,” the analysts wrote. 
It is difficult to predict what medical costs trends across the insurance industry will look like in 2025. But higher medical costs are baked into CVS’s full-year guidance this time around. 
The outlook assumes that the trends the company saw in 2024 will carry over into this year despite more favorable medical costs for the company in the fourth quarter, said Tanquilut. 
“The early reads for ’25 or at least late ’24 is that it’s starting to get better. But they did not assume that improvement in the 2025 guidance,” Tanquilut told CNBC. “So it sounds like there’s upside to their numbers for 2025. 
The company last year also said it would make significant changes to its Medicare Advantage plans for 2025, such as increasing copays and premiums and cutting back certain health benefits. That will eliminate the expenses tied to those benefits and drive away patients who need or want to use them.
Other insurers such as Humana, the second largest Medicare Advantage insurer, are similarly culling their plan offerings for 2025 to reduce lower-profit membership. Humana is dropping a staggering 550,000 Medicare Advantage customers in less profitable markets. But the company has said that people who lose access to their existing plans will likely have another Humana Medicare Advantage plan option.

CVS stock outperforms rivals

The Walgreens store at 3646 N. Broadway in Chicago on Nov. 28, 2024. 
Antonio James | Chicago Tribune | Tribune News Service | Getty Images

Shares of CVS are outperforming most of its health-care rivals, both on the insurance and retail pharmacy sides. Jefferies analyst Brian Tanquilut said that is likely due to CVS’ unique position as a company that owns a health insurer, a retail drugstore chain and a pharmacy benefit manager, or PBM, called Caremark.
“I think what they’re starting to show is the real synergy…in owning all three assets,” Tanquilut said. 
PBMs such as Caremark sit at the center of the drug supply chain in the U.S., negotiating drug rebates with manufacturers on behalf of insurers, creating lists of preferred medications covered by health plans and reimbursing pharmacies for prescriptions. 
That means Caremark also sits at the intersection of CVS’ retail pharmacy operation and its Aetna insurer, boosting the competitive advantage of both of the businesses.
For example, Caremark in some cases directs drug prescriptions to CVS retail pharmacies. That has helped the company’s drugstores gain meaningful prescription market share over its chief rival, Walgreens, which has been struggling to operate as a largely standalone pharmacy business, Tanquilut said. 
Other insurers, such as Cigna and UnitedHealth Group, also own PBMs. But the fact that CVS has a retail pharmacy “just pulls it all together and differentiates it from the others,” Tanquilut added. 
That doesn’t necessarily mean that other insurers are underperforming. Tanquilut said UnitedHealthcare, the insurance arm of UnitedHealth Group, is still “best in class” in the industry. 
Other insurance companies have their own hurdles apart from higher medical costs, such as Humana seeing a drop in its Medicare Advantage star ratings for the year. 
But CVS’ story has been much more complicated than other insurers given its business model, and the company could now be reaching a point where “all three of its business segments are clicking,” said Tanquilut. More

As President Donald Trump threatens to further increase tariffs on U.S. trading partners, the greatest impact for the auto industry outside of North America would be additional levies to South Korea and Japan.
The East Asia countries produced a combined 16.8% of vehicles sold last year in the U.S., including a record 8.6% from South Korea and 8.2% from Japan.
Cars imported from South Korea currently have no tariffs, while those imported from Japan are subject to 2.5% duties. Truck imports for the countries are 25%.

President Donald Trump welcomes South Korea’s President Moon Jae-In at the White House in Washington, U.S., May 22, 2018.
Carlos Barria | Reuters

DETROIT — As President Donald Trump threatens to further increase tariffs on U.S. trading partners, the greatest impact for the auto industry outside of North America would be additional levies on South Korea and Japan.
The East Asian countries produced a combined 16.8% of vehicles sold last year in the U.S., including a record 8.6% from South Korea and 8.2% from Japan, according to data provided to CNBC by GlobalData.

They were the largest vehicle importers to the U.S. outside of Mexico — and they have little to no duties compared with the 25% tariff Trump has threatened imposing on Canada and Mexico.
Automakers such as General Motors and South Korea-based Hyundai Motor export vehicles tariff-free from South Korea. The country overtook Japan and Canada last year to become the second-largest exporter of new cars to the U.S., based on sales.
It trails only Mexico, which represented 16.2% of U.S. auto sales in 2024, GlobalData reports.
“Obviously Hyundai has a massive amount of exposure. Behind it is GM … with relatively large volume models,” said Jeff Schuster, global vice president of automotive research at GlobalData. “There’s a lot of risk potentially here, but it’s limited, really limited, to those two players.”

Imports from Japan are currently subject to a 2.5% tariff for automakers such as Toyota Motor, Nissan Motor and Honda Motor. Vehicles from Japan represented about 1.31 million autos sold last year in the U.S.

Japan’s percentage of sales has actually decreased in recent years, while South Korea’s exports and sales have continued to rise from less than 845,000 in 2019 to more than 1.37 million in 2024.
South Korea has 0% tariffs on cars despite Trump renegotiating a trade deal with the country during his first term in 2018. That accord was touted for improving vehicle imports to South Korea, but it did little to address vehicle exports to the U.S.
The deal also has done little for increasing automotive exports to South Korea, according to data from the International Trade Commission. U.S. passenger vehicle exports to South Korea have actually decreased by roughly 16%.
Separate from cars, tariffs on trucks exported from South Korea and Japan to the U.S, as well as elsewhere, are 25%.
A tariff is a tax on imports, or foreign goods, brought into the United States. The companies importing the goods pay the tariffs, and some experts fear the companies would simply pass any additional costs on to consumers — raising the cost of vehicles and potentially reducing demand.

GM, Hyundai

South Korea-based Hyundai is the largest exporter of vehicles to the U.S., followed by GM and then Kia Corp., a part of Hyundai that largely operates separately in the U.S.

GM has notably increased its imports from South Korea in recent years. Its U.S. sales of South Korean-produced vehicles — largely entry-level models — have risen from 173,000 in 2019 to more than 407,000 last year, according to GlobalData.
GM is the largest foreign direct investor in Korea’s manufacturing industry, according to the automaker’s website. It has invested 9 trillion South Korean won (roughly $6.2 billion) since establishing the operations in 2002.
GM produces its Buick Encore GX and Buick Envista crossovers, as well as the Chevrolet Trailblazer and Chevrolet Trax crossovers, at plants in South Korea. The company has touted the vehicles as being a pinnacle for the automaker’s profitable growth in lower-margin, entry-level vehicles.

2024 Chevrolet Trax (left) and 2024 Buick Envista
Michael Wayland / CNBC

“We’re taking out costs of programs, improving profitability and creating vehicles that customers love, like the new Chevy Trax and the Buick Envista,” GM President Mark Reuss said during the company’s investor day in October. “Trax and Envista have helped raise our share of the U.S. small SUV market to its highest level since 2007.”
Hyundai did not immediately respond when asked about potential tariffs on South Korea. GM and Kia declined to comment.
Terence Lau, dean of the College of Law at Syracuse University who previously worked as a trade expert for Ford Motor, said the automotive industry is built on free trade. If tariffs are implemented, the industry can adjust, but it takes time.
“The car industry can adjust to anything. Really, it can. It’s always going to make product that customers want to buy, because personal mobility and transportation is a human need all around the world,” he said. “What the car industry cannot do well is pivot on a dime.”
Lau argued that a single-digit tariff can be a “nuisance,” but once they hit 10% or more, that’s when additional costs can really began eating into the margin or products.

Tariff cherry-picking

Ford Motor CEO Jim Farley last week argued that if Trump is going to implement tariffs affecting the automotive industry, it should take a “comprehensive” look at all countries to even the playing field in North America.
Farley singled out Toyota and Hyundai for importing hundreds of thousands of vehicles annually from Japan and South Korea, respectively.

Ford CEO Jim Farley poses for a photo at the launch of the all-new electric Ford F-150 Lightning pickup truck at the Ford Rouge Electric Vehicle Center on April 26, 2022 in Dearborn, Michigan.
Bill Pugliano | Getty Images

“There are millions of vehicles coming into our country that are not being applied to these [incremental tariffs],” Farley said during the company’s fourth-quarter earnings call with investors. “So if we’re going to have a tariff policy … it better be comprehensive for our industry.
“We can’t just cherry-pick one place or the other because this is a bonanza for our import competitors.”
The White House did not respond for comment on potential tariffs on South Korea.
Trump on Thursday signed a presidential memorandum laying out his plan to impose “reciprocal tariffs” on foreign nations, but did not go into detail regarding what countries could be targeted.
As a presidential candidate, Trump floated the possibility of imposing across-the-board tariffs on all U.S. imports. But he also advocated for Congress to pass what he called the “Trump Reciprocal Trade Act,” which would empower him to slap tariffs on the goods of any country that has higher tariffs on U.S.-made goods.
— CNBC’s Kevin Breuninger contributed to this report.

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U.S. investors like Bain Capital Life Sciences and large pharmaceutical companies like Merck are increasingly looking for new medicines in China.
Almost 30% of Big Pharma deals with at least $50 million up front came from China last year, up from 20% the year before and 0% only five years before, according to data from DealForma.
The increase in China deals comes as President Donald Trump and U.S. policymakers pursue protectionist policies in technology like artificial intelligence and semiconductors.

A worker is working on a drug production line at the production workshop of a pharmaceutical company in Meishan, China, on January 30, 2024.
Nurphoto | Nurphoto | Getty Images

A little-known biotech company stunned the biopharmaceutical industry last spring when it declared an “unprecedented” achievement: its experimental cancer drug looked more effective than Merck’s Keytruda in a clinical trial. The company, Summit Therapeutics, licensed the drug from Chinese company Akeso Inc. 
In October, a group of life science investors announced they were putting $400 million into creating a company called Kailera Therapeutics that would develop experimental obesity drugs it bought from Chinese company Jiangsu Hengrui Pharmaceuticals.

Then in a matter of days in December, Merck disclosed it would license a potential competitor to Summit’s drug and a separate experimental obesity pill – both from Chinese companies. 
Suddenly, U.S. companies are racing to find medicines in China. Almost 30% of Big Pharma deals with at least $50 million up front involved Chinese companies last year, up from 20% the year before and none only five years before, according to data from DealForma. 
“That’s stunning to me,” said Chen Yu, founder and managing partner at crossover fund TCGX. “That’s stunning.” 

Yu said 20 years ago, few biopharma companies were interested in China because they considered it a small market. His former firm, Vivo Capital, pioneered the concept of bringing U.S. medicines to the Chinese market.
Today, the movement is going in the opposite direction. He never imagined the proliferation that’s taking place now. 

Investors and industry insiders offer a few reasons for the trend: Chinese companies are creating better molecules than ever before – and more of them. They can start testing those compounds in humans sooner and at a lower price than in the U.S. Buyers have figured out a business model to essentially import the drugs through licensing deals. Venture funding in China has also dried up, forcing biotech companies to do deals. 
One thing all of those people in the industry agree on? This trend isn’t going away.
What’s less clear is what the development means for the U.S. biotech sector. 
Some people contend it’s terrible for American startups if large pharmaceutical companies can find a promising drug in China for a fraction of the price. Others argue competition makes everyone better, and American companies will ultimately reap the rewards of bringing medicines to the market. Either way, the influx could reshape the landscape of the U.S. biopharma industry. 
“It’s kind of a watershed moment where the pharma industry is like, ‘We don’t really need to buy U.S. biotechs necessarily,'” said Tim Opler, a managing director in Stifel’s global health-care group. “We will if it makes sense, but we can buy perfectly good biotech assets through licensing deals with Chinese companies.” 
Bain Capital Life Sciences started making China a priority around 2018, said Adam Koppel, a partner at the fund. The private equity firm saw the Chinese government and the life sciences industry making a deliberate effort to evolve from its historical focus on copycat and fast-follower drugs that mimicked leading drugs to creating new chemical matter that China could export to the rest of the world. 
Since then, Bain has struck six biopharma deals in China. It bought an experimental asthma drug from Hengrui in 2023 and co-launched a company called Aiolos with a $245 million series A funding round. GSK acquired the company three months later for up to $1.4 billion. 
Koppel sees more large pharmaceutical companies growing comfortable with drugs coming out of China as they work with more of them and see their outcomes, he said. Buyers had held back in part because they worried data from China wasn’t representative of a global population and U.S. regulators wouldn’t accept it. 
“As they’re seeing assets then come out, they’re seeing things that are having success, and eventually, as things get approved and used on the market, I think that that concern will become lessened,” he said. 

Piotr Swat | Lightrocket | Getty Images

That narrative was on display when Summit Therapeutics last year said its experimental cancer drug beat Merck’s mega-blockbuster Keytruda in a head-to-head study, a feat no other drug has accomplished. Summit’s trial was conducted exclusively in China, making people question if the results would hold up elsewhere. 
When Summit’s leaders were shopping for a drug they could develop, they made it a point to look in China because co-CEO Bob Duggan had read more new medicines were coming from the country. But it was late 2022, and the U.S. Food and Drug Administration had just rejected a few applications for drugs that were studied only in China, including one from Eli Lilly.
When Summit announced it was licensing the cancer drug ivonescimab from Akeso, people questioned how Summit could do the deal knowing that the FDA would never accept it, said Summit’s co-CEO and president, Maky Zanganeh.
“And suddenly after us, a lot of people opened their eyes,” she said.

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Ivonescimab had already undergone early studies and was in late-stage trials in China when Summit struck the licensing deal. Summit is now running three global phase 3 trials to satisfy the FDA’s desire for drugs to be studied in diverse groups of people. 
Summit’s strategy could become more common. Investors and other industry insiders said one of the draws about doing deals with Chinese biotech companies is they can find molecules that have already undergone early studies at a lower price than in the U.S. So the U.S. businesses know what they’re getting, and they can probably get it for less.  
Gilead spends a lot of time in China looking for assets like it does in the U.S. and Europe, the company’s chief financial officer, Andrew Dickinson, told CNBC. Gilead has seen a “substantial shift” in the quality and quantity of assets being developed in China and being offered to U.S. biopharma companies.
“The transformation over the last five years is real and impressive,” Dickinson said. 

It helps that more Chinese companies need to do deals now. The amount of venture funds raised by the Chinese biotech industry cratered to just $1 billion last year from a peak of $6.3 billion in 2021, according to data provided by TCGX’s Yu. 
“Why would we do any early-stage development in the U.S. anymore?” Yu said. “Why wouldn’t we just get clinical proof of concept in China and then bring it over to the U.S. for the expensive clinical development when we actually know the drug works? And I think that could be a very revolutionary new way for our industry to become more efficient.”
That’s an opportunity – or risk – for the U.S. biopharma industry, depending on who you ask. Some, like Yu, see it as a way to bring down the price of prescription drugs. Others worry it could hobble U.S. companies if Merck and other large pharmaceutical companies pass on acquiring American startups in favor of licensing assets from China.

A worker is working on a drug production line at the production workshop of a pharmaceutical company in Meishan, China, on January 30, 2024. 
Nurphoto | Nurphoto | Getty Images

The day in December that Merck announced it was licensing an experimental obesity pill from China’s Hansoh for up to $2 billion, shares of U.S. company Viking Therapeutics plunged 18%. Viking is seen as an acquisition target since it’s developing drugs in the red-hot obesity space, and suddenly it looked like one possible suitor had chosen to spend its money elsewhere. 
People see parallels to what happened in the artificial intelligence space when China’s DeepSeek declared it had created a model that was just as good as U.S. models for much less than American companies are spending. 
President Donald Trump or U.S. policymakers could see the similar trend in biotech as a threat and intervene to stop these deals, what Yu calls the “stroke of a pen” risk. Lawmakers last year floated the Biosecure Act that would have restricted U.S. companies from working with Chinese contract manufacturers. 
Washington has already embraced protectionist policies in other competitive areas like artificial intelligence and semiconductors. It’s possible that could extend to life sciences. 
“The deeper message from DeepSeek is that we have competition in the high sciences in general, and moreover that China is making major investments to develop scientific assets,” said Stifel’s Opler.
Put another way: the race in biopharma is on.

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