Drug store chain CVS' landmark acquisition of pharmacy benefits manager Caremark Rx two years ago has given the company enormous power as the largest U.S. buyer of phamaceuticals, while it has yet to reshape the pharmacy services industry landscape as some expected.

CVS Caremark Corp. (CVS) has translated its buying power into a selling point and is gaining both retail and pharmacy benefits customers. The nearly $27 billion merger, however, hasn't driven a major shift in market share, stopped growth at rival PBMs or prompted similar retail-PBM mergers.

CVS Caremark shares have fallen since the deal closed March 22, 2007 - less steeply than those of rival drugstore chains - while stand-alone PBM stocks climbed. The company in January issued disappointing 2009 earnings guidance after it repriced a significant portion of its PBM contracts to lock in major clients.

Some industry watchers, however, believe the merger may yet show a significant advantage to marrying a retailer and pharmacy benefits manager, as CVS Caremark, which logged $87.5 billion in revenue last year, introduces services that link the two operations.

"From what I can tell the jury is still out whether the retail-PBM combination works strategically for payors and consumers. I think at one level it's been a big win at CVS Caremark behind the scenes," Pembroke Consulting President Adam Fein said, noting CVS' great leverage in buying generic and branded drugs. The company makes almost 20% of generic purchases in the U.S., he said.

CVS Caremark, the single biggest customer for drug distributors McKesson Corp. (MCK) and Cardinal Health Inc. (CAH), is expected, for example, to squeeze wholesaler margins as it signs new wholesaler contracts. The current distributor pacts expire this year, and an announcement on new contracts is expected soon.

What's unclear is whether that muscle, or any of the new services CVS Caremark is introducing, will result in significant PBM or retail pharmacy market transformation.

"There's not a lot of evidence that the (PBM) market has shifted to a combined business model versus the independent PBMs," Fein said.

CVS Caremark Chairman and Chief Executive Tom Ryan said the combined company, which added 95 pharmacy benefits clients last year, has overachieved on its planned costs synergies. "We're probably halfway through the revenue synergies," he told Dow Jones Newswires.

CVS Caremark's PBM is gaining market share, putting aside a major federal employee contract it lost around the time of the merger, because employers are drawn to the company's ability to lower healthcare costs and provide workers with better access to services, Ryan said.

"We're the largest purchaser of prescription drugs in the country now and certainly our ability to leverage that scale both on the brand side and the generic side has helped us," Ryan said.

Employee benefits consultants note CVS Caremark's very aggressive price offerings to PBM clients, although that doesn't necessarily guarantee a contract. PBMs handle prescription-drug benefits and transactions for employers and their employees. They sell themselves on their ability to help reduce healthcare costs.

"CVS Caremark became extremely competitive in prices. They're very, very hard to beat," said John Malley, national practice leader of pharmacy benefits consulting at Watson Wyatt Worldwide Inc. (WW).

That doesn't mean CVS Caremark wins all the bids, though, and Malley doesn't think the merger has had a significant influence one way or the other on his major corporate clients' PBM selections.

In recent months, CVS Caremark, which operates the most retail pharmacies in the U.S., has started to introduce services aimed at using the merger to enhance PBM member convenience, prescription compliance and savings - such as allowing members to pick up drugs at a CVS store at mail-order prices or providing discounts to certain over-the-counter CVS store purchases.

While millions of PBM members are using the new services, the offerings haven't yet remade either the retail or PBM side of CVS Caremark. CVS stores are "definitely gaining market share" from competitors, Ryan said, and lead the industry in pharmacy and front-end same-store sales growth. There is no evidence, however, that the PBM is driving significantly more retail business, he said.

Nor has the merger stopped stand-alone PBM competitors Medco Health Solutions Inc. (MHS) and Express Scripts Inc. (ESRX) from winning and keeping business. Medco's CEO last month said Medco was gaining market share from all competitors; meanwhile, the Express Scripts' CEO has criticized the retail-PBM model because of the perceived conflicts in running both businesses.

Since the merger, shares of Medco and Express Scripts have performed better, recently up 10% and 11% respectively, than CVS, down 21.5%; however, CVS has done better than retail rivals Walgreen Co. (WAG), down 48%, and troubled Rite Aid Corp. (RAD), down 94%. The Standard & Poor's 500 index is off 45%.

-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285; dinah.brin@dowjones.com