Dive Brief:
Cigna CEO David Cordani threw cold water on speculation that the health insurer is interested in acquiring rival Humana during a call with investors on Thursday.
Despite reports earlier this fall that the two payers had reopened deal talks, Cigna plans to use excess cash to buy back shares, Cordani said while discussing Cigna’s third quarter results.
Cigna handily beat Wall Street expectations in the quarter with revenue of $63.7 billion, up 30% year over year after strong demand for specialty drugs spurred growth in its health services division. However, an investment loss of $1 billion tied to the waning value of primary care chain VillageMD drove Cigna’s profit down to $739 million, compared to $1.4 billion same time last year.
Dive Insight:
Cigna continues to sidestep significant pressures that have slammed its health insurance peers this year. The majority of the Connecticut-based payer’s business is with employer clients, which has sheltered Cigna from the worst of turbulence in Medicare Advantage.
Cigna — which is getting out of Medicare coverage altogether — appears to have little interest in stepping back into the fray by acquiring Humana, despite Bloomberg reporting in October that the two companies had resumed discussions around a potential transaction.
“We don’t comment on rumors, but what I will do is be very clear about the actions we are pursuing,” Cordani said. “We continue to deploy our excess free cash flow for share repurchase [and] looking forward we expect to continue to actively repurchase our shares.”
Humana stock fell 4% in premarket trading following the comments, though the company’s shares recovered slightly after the market open.
Meanwhile, Cigna’s health services division Evernorth — which includes major pharmacy benefit manager Express Scripts — continues to reliably grow revenue. Evernorth “anchored” Cigna’s results in the quarter, Cordani said.
Evernorth’s results were bolstered in the quarter by Express Scripts, despite rising criticism of the drug middlemen by antitrust regulators. On Thursday’s call, Cordani skewered recent efforts by the Federal Trade Commission to crack down on PBMs, following through on his pledge earlier this year to more vigorously defend the lucrative business.
“We disagree on the unfounded assertions” being put forth by the FTC, Cordani said, arguing PBMs improve affordability and competition in the drug supply chain.
Express Scripts grew adjusted revenue 50% year over year thanks to the migration of health insurer Centene’s lucrative prescription drug contract, which has boosted the PBM’s results in 2024.
However, the PBM’s margins dragged, with Express Scripts reporting adjusted operational income growth of 9%. The shallower margin trajectory is surprising given the costs of implementing the massive Centene contract should be slowing down, according to Jefferies analyst David Windley.
Cigna “may have just barely satisfied low expectations,” Windley wrote in a Thursday note.
Evernorth also includes specialty pharmacy Accredo, medical benefit manager EviCore and Cigna’s other health service product lines.
Evernorth’s specialty and care services business grew adjusted revenue and adjusted operational income 23% year over year, significantly above its historical performance and Cigna’s long-term guidance for the business.
“While we expected strong contributions in the quarter this performance was above expectations,” CFO Brian Evanko said on the call.
Management attributed the growth to strong demand for specialty drugs, especially for inflammatory, oncological and neurological conditions, along with increasing adoption of biosimilars.
Evernorth continued to see uptake of its interchangeable biosimilar for immune disease drug Humira, which became available for eligible Accredo patients for $0 out-of-pocket cost in June. One-third of eligible Accredo patients are currently on the copycat drug, Cordani said.
Evernorth also plans to offer a biosimilar for immunosuppressant Stelara in 2025, also for $0 out-of-pocket.
“I could envision us using this playbook and approach for additional biosimilars as we look ahead to the coming years,” Eric Palmer, president and CEO of Evernorth, said on the Thursday call.
Evernorth is also banking on continued adoption of GLP-1s, drugs traditionally used for diabetes that have showed efficacy in a variety of use cases, including weight loss.
In March, Cigna announced a cost-sharing agreement for GLP-1s covered in a condition management program, to insulate health plan and employer clients from the soaring costs of the medication — and ensure Evernorth can benefit from continued demand.
That program, called EncircleRx, has already grown to almost 8 million lives, according to Palmer. That’s a significant jump from EncircleRx’s 2 million enrollees as of August.
However, the demand for specialty drugs that boosted Evernorth’s results pressured Cigna’s insurance segment, which provides healthcare coverage for 19 million people.
Cigna Healthcare’s adjusted revenue was up 3% year over year, but adjusted income from operations fell 4% due to higher medical costs.
“All in, we see this as a fairly solid quarter that should leave the company with a reasonable set up into [the fourth quarter] and 2025,” wrote J.P. Morgan analyst Lisa Gill in a note on the results.
Cigna also continues to contend with ripple effects from its $2.5 billion investment in VillageMD two years ago.
The insurer invested in VillageMD, a network of medical chains majority owned by Walgreens, with the goal of creating value-based care arrangements linking its physicians with Evernorth.
However, Cigna has found itself an unwitting victim of VillageMD’s declining value, which has also led Walgreens to consider offloading the provider altogether.
Cigna’s $1 billion writeoff this quarter builds on an initial $1.8 billion writeoff in May stemming from VillageMD’s lackluster growth and decision to close a number of underperforming clinics.
“In hindsight the timing of [the investment], given disruptions in the marketplace … proved to be poorly timed,” Cordani said.
Cigna reiterated its 2024 guidance following the results.
