CVS to favor biosimilars over J&J’s Stelara starting in July By Investing.com

CVS Caremark will prioritize lower-cost biosimilars to Stelara in its most common formulary starting July 1, with most members expected to pay $0 out-of-pocket. The move expands biosimilar coverage across specialty categories including multiple sclerosis and rare blood disorders, supporting cost savings for clients and broader access to therapy. CVS shares fell 1.4% on the day, but the action is structurally favorable for the pharmacy benefit management business.

Analysis

CVS is using formulary control to convert biosimilar adoption into a margin lever, which matters more than the one-drug switch implies. The second-order effect is that Caremark is normalizing a playbook that can be replicated across other high-spend biologics, putting sustained pressure on originators with entrenched list prices and forcing a faster mix shift toward lower-net-revenue products. That should support CVS’s PBM economics over the next 2-4 quarters even if gross client savings limit headline pricing power.

For JNJ, the key issue is not the near-term revenue hit from this one indication, but the precedent it sets for payer behavior in specialty immunology. Once a major PBM proves it can steer volume into interchangeable biosimilars with minimal member friction, the risk is that contracting leverage migrates away from branded incumbents across adjacent categories, compressing pricing power more broadly than the market tends to model. The downside is likely to show up gradually through 2025 as formulary renewals roll through, not in a single quarter.

The contrarian read is that CVS’s stock reaction may understate the durability of this move: the company is monetizing the most underappreciated asset in pharma distribution, which is channel access. The main risk is political/regulatory backlash if payers are seen as forcing switches too aggressively, but the $0 out-of-pocket framing reduces consumer pushback and makes reversal unlikely unless biosimilar efficacy or supply reliability becomes an issue. The bigger tail risk for CVS is execution — if biosimilar sourcing or service levels slip, the optics of savings can quickly flip into member abrasion and client dissatisfaction.

Key Decisions for Investors

• Go long CVS vs. short JNJ as a 3-6 month relative-value pair: CVS should keep monetizing PBM steering while JNJ faces incremental biosimilar erosion; target 5-8% outperformance for CVS with a tight stop if biosimilar adoption stalls.
• Add to JNJ only on further weakness if management signals that share loss is contained to a narrow set of specialty assets; otherwise fade rallies into earnings over the next 1-2 quarters, as formulary pressure is likely to persist.
• Buy CVS call spreads 3-6 months out to express a moderate re-rating from improved PBM economics with limited premium outlay; this is best sized as a catalyst trade around formulary implementation and contract renewals.
• Monitor specialty pharma peers with exposed biologics franchises for follow-on weakness; the tradeable risk is a sector-wide multiple compression if payers broaden biosimilar substitution across MS and rare blood disorders over the next 6-12 months.